Should mortgage borrower have an escrow account?

DEAR BOB: I am in the process of refinancing my home loan to reduce the interest rate. The mortgage lender asked if I want an “escrow account” for the property taxes and fire insurance. I’ve never had an escrow account before. As I understand it, I would pay one-twelfth of the annual property tax and insurance premium each month along with my mortgage payment. Then the lender will pay the property taxes and insurance bills when they come due. However, the lender insists on having a two-month reserve in the escrow account. My wife thinks this is a bad idea. But the lender says if we don’t have an escrow account we must pay a $750 “escrow waiver fee.” What should we do? – Gordon S.

DEAR GORDON: Mortgage escrow accounts are rip-offs for borrowers. They are financial bonanzas for mortgage lenders because they get the free use of your money until the property tax and insurance payments come due.

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To make matters worse, many mortgage lenders are notorious for failing to pay the property taxes and insurance bills on time, thus incurring late fees that they deduct from their borrower’s escrow impound account balances.

In the last year or so, mortgage lenders created a new junk or garbage fee called the “escrow waiver fee” for allowing borrowers to pay their property taxes and insurance bills directly.

If you really want that refinanced mortgage, your lender can insist on either an escrow account or your payment of the escrow waiver fee (which is 100 percent pure profit to your lender). I am not aware of any state that prohibits such fees, but each state should enact a statute barring this borrower rip-off.

MUST HOME SELLER PAY REALTOR’S $495 ADMINISTRATION FEE?

DEAR BOB: I recently sold my home and was very satisfied with my listing agent’s service. There were some problems, but my agent’s positive attitude resulted in a successful closing with a very difficult buyer. However, on my closing papers there was a $495 “administration fee” payable to the Realtor, in addition to my 6 percent sales commission. When I questioned this, my listing agent said it is for the services of the listing office, including Multiple Listing Service and other expenses. I’ve never heard of this before. I reluctantly paid it. But after talking with friends, they say I should sue the Realtor for a refund. Your advice – Rudi S.

DEAR RUDI: That $495 administration fee is a Realtor “junk fee,” which goes straight into the broker’s pocket. However, it doesn’t go to your listing agent so don’t blame him or her.

There is no valid reason why a real estate brokerage firm should charge a $495 administration fee, on top of the 6 percent sales commission you paid. Unless that fee was itemized in your listing agreement, I would send a polite demand letter to the broker (not your superb agent) demanding a $495 refund check within 10 days.

If you don’t receive it, take the broker to the local Small Claims Court for breach of contract and let the judge decide. If more home sellers protested the unnecessary extra administrative fees some brokerages try to charge their home sellers, the brokerages would stop overcharging.

MUST TENANT LET LANDLORD’S AGENT SHOW HOUSE FOR SALE?

DEAR BOB: I rent a house on an annual lease that expires in July. My landlord has decided to sell the house. She offered it to me, but I will be leaving the area next September so I don’t want to buy. The landlord listed the house for sale with a local Realtor. At first, I allowed her to show the house to prospective buyers. But she has become a real “pain.” Yesterday, she left a message on my voice mail at 4 p.m. because she wanted to show my home at 6 p.m. (during the dinner hour). When she arrived with her prospects, I told her to get out and never show up again. Now my landlord threatens to evict me if I don’t let the Realtor show my house. Is this legal? – Ryan T.

DEAR RYAN: No. Even if your lease allows the landlord to show the house for rental or sale, you must be given reasonable notice. Two hours notice is clearly not reasonable.

Because you have a lease until July, your landlord cannot evict you unless you breach the lease, such as failure to pay rent. However, if the Realtor notifies you at least 24 hours in advance of a showing, that is considered reasonable notice.

Frankly, I don’t blame you for refusing to cooperate on showing the house upon short notice. A smart landlord would reward you for cooperating by giving you $1,000 when the home sale closes. I’ll bet that would change your attitude. Be sure to get such an agreement in writing just in case the landlord breaches the contract with you.

The new Robert Bruss special report, “Secrets of Tax-Free Reverse Mortgage Income for Senior Citizen Homeowners,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.bobbruss.com. Questions for this column are welcome at either address.