Foreclosure

• Foreclosure is a legal action that mortgage lenders use to reclaim real property. To avoid foreclosure a borrower is required to make each monthly payment, as agreed. A lender that anticipates receiving a complete payment, encompassing principle and interest, as well as an escrowed portion for taxes and insurance, expects to receive a lump sum to cover the required monthly payment. If a homeowner remits less than a full monthly mortgage payment, most mortgage lenders will apply the amount paid toward principal and interest before making contributions toward your escrow account. Typically, subsequent mortgage payments for less than the required amount will continue to get applied toward your principal balance.
  
  

Escrow Payment

• A payment escrow is often required for a buyer who obtains a mortgage loan that exceeds 80 percent of his property's loan-to-value. Your mortgage servicer will send a monthly statement that reflects your principal loan balance and your required monthly payment. Payments are accumulated in an escrow account until your homeowner's insurance or tax bill becomes due. Your mortgage servicer will debit your escrow account and forward a payment for your homeowner's insurance premium or your property taxes.
  
  

Escrow Analysis

• An escrow statement is typically mailed each year or as payment changes warrant a new analysis for your account. If your loan servicer receives a revised invoice from your tax assessor or from your homeowners insurance company, adjustments are made to compensate for the changes. For example, if your principal and interest payment equals $1,000 per month and your escrow payment equals $200 per month, your loan servicer will expect that your payment for $1,200 will arrive as agreed. If your tax assessor sends an invoice that reflects a $120 increase for the upcoming tax year, your loan servicer may re-calculate your escrow to reflect a $10 monthly increase ($120 per year divided by 12 months equals $10 per month). This increase would require you to make payments that equal $1,210 per month ($1,200 plus $10 increased escrow amount equals $1,210). Your loan could become delinquent if you continue to pay the former payment. A prolonged payment shortage might lead to a loan default or foreclosure.
  
  

Considerations

• Consistent mortgage payments for the required amount could keep your loan in favorable standing with your home lender. Speak with your lender if you are unable to make timely mortgage payments due to an escrow requirement. Your lender may provide a temporary solution to help restore your loan standing or devise a payment plan that could help you avoid foreclosure.