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Question for the Money Doctors

Question submitted on Apr 2, 2012.

Question

Hello I live in CA and my lender shared that I couldn''t remove my escrow acct that they set up until I had 80% loan to value and I am currently at 87%. Is this legal? Thanks.

Answer

Each lender may have different requirements for escrowing additional payments besides just the mortgage payment and/or mortgage insurance. The escrow can include property and homeowners insurance. The advantage of the escrow is that it converts these annual or semi-annual payments into monthly payments. Some lenders are requiring an escrow on the property taxes because many borrowers are not making their property tax payments. One of the conditions of the loan is to be current on your property taxes. If you don''t make the payments, the banks will and set up an escrow for this. The tax collectors are now informing the banks when they don''t get paid.

Generally these escrows have nothing to do with the debt to equity ratio, but the lender can require it.

It is legal for the lender to require this. Please read your promissory note for the procedures to drop the escrow requirements.


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