What does 'escrow shortage' mean, and why am I being billed for it?

What does escrow shortage mean?

You received a bill for an escrow shortage because your escrow account doesn't have enough money to cover upcoming property tax and insurance payments. Lenders collect escrow payments monthly as part of your mortgage payment, then pay your property taxes and homeowners insurance when they're due. When property taxes increase or insurance premiums go up, the escrow account can run short.

Lenders analyze your escrow account annually to make sure the balance covers the next year's payments. If taxes or insurance costs rose more than expected, you'll see a shortage. The lender typically spreads this shortage over 12 months by increasing your monthly payment, plus asks for a lump sum to bring the account current.

You can pay the shortage amount in full or spread it over monthly payments. Some lenders offer both options. Review the escrow analysis statement that came with your bill—it breaks down exactly how much your taxes and insurance increased and how the shortage was calculated. Contact your lender if any numbers don't match your property tax bill or insurance statements, and they can walk you through the breakdown.