State of Illinois Mortgage Escrow Regulations

Found This Helpful

For many homeowners who make monthly mortgage payments, it is easier to escrow their property taxes. When borrowers escrow, they send a portion of their real estate taxes (usually one-twelfth), along with a twelfth of their annual property insurance payment to their lenders with each monthly mortgage payment. When the bills are due, the lender uses money in the escrow accounts to pay the city or county taxes and the insurance company. While the concept of escrowing for property taxes is the same across the country, most states have specific laws stating how each escrow account must be handled. In Illinois, the laws are set forth under the state Escrow Account Act of 1978.

Lender Requirements

  • In Illinois, when borrowers send partial real estate tax payments to their lenders, funds are required to be held in an escrow account and are not permitted to be used for any other purpose. Lenders must agree to keep borrower payments in the escrow accounts and pay real estate taxes when they are due according to each tax bill they receive.

Borrower Requirements

  • According to the Illinois Escrow Account Act, borrowers must send their lender one-twelfth of the total amount of their real estate taxes. When there is not enough to cover tax bills when they are due, lenders must notify borrowers of deficiencies and shortfalls must be brought current by each homeowner. This is common when monthly escrow payments follow increases in property taxes.

Cancelling Escrow Accounts

  • In Illinois, an escrowing borrower may cancel their escrow account when a mortgage has been decreased by 65 percent of its original principal amount. When this occurs, borrowers are responsible for paying their own real estate taxes when they come due. If the borrowers fail to pay taxes when they are due after an escrow account has been cancelled, lenders have the right to reinstate the original account. This sometimes results in escrow payment increases until accounts are replenished.

Interest Bearing Savings Accounts

  • Depending on the guidelines of each lender, borrowers are given an option, at the time they file a loan application, to open an interest-bearing savings account or other account to be used for payment of real estate taxes. When this occurs and the borrowers wish to escrow later, they may do so. However, this often comes with initial deposit requirements and/or an increase in monthly tax installments.

References

Comments

Resources

  • Photo Credit house ,home image by Greg Pickens from Fotolia.com

You May Also Like

  • What Is Escrow?

    When two parties in an agreement or contract have financial dealings, they may set up an escrow account that's monitored or governed...

  • Mortgage Escrow Laws

    Contributing funds to an escrow, reserve or "impound" account is part of Federal Real Estate Settlement Procedures Act of 1974, or RESPA....

  • California Escrow Rules & Regulations

    The California Financial Code, under Division 6, Section 17000, outlines the official rules and regulations concerning escrow law. Escrow offers a neutral...

  • Laws About Escrow Accounts

    A big issue in business is trust. This is especially the case when it comes to paying. Whether you are about to...

  • What Is a Rental Escrow Account?

    A rental escrow account is a specific type of bank account established by court order, order of a local municipality or agreement...

  • Requirements to Be a State of Illinois Firefighter

    Becoming a firefighter in Illinois is a rigorous process but one that is well worth it for those who want to take...

Featured

Read Article

West Elm Hacks to Get the Look for Less