Can Escrow amounts be added to Princple?

[bvh520]

What is the name of your state (only U.S. law)? New York

I am one of those subprime mortgage holders who have gotten into trouble with my mortgage. My problem was primarily caused by a tax escrow problem. I didn't have an escrow account on the loan, I paid the taxes, but made a mistake and didn't pay a prior year, so my loan servicer stepped in and paid it.

Then they forced a escrow account to collect for the year they paid, the year we were in, and the year forward-in effect collect for three years taxes in one years time period. My mortgage tripled, I couldn't pay it and went into default.

Now my lender agreed to provide me with a modification but the modification would increase the principle owed on the loan by nearly $20,000. When I questioned this they said it was fees, the $4800 owed for taxes paid, AND the back payments (tripled amount) which included over $6,000 that they would have collected from me for my escrow account. It is my understanding that escrow accounts are simply for holding money to be paid to a third party. Is it legal for them to try to tack escrow amounts on to the princple of the loan?

[FlyingRon]

They aren't "tacking" them on to the principle. They are essentially refinancing the loan for you to pay the stuff you owe them (for the taxes they paid) plus to seed the escrow account.
It's legal.

[HomeGuru]

Originally Posted by bvh520

What is the name of your state (only U.S. law)? New York

I am one of those subprime mortgage holders who have gotten into trouble with my mortgage. My problem was primarily caused by a tax escrow problem. I didn't have an escrow account on the loan, I paid the taxes, but made a mistake and didn't pay a prior year, so my loan servicer stepped in and paid it.

Then they forced a escrow account to collect for the year they paid, the year we were in, and the year forward-in effect collect for three years taxes in one years time period. My mortgage tripled, I couldn't pay it and went into default.

Now my lender agreed to provide me with a modification but the modification would increase the principle owed on the loan by nearly $20,000. When I questioned this they said it was fees, the $4800 owed for taxes paid, AND the back payments (tripled amount) which included over $6,000 that they would have collected from me for my escrow account. It is my understanding that escrow accounts are simply for holding money to be paid to a third party. Is it legal for them to try to tack escrow amounts on to the princple of the loan?

**A: there is nothing illegal about taking all amounts in arrears and including the amounts in the new mortgage/modification.

[nextwife]

Reimburse them the taxes they paid for you, and ask them to then back out what is no longer owed and for them to reage the loan. That will put your payments back in line.

[bvh520]

Originally Posted by FlyingRon

They aren't "tacking" them on to the principle. They are essentially refinancing the loan for you to pay the stuff you owe them (for the taxes they paid) plus to seed the escrow account.
It's legal.

Thanks for the reply. I agree that with the 4800 that they paid out to be included in the loan modification. But should monies not paid out - because I paid the taxes directly be added? In effect, money that should have been put aside to pay a third party is now showing up as a liability on my principle. The note they sent me to sign didn't say that they were seeding my escrow with the $6,000 (taxes are 2500 per year so this is more than seeding, it is nearly three years of taxes) it said it was going on my principle.

Let me put it a different way, $600 of the monthly payment was to go to an escrow account. They are now saying that that $600 isn't going into an escrow it is becoming part of the money due them as principle payment. This is after they have already added in the $4800 they paid out.

Thanks again for the replies.

[FlyingRon]

Because of your past failure to pay your taxes, they are requiring the escrow impound. Normally you've got to put the money into escrow out of closing funds. Since you haven't got the money in cash to pay those, they're willing to finance it. It's part of the negotiated loan term modification.

Your other options are to come up with the cash to start the escrow, or somehow convince the bank that they aren't going to risk having you let the taxes go into arrears again. Taxes are a sticky subject because they are usually automatically senior to the mortgage in a foreclosure.