Can a Mortgage Company Add an Escrow Account to My Mortgage Without My Consent?

If you're like most American homeowners, your mortgage is the single largest obligation that you'll ever carry. Unless you purchase a private plane or yacht, it's unlikely that you'll ever own something as expensive as a piece of residential property. Of course, you could own a more expensive home after choosing to expand into a larger space. Nevertheless, you may never own a physical asset that's worth as much as a house.

This fact might give you pause. After all, home ownership is expensive. If you're worried that you'll become unable to afford your property taxes or mortgage payments at some point in the future, you may wish to stick to renting for the time being. On the other hand, the historically-weak housing market presents excellent opportunities for buyers who are willing and able to shoulder the risk associated with owning a home. Once you've purchased your home and settled into your new life as a homeowner, you might be pleasantly surprised by the hidden perks of domestic living.

Then again, your worst fears about your ability to handle your mortgage and property-tax obligations might be realized. If you begin to struggle to pay either of these recurring obligations, you might soon come into conflict with your mortgage lender.

Your mortgage lender has the legal right to set up and administrate an escrow account to satisfy your mortgage debts. Your mortgage-related escrow account can also be used to satisfy your annual or semi-annual property-tax obligations. In order to utilize this tool, you'll make periodic deposits into this account. When your monthly mortgage payments come due, your lender will withdraw the proper amount from this account and update your bill to reflect the payment. Likewise, your lender will use the same procedure to satisfy your property-tax debt.

When you take out your mortgage, you can opt out of this arrangement by requesting a "no-escrow" mortgage. This prevents your lender from setting up an escrow account that automatically pays your mortgage and property-tax obligations at regular intervals. Such an arrangement is perfectly legal and increasingly popular.

Unfortunately, your "no-escrow" lender remains legally obligated to set up an escrow account to satisfy any delinquencies that may arise during the life of your mortgage. If you've fallen behind on your property taxes, your mortgage lender will pay the taxes on your behalf. It will then use this newly-created escrow account to demand repayment for its generosity. If you ignore this request, your lender could initiate foreclosure proceedings.

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