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 principal, interest, taxes, and 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 mortgage payment.
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 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.