Tuesday, June 22, 2010

error in proration or lender escrow?

I did not see a link to allow a new post on your Title Insurance Blog, so I wanted to email you.  I read many of the posts and several came close to my question, but as always a little different.

We recently purchased and closed on a condo.  Afterwards (about 10 days) my closing attorney contacted me about an error found by the seller on the HUD-1.  It was missing prorated insurance on line 409, which was blank on the executed HUD.  They are asking for another $1,300 to cover 10 months of the pre-paid insurance.  I did pay a similar amount into an insurance escrow.  I would expect that the escrow or the new HUD is incorrect and that I would be paying the amount twice.  I would also think that once the closing is completed and signed, my responsibility has been met. 

Any insight would be appreciated.

Hi, Don:  The proration and lender escrow sections of the HUD-1 are separate and distinct. 

The mortgage lender sets up an escrow to pay the insurance bill the NEXT time it is due.  What you want to do is find out when the next invoice will come out for insurance.  Count the number of mortgage payments you will make between closing and the due date.  That's how many months the lender should collect.  They are permitted to escrow a cushion of up to 2 additional months.

If the seller prepaid insurance beyond the date of closing AND your sales contract included agreement to prorate insurance, then you do owe the seller for insurance paid beyond the date of closing.  Errors like this do happen sometimes and if the title insurance agent was forced to take you into court, they would likely win because - if the contract called for it - you made the agreement.

I would check to make sure the mortgage lender was given the correct date for the next insurance bill.  If the seller paid it so far in advance, it's likely that the lender would not have to escrow so much for that item.

Thanks for reading and I plan to post this later today because it will help folks in a similar situation.  ;)


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