Refinances and Refunds
A mortgage refinance pays off your former loan balance with the proceeds from a new loan. If you paid your property taxes and homeowners insurance along with your mortgage payment before the refinance, you're entitled to the remaining balance in the associated escrow account. The escrow account contained reserves, a sort of cushion that prevented the account balance from dipping below zero. Your old lender must send you the surplus amount, or overage, in your account as of the day you paid off the loan.
The Real Estate Settlement and Procedures Act, or RESPA, governs how lenders must handle escrow accounts, surplus amounts and refunds. Your former lender calculates amounts it must deduct from the escrow account to pay your homeowners insurance premium and the latest tax bill. Leftover money should be mailed back to you within 30 days from the date the lender analyzed the account, according to section 3500.17(f) of RESPA.
Lenders vary in their refund processing times, partly due to the amount of time it takes for the lender to confirm payoff and for the payoff funds to clear the banking system. Some lenders have been known to act too slowly in processing refunds, which in some states allows them to continue accruing interest on the escrow account. In the early 2000s, a New York politician introduced a bill that would have forced lenders to refund your escrow proceeds on the day of your refinance closing, assuming you provided seven days' notice, but the bill didn't pass.
Call the Company
If your former lender doesn't refund your check within a month of closing you may have to follow up. Call the lender's customer service department and ask for a status update on the refund. Ensure that it has your correct mailing address. Lenders send refunds to you directly and not to the escrow company that handled your refinance transaction. Lenders are usually happy to help former customers, using their old account numbers. It may also help to have your refinance closing cost statement handy so you can give the exact closing date of your refinance.