Is Your Escrow Money Safe? Maybe Not.

You buy a home with an FHA loan.  Every month, you pay not only your principle, but PMI (Private Mortgage Insurance), and property taxes.  When property tax time comes around, the mortgage company takes the money you’ve been paying every month out of the escrow account and pays your taxes.

When you refinance a home, you still have to pay the taxes with your new mortgage company.  We did this recently (more about my refinance next week).  We paid almost a full year of property taxes with our new mortgage company, Bank of America.  And we had a refund of almost the same amount due us from our old mortgage company, Taylor, Bean, and Whitaker.

Last week we received our refund.  I deposited it into the bank.  The bank held it for a few days and then made the funds available, so I transferred money to our ING Savings account.  This morning I woke up to an overdrafted checking account to the tune of $880.00.  What happened?

The Taylor, Bean, & Whitaker Check Bounced

Apparently, the feds raided Taylor, Bean, & Whitaker on August 5th, a couple of weeks after our refinance closed.  They filed bankruptcy on August 24th.  Which leads to the question…what happens to the escrow money?

The very purpose of escrow is to keep funds safe, so they can be used for a specific purpose.  In this case, the funds were to be used to pay property taxes.  But since we refinanced with a different bank, and we paid property taxes into a new escrow account, the money should have been returned to us.  And it should have been no problem, because the point of escrow is to hold money.  The money should have been there.

So what happened to the money?

Colonial Bank is Shut Down by the Feds

Apparently Taylor, Bean, & Whitaker used Colonial Bank frequently.  Mortgage payments were deposited there.  Employees were paid from Colonial Bank.  Sometimes from the same account as the mortgages were deposited into, according to NBC 11.

That doesn’t reassure me that my money and that of many other Taylor, Bean, & Whitaker customers was kept safe.

So the question remains:  What happened to the money?

Taylor, Bean, & Whitaker’s Answer

I called Taylor, Bean, & Whitaker to find out what was going on.  After being on hold for an hour, I finally got through to Ramona.  Yes, she assured me, they were aware that checks were bouncing.  The reason was that the bank they used had ceased and desisted.  (Colonial Bank, perhaps?)  But they are going to reissue checks from a new bank, I was assured.  My new check should arrive in “a few weeks.”

So I asked the obvious question.  “How long is a few weeks?  Three?  Six?”  She told me two.  I’m not holding my breath, but I’ll let you know if the check gets here…and doesn’t bounce.

So what is the fallout?  And what happens to the consumers in the meanwhile?

The Consumers are Left Holding the Bag

I can’t speak for everyone, but I can tell you what life is like for us.  First of all, we had 8 transactions bounce in our checking account with Chase this morning.  Chase charges $25 for each failed transaction, for a total of $200.  But they only charge for the first 6 transactions, I’m told, so the total is $150.

Chase told me they’d give me a one time courtesy credit of $70, which is the maximum they could give me. So I’m out $80.  Fortunately payday is tomorrow, so we’ll be in the black again.  Barely.  My husband’s paycheck will be about enough to cover what we owe at this point, so we won’t be spending any money for the next few days at least.  Fortunately we don’t have any bills due, and our pantry and freezer are stocked, so we’re fine.  I think we have enough gas in our cars, too.

Since I had just moved the money over to ING, I couldn’t transfer it right back.  We had a little extra in ING that should hit our bank account on Tuesday, so by then we should be OK.

I truly feel for those who don’t have an emergency fund at all and for those whose paydays are not tomorrow.  As I was researching this morning, it seems that consumers with their taxes still held at Taylor, Bean, & Whitaker are unsure their property taxes will be paid at all.

It Makes Me Angry

Thousands of families in the United States work hard.  We do the best we can to manage our money. We don’t bounce checks, even when money is tight.  And when our money is put into an escrow account, we trust that it will be kept safe.  And when a financial institution issues a check, we expect that it is good.

And in one moment, when a financial institution hasn’t performed ethically, and a bank is shut down, and a lender declares bankruptcy, the lives of hundreds of consumers are turned upside down. We’re left without our money, that we worked hard to earn.  We’re left with overdraft fees to pay.  Fees that are not our fault.  We’re left wondering whether we’ll need to come up with another $1500 by November, so our property taxes will be paid.

We have to cut through the red tape.  We waste an hour of our morning on the phone, just to find out where the money went.  We wonder whether this is in any way covered by the FDIC.  We wonder if the check we’ve been promised will indeed show up in the mail.  And if it does, we wonder if it will bounce again.

I’m glad we’re going to be OK.  We’re tight, and the next couple of months will probably be rough, but I know we’ll survive this.  But I also know there are families out there devastated by this.  Families who will be reeling from this bank failure for months to come.  And my heart goes out to them.

Photo by Mike Licht, NotionsCapital.com.