Got an escrow shortage letter? What it means and your options

Shortage, deficiency, and cushion are different

A shortage means the current escrow balance is below the target balance at the time of the analysis. A deficiency is a negative balance, which can happen when the servicer advances money to pay a bill. The target balance can include a cushion, which federal rules generally limit to one-sixth of the estimated annual payments from the account—about two months. Check which term your letter uses, because the repayment rules differ.

How a shortage can be repaid

For most mortgages with an escrow account, federal rules set the servicer’s options. If the shortage is less than one month’s escrow payment, the servicer may leave it in place, ask you to repay it within 30 days, or spread it over at least 12 months. If it equals one month’s escrow payment or more, the servicer may leave it in place or collect it in equal monthly amounts over at least 12 months, and generally cannot require faster repayment. If your letter offers a one-time payment option, ask how paying it would change the new monthly amount.

Separate the shortage from the new monthly deposit

A new escrow payment often has two parts: the deposit for next year’s projected bills and any amount added to repay the shortage. Paying the shortage can remove the second part, but the first part may still rise if the projected bills are higher. Find both figures on the analysis before deciding what the change will cost each month.

• Compare last year’s projected bills with what was actually paid.
• Find the new monthly escrow deposit and any separate shortage installment.
• Confirm when the new payment takes effect.

Check the bills behind the analysis

Compare the tax and insurance amounts on the analysis with the actual bills from your tax office and insurer. Make sure each bill belongs to your property and policy and was paid once, on time. A shortage can reflect a real increase, a one-time payment, or a mistake; a difference is a reason to investigate, not proof of an error. If something looks wrong, send the servicer a written request for information or a notice of error.

Keep the analysis with your payment records

Save each annual analysis so next year’s comparison starts from real figures. In Lighthouse, document analysis can read an escrow analysis and connect the new escrow amount with your Home Profile. Verify the extracted figures against the servicer’s letter, and contact the servicer about available assistance if the new payment is unaffordable.