Category
How does escrow work, and what is an impound account?
Answer
Money deposited into an escrow account or impound account (which are basically different names for the same thing) established by a lender stays in the account for safe keeping. This kind of account is typically used, for example, to set aside a portion of the borrower’s monthly mortgage payment for paying property taxes or homeowner insurance premiums that are included in those monthly payments. Then when those tax and insurance payments come due the lender pays them on behalf of the homeowner, using funds in the escrow account or “escrow funds.” The lender is, however, required by law to account for every cent in the escrow account and to ensure that the borrower is given regular statements and updates to show the borrower’s credit balance in the account as well as transaction activity.
