What is an Escrow Account?
An escrow account is a separate account established by your lender or servicer,
normally at closing, to ensure the payment of property taxes and insurance.
Each month, the escrow portion of your payment is set aside for when the taxes
and/or insurance payments are due. Your monthly statement shows the portion of
your monthly payment set aside for escrow. When it is time to pay property taxes
or homeowner’s insurance premiums, SPS pays these bills out of the amount set
aside in the escrow account.
What is the benefit of having an Escrow Account?
Escrow accounts are established for payment of property taxes or insurance. An escrow
account guarantees that your payments will be made on time, and allows you to prepare
for the payment of the escrow-paid items over time rather than in lump sum amounts.
Escrow accounts are normally set up at closing, however, you may choose to escrow
your account any time thereafter, provided your account is current and the taxes
and insurance have been current for twelve months.
How do I set up an escrow account on my loan?
Please submit your request in writing, and include the following:
- A copy of all real estate tax and homeowner’s insurance bills associated with the
property
- Paid tax and insurance receipts to show that all taxes and homeowner’s insurance
are paid current
Send your request to:
- Select Portfolio Servicing, Inc.
- Attn: Escrow Dept.
- PO Box 65250
- Salt Lake City, UT 84165-0250
The process should take a minimum of 30 days to complete. You should continue to
pay your insurance and taxes normally until you receive notification that an escrow
account has been officially added to your mortgage account.
How do I remove escrow from my account?
To remove escrow from your account, you must meet the following criteria:
- Your monthly mortgage payments must not have been delinquent for the past twelve
months. A mortgage payment is delinquent if it is received 30 or more days later
than its normal monthly due date.
- You must provide evidence that your insurance and taxes have been paid current for
the next 12 months.
- Your loan-to-value ratio must be 80% or less. A loan-to-value ratio is calculated
by dividing your current unpaid principal balance by the appraised value of your
property. We will use the original appraisal in our calculation unless you wish
to purchase an updated appraisal and submit it with your request to cancel escrow.
- Any deficiency in the escrow account must be paid in full.
Please submit your request to cancel escrow in writing to:
- Select Portfolio Servicing, Inc.
- Attn: Escrow Dept.
- PO Box 65250
- Salt Lake City, UT 84165-0250
Please continue to make your normal monthly payments, including the escrow portion,
until you receive official notification that your escrow account has been cancelled.
How much do I need in my Escrow Account?
-
The amount required in the escrow account is determined by adding together the tax
and / or homeowner’s insurance items that need to be paid throughout the year.
For example, if your yearly insurance premium was $500 and your yearly property taxes
were $2,000, the amount you would need to pay into your escrow account would be
$2,500 a year. This amount is collected monthly, so SPS would divide the total amount
($2,500) by 12 to determine the monthly escrow payment ($208.33). In addition, the
homeowners’ insurance and tax obligations on a property often increase year over year.
In order to proactively ensure that the escrow account will have enough funds to pay
future tax or insurance bills when they come due, we may require up to two additional
monthly escrow payments to be deposited into the escrow account ($208.33 x 2 = $416.66).
This additional amount would also be collected monthly, so SPS would divide it by 12 to
determine the additional monthly funds required ($416.66 / 12 = $34.72). The additional
required amount is added to the monthly escrow payment to determine your monthly
required escrow payment ($208.33 + $34.72 = $243.05).
What happens if I do not make my monthly escrow payment?
Your mortgage requires you to keep the property insured at all times and to pay
your taxes. If you do not pay the escrow portion of your monthly payment, you could
lose your property to tax sale or your property could be uninsured. SPS may, but
is not obligated to, pay the amounts out of our operating funds, on your behalf.
If we do, you will be in default and we may charge interest on these amounts at
your Note rate.
What is an Escrow Analysis?
An Escrow Analysis is a review of your escrow account to determine that enough funds
are being collected to pay the next installments of your insurance premium(s) and / or
property taxes. Depending on changes in your insurance premium(s) or tax rates,
an escrow analysis could result in an increase or decrease to the escrow portion
of your monthly mortgage payment. If your payment must increase to collect the necessary
funds needed to pay the next installment, SPS will provide at least a 30-day notice
before assessing the increase by sending a new escrow analysis statement.
How often does an Escrow Analysis occur?
The Real Estate Settlement Procedures Act (RESPA) requires us to analyze escrow
accounts at least once a year. However, an escrow analysis may occur more often
than once a year in certain circumstances, such as:
- Receipt of a property tax or insurance refund
- Written request from the customer
- Repayment of an escrow shortage
- A customer who was delinquent on their mortgage payments becomes current again
- A customer files bankruptcy
What is a Shortage?
A shortage occurs when your escrow account lacks the necessary funds to pay the property
tax and / or insurance premiums. A shortage is often caused by an unexpected increase
in your annual property taxes or insurance premium(s). If a shortage occurs and you do
not elect to pay it in full in a lump sum payment, the amount of the shortage will be
divided into monthly payments and added to the escrow portion of your monthly mortgage
payment. Any shortage over $25.00 will be spread over a 12 month period.
What is an Overage?
An overage occurs when your escrow analysis is performed and it is determined that
there are more funds in your escrow account than are needed to pay your insurance
and property tax obligations for the year. As long as your mortgage payments are
current, and the overage is $50 or more, the escrow overage will be refunded to
you. Otherwise, the overage will remain in your escrow account.
What is an Escrow Cushion?
An Escrow Cushion is an extra amount that may be allowed by federal or state law
to satisfy any potential increases in your insurance premiums and / or property taxes
while minimizing the impact on your monthly mortgage payment. Utilizing funds collected
in this cushion can assist in maintaining a positive balance in your escrow account.
You have the right to cancel this at any time.
How is my new monthly mortgage payment calculated once an Escrow Analysis is completed?
Your new monthly mortgage payment is determined by adding the following items together:
-
Principal & interest – The principal element of your payment is the amount required
by your Note to reduce the total balance of your account. The interest element is
the amount required by your Note to repay the interest that has accumulated on your
account for the month.
-
Required Escrow – 1/12th of the total amount needed to pay your property tax and /
or homeowner’s insurance premium(s) for the year including anticipated obligation
increases.
- Shortage Payment – The amount necessary to repay an escrow account shortage, if necessary.
What will happen to my Escrow Account if my loan transfers to a different servicer?
The conditions of your Note will not change from servicer to servicer. The unpaid
balance in your escrow account will be transferred to the new servicer. You will
receive a “goodbye letter” from SPS and a “hello letter” from the new servicer.
Both of these notices address escrow.
If you have other questions about your escrow account, contact us
Our knowledgeable representatives can assist you with any questions you have.
- Hazard & Flood Insurance - Contact our Hazard Insurance Center toll-free at 1-800-641-2754
- Mortgage Insurance or Tax Information - Contact our Customer Service Center toll-free at 1-800-258-8602
Lender Placed Insurance (LPI)
Please note the following if you have lender placed insurance (if you do not know if you have lender placed insurance, please contact us at 888-818-6032):
The lender placed insurance we buy:
- May be more expensive than the insurance you can buy yourself.
- May not provide as much coverage as an insurance policy you buy yourself.
- The coverage may only protect the mortgage holder
- This type of policy/certificate insures your structure only
- Does not protect you against injuries that occur on your property
- Does not protect your personal property (i.e., if your property were burglarized it would not cover the stolen property)
If you have lender placed insurance you should immediately provide us with your insurance information. Please contact your agent or carrier and purchase coverage. If you have already purchased coverage, please contact your agent or carrier and have them fax a copy of the declaration page to 1-866-801-8177, or it can be mailed to us at the address shown below. Please make sure your policy references your SPS loan number and ensure that the Mortgagee Clause on your policy reads:
- Select Portfolio Servicing Inc.
- Its Successors And Or Assigns
- PO Box 7277
- Springfield, OH 45501-7277
You may also visit using a PIN number of SPS277 and provide us with your insurance information.
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