Can banks charge interest on negative escrow accounts? (arrears, mortgage, mortgage company)
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Initial loan was w/ Bank A. Loan sold to Bank B. Both loans require the escrowing of funds for insurance and taxes. Taxes increased and when Bank B paid them, escrow account went negative. Escrow therefore increased. But Bank B is also now charging me interest on the negative balance even though they did not pay interest when the balance was positive. There is nothing in my note with Bank A that expressly permits the bank to charge interest. Is what Bank B doing legal? What is my recourse?
In essence your loan increased by the amount of the extra monies they needed to lay out for you in order to protect the your asset. Are you thinking they should do that for nothing? Pay up your escrows and the interest will stop.
Replying to Palmcoasting. My issues are (a) this is not permitted in my agreement with Bank A; (b) they did not notify me before levying the charge; and (c) they are not paying interest when my escrow has been positive by as much as $5,000.
Did you call your mortgage company and ask them? Maybe it is an oversight. They will explain to you why they are doing it and how it applies to your first agreement. Then you can decide what to do.
I don't think they can do that. I realize they put out money and you owed it, but I do not think they can charge interest for a negative balance unless you are aware of it and get notified of the shortage and plans to charge interest. The mortgage has to do an annual amortization to adjust any monthly payments. If there is a shortage, you owe a bigger monthly payment equal to 1/12 of the shortage or get the option of making a one time payment to bring the escrow up to minimum balance.
Did you get notification of the shortage?
Did you get an oportunity to pay the shortage?
Did you get an annual amortization?
I would think if mortgage B did not do those things, they need to return any interst charges.
Initial loan was w/ Bank A. Loan sold to Bank B. Both loans require the escrowing of funds for insurance and taxes. Taxes increased and when Bank B paid them, escrow account went negative. Escrow therefore increased. But Bank B is also now charging me interest on the negative balance even though they did not pay interest when the balance was positive. There is nothing in my note with Bank A that expressly permits the bank to charge interest. Is what Bank B doing legal? What is my recourse?
How did your escrow account go negative at all? Banks don't usually allow that to happen. Banks collect the taxes in advance, and even when they make the payment there is some extra usually sitting in the account. Municipalities don't just up & increase the taxes without an advance tax bill. So how did your escrow go negative in the first place?
There are a few states that the bank is required to pay interest on the escrows but most do not.
Are you positive that it is interest they are charging? I've looked online everywhere and can't find anyone asking about or talking about a bank charging interest. So, first, call the bank and find out what is going on. If you believe it is illegal, you can contact the banking regulators in your state.
It happens all the time Bill. The taxes go up, the insurance goes up, etc. And because they are only allowed to hold a certain amount by law, often times after the first year there is an adjustment that has to be made. Most will give you the opportunity to pay it in one lump sum if small enough, if not, they break it up and spread it out over the monthly payment for the next year, and increase your payment so you won't have the same difficulty in year two. In states like Florida, where taxes are paid in arrears, the bank has no idea what your new assessment will be, so there is often a shortage.
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