What is an escrow account?
An escrow account is a trust account held in a Georgia borrower’s name to pay obligations such as homeowner’s insurance and property taxes. A homeowner makes monthly contributions to an escrow account as part of his or her home mortgage payment.
The amount of this monthly contribution usually equals 1/12 of the annual obligation. For example, assume that an Atlanta homeowner has an annual property tax bill of $3,000.00 and an annual homeowner’s insurance bill of $1200.00. Since 1/12th of the annual $3,000 property tax bill is $250, and 1/12th of the annual $1,200.00 homeowner’s insurance bill is $100, this homeowner can expect to have a monthly escrow amount of $350.00 added to his monthly mortgage payment so the lender can pay these obligations when they are due.
The amount of money a lender can require a Georgia homeowner to hold in an escrow account for property taxes, insurance, etc., is limited by the Real Estate Settlement Procedures Act (RESPA). Escrow account regulations also require the lender to provide both initial and annual escrow account statements to borrowers in Georgia and throughout the United States. However, the amount of the required escrow account can change due to increases or decreases in the homeowner’s insurance or property tax bills.
RESPA does not require Georgia borrowers to maintain an escrow account—it is the lender's decision whether the borrower must maintain an escrow account for the purpose of paying property taxes, insurance and other items. A Georgia homeowner who would prefer to pay his or her own annual property taxes or homeowner’s insurance should contact the lender for more information.
Regulations limit only the maximum amount that a lender can require a borrower to maintain in an account, and lenders are permitted to require a cushion, although the amount of the cushion is limited. Lenders do not pay interest on escrow accounts in Georgia.
The disbursement date on an escrow account is the date on which the lender actually pays an escrow item. Lenders are required by law to make escrow account disbursements in a timely manner, on or before the due date to avoid a penalty, as long as the borrower’s payment isn’t over 30 days late. Borrowers should review their annual escrow statement to make sure that all obligations were paid on time.
Georgia Residential Mortgage Licensee #7359
National Mortgage Licensing System & Registry (NMLS) #133589