Escrow shortages: which statement is accurate?

• A. Escrow shortages occur when escrow funds are excessive and cover taxes and insurance.
• B. Escrow shortages may be addressed by a lump-sum payment or by adjusting monthly escrow.
• C. Escrow shortages always require refinance.
• D. Escrow shortages never affect monthly payments.

Answer: (B)

Escrow shortages happen when there isn’t enough money in the escrow to cover upcoming property taxes and homeowners insurance. The standard cure is to either make a lump-sum payment to bring the escrow balance current or to adjust the monthly escrow payment so future deposits rebuild the reserve. A surplus is the opposite situation, where there are extra funds, not a shortage. Refinancing isn’t required just because there’s a shortage, and shortages can indeed affect monthly payments if the escrow portion is increased to cover the shortfall.