August 22, 2004

Dear Mr. Azrael:

My husband and I recently refinanced our mortgage and we were expecting to get back $700 or more from our property tax escrow. At the closing for the refinancing, we had to pay $800 for property taxes.

When we inquired about it, we were told the sum was used to help pay back the remaining loan from the previous mortgage. We cannot understand the figures that were used during the process and would like to have someone look over them. Dear Reader:

When you refinanced your mortgage, the new lender required you to pay $800 into a tax escrow account. A portion of each month's mortgage payment also will be added to this account, so that when your next real estate tax bill is due, there will be sufficient funds held by the lender to pay the tax bill.

At the time you refinanced, you had approximately $700 in a tax escrow account with the old lender. Instead of refunding this escrow money to you, the old lender deducted it from the mortgage balance, which you paid off when you refinanced. If the escrow funds had not been deducted, your mortgage payoff would have been increased by the same amount.

To verify what happened, you will need to review the payoff statement furnished by your lender. If you do not have a payoff statement, you can obtain one either from the old lender or from the title company that handled the refinance transaction. The payoff statement should reflect that your tax escrow was applied to reduce the mortgage balance.

The amount paid to your old lender will be shown on your settlement statement from the refinancing. The amount paid should approximate the amount shown on the payoff statement.

Usually, the title company will calculate the payoff slightly higher than is shown on the payoff statement to pay interest that accrues between the date on the payoff statement and the date funds are received by the lender. Excess payoff money should be refunded to you.

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