Introduction
Impound refers to an escrow account which a mortgage company maintains to collect certain amounts, such as insurance and taxes on a property. These are not part of the agreement, but the collections are for the safekeeping of the home. The monies are held in escrow for payment to third parties on behalf of the mortgagor.
Understanding Impound
The amounts collected by mortgage companies are roughly less than 20%, and an impound account seeks to protect the mortgage companies. In mortgages, the borrowers make small down payments making the business of mortgage lending a high-risk business. The lenders maintain an impound account to ensure that they do not lose the asset due to any loss or third-party lien.
An impound account may be for the lifetime of a mortgage or only until the money in the account reaches 20% of the mortgage value. The lender can also close the impound account. The lender uses the impound account to pay the property tax dues or insurance dues on the property, as the third party claims fall due.
A mortgagor also may find it useful to maintain an impound account. The payments to an impound account are slow and regular throughout the year, unlike the third-party dues which may be a huge sum falling due at the end of the year. The account enables the pooling of small amounts and helps avoid a pinch of high cashflow at a single time.
However, irrespective of maintaining an impound account by a lender, the mortgagor is primarily responsible for the payment of all insurance and tax dues on the property. Hence, in spite of pooling funds in an impound account as per the requirements of a lender, the mortgagor should ensure that the dues are paid on time from the impound account.
Conclusion
The onus of discharge of tax dues and other revenue dues is not on the mortgage company, though the impound account is as per their mandate. Borrowers have a right to verify their impound account balances and the transactions from the accounts.
The collection of monies should be in accordance with the requirements for the payment of third-party dues. Any excess amounts collected should be refunded to the mortgagor.
