What is the difference between an Escrow Shortage and an Escrow Deficiency?

02 Nov What is the difference between an Escrow Shortage and an Escrow Deficiency?

If you don’t understand the difference between an escrow shortage and an escrow deficiency – you are not alone. Many attorneys even get this confused.

Regulation X defines a deficiency as the “amount of a negative balance in an escrow account.” This happens when a mortgage servicer has advanced funds to cover disbursements (such as property taxes, homeowners insurance, association fees, etc.) which causes a negative balance in the escrow account.

An escrow shortage occurs when there is still a positive balance in the account but not enough to pay the estimated items that need to be paid during the next period.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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