HOMEGIRL: The Escrow Mirage

Two years ago I was excited about doing a very adult thing—buying property. I was very anxious to find the place of my dreams. I read real estate books, investment magazines, and articles online. I could not be more ready for the biggest financial investment of my life, or so I thought.

As I had mentioned in a previous post, I was not crazy about the place I chose. I wanted to live in a nice area, but could not afford nice area prices. So I found a fixer-upper in a nice area, bit the bullet and made the decision to turn a dusty rock into a precious jewel.

Luckily I got a promotion a few months into owning this condo which gave me some breathing room while I wrapped my head around the monthly nut I was dishing out. The mortgage was $450 more than what I was paying in rent. But nine months later, the unexpected happened. I got something in the mail called an escrow** shortage notice.

Apparently my property taxes had gone up a bit and to make sure my mortgage company had enough money to cover them (most mortgage companies roll property taxes into your monthly payment and they pay the tax bill when due), they raised my monthly payment by $40. I was pissed, but I could do without $40 extra dollars. Not two months later, I get another Escrow Shortage Notice. This time my monthly payment was going up an extra $300. This was not acceptable.

How can this happen? How can my manageable mortgage suddenly get out of control. I did the right thing, I got a fixed interest rate, none of those “special mortgage products” for me. So I called the city and the lady on the phone told me that my condo complex had not been properly assessed in 19 years. “So you are telling me that I have to pay for 19 years of something the city overlooked”, I asked. “Unfortunately, yes, the whole county is having this issue”, she says.

I am at a loss. Nobody told me this could happen. No book warned me that my property taxes could go up a substantial amount in a matter of months. After months of being angry, I had to let it go. There was nothing I could do to change the situation.

So after three phone calls to Wells Fargo, I found a solution. I asked for an “escrow buy down.” I wanted my monthly payment to be more manageable, so I had to come up with $3000 to get my payment back to what is was when I bought the place. This is not something they offered, I had to ask the same questions several times before they understood what I wanted. What this does is holds my tax money in an account-up front, until the tax bill comes due. So I hustled for six months until I came up with the money and now I can breathe a little.

But this method is not for everyone. My financial advisor told me not to do it again, and said that it was just better to pay the extra every month. Well, that is not better for me. It hurt to see what my payment had become.

The lesson boys and girls is this: expect the unexpected. When it comes to homeownership, always be prepared to handle a costly problem. Be it a new furnace, a new air conditioning unit, a new roof, or an escrow shortage.

I get my new tax bill this month. Pray for me.

**Homeowners with mortgages frequently pay money for insurance and taxes on their home into an escrow account each month. The holder of the mortgage then pays the insurance and tax bills out of the escrow account when the bills are due.


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