What Happens to an Escrow Account When a Home Sells?

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An escrow account is an optional account that allows you to make monthly payments for taxes and insurance to your lender, who then pays the actual tax and insurance bills when they’re due. When you take out your initial loan, your lender will request an advance deposit from you and then calculate a monthly payment based on one-twelfth of your annual property tax and insurance bills, so that when your bills are due, the lender can make the payments. If your loan has an impound account attached to it, and the loan is paid off, the lender must refund any unused portion back to you within 30 days of closing.

How the Escrow Account is Closed

When your home sells, the escrow company handling the sale, sends a formal payoff-request to your lender that lets the lender know your loan will be paid off. The request asks the lender for a formal payoff balance of the principle of the loan as well as any balance that is showing in the impound account. Upon closing, the escrow company pays off the loan balance, and when this payoff is received, the lender is required to issue you a refund of the escrow account balance within 30 days.

Escrow Account Verification

When you receive a copy of the payoff statement from escrow, you should verify that the balances in the account for taxes and insurance are correct. Sometimes your lender will make a payment for taxes or insurance before the due date, and if this occurs, the balances will appear lower than normal. You should notify your escrow company, so that they won’t pay any duplicate tax or insurance bills.

How to prevent Duplicate Escrow Account Payments

If your house is going to close escrow and a bill for property taxes or hazard insurance is due, you should contact your lender and let them know that the bill will paid through escrow at closing. This is to prevent them from paying the bill twice. In some cases, an escrow account has a negative balance, because a bill for taxes or insurance was paid by the lender without having sufficient funds in the escrow account. When this happens, they will request that the deficient balance be paid at the close of escrow.

Considerations

If your loan was paid off, and you haven’t received the balance in your impound account, you should contact the customer service department of your old lender and request a refund. It usually takes most lenders a few weeks to complete the process. Federal law requires that all impound balances be refunded in full within 30 days of the payoff of the loan.

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