Escrow shortages: which statement is accurate?

Escrow shortages: which statement is accurate?

• A. Escrow shortages occur when escrow funds are excessive and cover taxes and insurance.
• B. Escrow shortages may be addressed by a lump-sum payment or by adjusting monthly escrow.
• C. Escrow shortages always require refinance.
• D. Escrow shortages never affect monthly payments.

Answer: (B)

Escrow shortages happen when there isn’t enough money in the escrow to cover upcoming property taxes and homeowners insurance. The standard cure is to either make a lump-sum payment to bring the escrow balance current or to adjust the monthly escrow payment so future deposits rebuild the reserve. A surplus is the opposite situation, where there are extra funds, not a shortage. Refinancing isn’t required just because there’s a shortage, and shortages can indeed affect monthly payments if the escrow portion is increased to cover the shortfall.

Escrow shortages happen when there isn’t enough money in the escrow to cover upcoming property taxes and homeowners insurance. The standard cure is to either make a lump-sum payment to bring the escrow balance current or to adjust the monthly escrow payment so future deposits rebuild the reserve. A surplus is the opposite situation, where there are extra funds, not a shortage. Refinancing isn’t required just because there’s a shortage, and shortages can indeed affect monthly payments if the escrow portion is increased to cover the shortfall.