American Home Mortgage Escrow Problems?

You played it smart and were cautious. You have a fixed rate mortgage and escrow account for taxes and insurance. Everything is as it should be, NOT. Bankrupt American Home Mortgage is in the news again. This time the funds held in escrow to pay property tax and insurance premiums were frozen by bankruptcy courts. At least that is one of the things we are being told. Mortgage companies pay approximately 60 percent of tax bills through an escrow system, and the treasury department is wondering how escrowed payments got tied up in a bankruptcy.

The company hasn’t publicly explained why seven of its checks covering $104,500 worth of property taxes bounced. Baltimore Sun reported Sept. 17, 2007 on American Home’s bounced checks. Some of the checks have been replaced with certified checks that were accepted and completed payment for the taxes. Funds for escrow are typically held in segregated accounts and are not for discretionary use by the mortgage servicer. Any use of the escrow funds other than to pay homeownersÂ’ insurance and taxes would be misappropriation.

If you have a mortgage serviced by American Home Mortgage expect turbulent days ahead. Ultimately it is the property ownerÂ’s responsibility to pay taxes and insurance. If the escrow pays late, property owners are responsible for late fees and penalties. Be aware of when your insurance premium and taxes are due confirm they are paid. Assigned risk insurance is much more expensive than a homeowners policy you negotiated for yourself. If property taxes are not paid, you run the risk of the additional fees and interest caused by a tax sale or forfeiture of the property altogether.