With the majority of standard mortgages, the total monthly mortgage payment
typically includes payment for what is generally referred to in the mortgage
industry as “PITI,” or
insurance. The principal is the amount that the lender actually loaned you when
it gave you the mortgage loan. The interest is the business profit that
the lender makes off of you for agreeing to give you the mortgage loan.
The taxes and insurance are typically escrowed into the total monthly
Escrow involves setting aside a portion of the total monthly mortgage payment
for costs that the lender is not obligated to cover but that must be paid
by any homeowner as part of the responsibility of owning a home. Property
taxes are imposed by the government and must be paid to avoid foreclosure
of a government tax lien. Insurance coverage is required to restore the
home in the event of unforeseen damage, such as vandalism, fire, wind
and flood. Most lenders will always require proper insurance coverage
as a condition of providing a mortgage loan. Additionally, without insurance
coverage, the average homeowner may be unable to independently afford
the necessary repairs to a home that has suffered damage from vandalism,
fire, wind and/or flood. Ideally, whenever the homeowner submits a monthly
mortgage payment to the lender, the lender keeps those portions of the
payment that are for principal and interest, and then forwards to the
appropriate government entity and the insurance provider those portions
of the payment that are for escrow of taxes and insurance.
A common misconception among homeowners who have taken out a mortgage loan
against the property is that the lender is supposed to pay the taxes and
insurance. The lender is not obligated in any way whatsoever to pay the
taxes and insurance; the homeowner is always responsible for such costs.
The mortgage loan documents, however, typically permit the lender to pay
the taxes and/or insurance to protect its collateral (that is, the property
itself) for the loan in the event that the homeowner fails to pay the
property taxes and/or maintain property insurance.
If the lender is placed in the position of having to pay the property taxes
and/or property insurance because the homeowner failed to do so, the lender
will add the amount of such costs onto the outstanding mortgage loan balance,
ultimately resulting in the escrow portion of the monthly mortgage payment
increasing, often substantially. If the total monthly mortgage payment
increases beyond the homeowner’s ability to pay, then the mortgage
loan will go into default, and the lender may thereafter file a foreclosure lawsuit.
It is therefore important to understand that you, as the homeowner, are
responsible for ensuring that the property taxes and insurance are paid.
It is not the lender’s obligation to pay for the taxes and insurance,
regardless of whether the lender has included escrow for taxes and insurance
as part of your total monthly mortgage payment.
Sometimes, however, the lender inadvertently makes accounting errors and
may incorrectly believe that you have a shortage in your escrow payments,
thus wrongly marking your mortgage loan account as being in default and
proceeding with filing a foreclosure lawsuit against you.
If you are facing foreclosure due to issues with your mortgage escrow payments,
regardless of the underlying reason, we welcome the opportunity to meet
with you during a free consultation to discuss what options you may have.
For more information about foreclosure defense,
click here. Loan Lawyers, LLC has helped over 5,000 South Florida homeowners and
consumers with their debt problems. Please do not hesitate to
contact us to see how we may be able to help you: