Q&A: Questionable “Reserve Requirement” on my Annual Escrow Account Statement…

Q: The other day I got my annual escrow account review on my mortgage from the bank. Much to my surprise, the bank added a reserve requirement of $649 per year — which it said is allowed by federal law to maintain for unexpected costs. So I called them to complain. I got disconnected twice while being transferred to a customer service representative. The third time I got connected to the escrow department. I asked them to tell me the specific law that allows the bank to do this. Instead, they offered to remove the fee. Can you believe this?

Ric: What I find hard to believe is that you showed so much persistence and determination — and that you won.

Most people would have just paid the extra fee. So good for you!

Mortgage lenders pay the taxes and insurance premiums for the homeowner — and they collect this monthly throughout the year, even though the bills themselves are paid only once annually. This method allows the lenders to earn interest on the money — good for them but bad for you.

The practice is understandable. As the lien holder on the property, the bank wants to make sure that you pay your taxes (so the government doesn’t take it for failure to pay) and insurance (so the property will be covered in the event of a fire or other disaster). After all, it’s your house, but it’s the bank’s money — and it’s trying to protect its investment. But the practice does allow the bank to collect interest on your money, and some banks try to exploit the situation for their benefit, as you discovered.

So good for you for complaining. I hope others follow your lead and do likewise.