Short answer: once a year your mortgage servicer must review your escrow account and send you a statement. A shortage means the balance is below the target the servicer needs; a deficiency means the balance is negative; a surplus means the balance is above the target. Under the federal rule, if a shortage is one month’s escrow payment or more, the servicer may leave it or spread it over at least 12 monthly payments, but may not demand it all at once. If you are current, a surplus of $50 or more must be refunded within 30 days. This page covers federal law only; other rules may apply where you live. It is general information, not legal or financial advice.
The three terms
These definitions are from Regulation X (12 CFR 1024.17(b), eCFR, text up to date as of October 28, 2026, read October 30, 2026):
| Term | Definition in the rule |
|---|---|
| Shortage | “an amount by which a current escrow account balance falls short of the target balance at the time of escrow analysis” |
| Deficiency | “the amount of a negative balance in an escrow account” |
| Surplus | “an amount by which the current escrow account balance exceeds the target balance for the account” |
The CFPB says your property taxes and insurance premiums may go up or down from one year to the next, and if they do, your total monthly payment will change (CFPB, last reviewed April 3, 2024, read October 30, 2026; this page may be out of date). For what an escrow account is, see the CFPB’s escrow page.
The limit on what you pay in
Each month the servicer may charge one-twelfth of the total annual payments it reasonably expects to make from the account, plus an amount to keep a cushion of no more than one-sixth of those estimated annual payments (1024.17(c)(1)(ii)). One-sixth of a year is two months, and the CFPB describes the cushion as two months’ worth of estimated disbursements (CFPB, last reviewed September 11, 2024; this page may be out of date). If an analysis finds a shortage or deficiency, the servicer may ask for added deposits, within the limits below (1024.17(c)(1)(ii)).
The yearly escrow analysis and statement
The servicer must analyze the account when it is set up and at the end of each escrow account computation year, a 12-month period, and may do so at other times too (1024.17(f)(1)). It must send you an annual escrow account statement within 30 days after that year ends, along with the previous year’s projection or initial statement (1024.17(i)). The statement must show at least (1024.17(i)(1)):
- Your current monthly mortgage payment and the part that goes into escrow;
- Last year’s monthly payment and the part that went into escrow;
- The total paid into the account and the total paid out for taxes, insurance and other charges, each listed;
- The balance at the end of the year;
- How any surplus is being handled, and how any shortage or deficiency is to be paid;
- If it applies, why the estimated low monthly balance was not reached.
The servicer must tell you at least once in the year if there is a shortage or deficiency, either in the annual statement or in a separate notice (1024.17(f)(5)). If you are more than 30 days overdue when the analysis is done, or a foreclosure or bankruptcy case is under way, the servicer does not have to send the annual statement (1024.17(i)(2)).
What the servicer may do about each one
| Result | What the rule allows | Section |
|---|---|---|
| Shortage less than one month’s escrow payment | Leave it; ask you to repay it within 30 days; or ask for equal monthly payments over at least 12 months | 1024.17(f)(3)(i) |
| Shortage of one month’s escrow payment or more | Leave it; or ask for equal monthly payments over at least 12 months | 1024.17(f)(3)(ii) |
| Deficiency less than one month’s escrow payment | Leave it; ask you to repay it within 30 days; or ask for 2 or more equal monthly payments | 1024.17(f)(4)(i) |
| Deficiency of one month’s escrow payment or more | Leave it; or ask for 2 or more equal monthly payments | 1024.17(f)(4)(ii) |
| Surplus of $50 or more | Refund it to you within 30 days of the analysis | 1024.17(f)(2)(i) |
| Surplus under $50 | Refund it, or credit it against next year’s escrow payments | 1024.17(f)(2)(i) |
The surplus and deficiency rules apply if you are current when the analysis is done, which means the servicer got your payments within 30 days of the due date. If not, the servicer may keep a surplus in the account, or recover a deficiency, under the terms of your loan documents (1024.17(f)(2)(ii) and (f)(4)(iii)). If the servicer advanced its own money to pay a bill, and not because you defaulted, it must analyze the account before it asks you to repay that money (1024.17(f)(1)(ii)).
After an analysis, you and the servicer may agree that you pay in more than the limits for the coming year; such an agreement covers one year only (1024.17(f)(2)(iii)). Ask your servicer whether you may pay a shortage in one lump sum if you prefer; the rule above does not require it to offer that.
A shortage, only for the math
This example is only for the math, and all figures are example figures, not taxes or premiums for any home. Last year the account paid $3,600 in property taxes and $1,800 in insurance, $5,400 in all, so the escrow part of the payment was $5,400 / 12 = $450. For the coming year the servicer expects $4,200 in taxes and $2,100 in insurance, $6,300 in all.
| Item | Amount |
|---|---|
| New monthly escrow amount: $6,300 / 12 | $525 |
| Largest cushion allowed: $6,300 / 6 | $1,050 |
| Shortage shown on the analysis (example figure) | $960 |
| Shortage spread over 12 months: $960 / 12 | $80 |
| New escrow part of the payment: $525 + $80 | $605 |
| Increase from last year: $605 - $450 | $155 |
Because the $960 shortage is more than one month’s escrow payment of $525, the servicer could leave it or spread it over at least 12 months, but could not ask for it within 30 days. After the shortage is repaid, the escrow part would drop back to $525 if the bills stayed the same.
If something looks wrong
The CFPB says to contact your servicer right away if you have problems with your escrow account, and that you may need to send an information request or a notice of error. It lists warning signs such as a change in your total monthly payment without notice that your taxes or insurance were changing, servicer-purchased force-placed insurance, and a notice from your local government that your property taxes have not been paid (CFPB). As long as your payment is not more than 30 days overdue, the servicer must pay escrow bills on time, on or before the deadline to avoid a penalty, and must advance its own money to do so if needed; it may then seek repayment of the deficiency under the rules above (1024.17(k)(1) and (k)(2)).
If your homeowners insurance is paid from escrow, the rule says a servicer is not unable to pay it “because the escrow account contains insufficient funds”, so a low balance alone does not let it buy force-placed insurance instead (1024.17(k)(5)(ii)(B)); see force-placed insurance on a mortgage. If a tax bill is the problem, see can’t pay your property tax bill. If your loan moved to a new servicer, see when your loan is sold to a new servicer, and if you are behind, see behind on mortgage payments: your options. To complain, use consumerfinance.gov/complaint. For your own case, ask a lawyer; you can look for legal aid through the Legal Services Corporation.
Questions to ask your servicer
- Which bill went up, and by how much, compared with last year’s projection?
- Is this a shortage or a deficiency, and how was the target balance figured?
- What cushion are you holding, and is it within one-sixth of the estimated annual payments?
- Can the shortage be spread over more than 12 months, or paid in one sum?
- If there is a surplus, when will I get the refund?
Checklist
- Read the annual escrow statement and compare it with last year’s projection.
- Shortage of one month’s escrow payment or more: it can be spread over at least 12 months.
- Cushion: no more than one-sixth of the estimated annual payments.
- Surplus of $50 or more: refunded within 30 days if you are current.
- Contact the servicer in writing if a bill was missed or the payment changed without notice.
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Sources
- 12 CFR 1024.17, Escrow accounts (Regulation X) (eCFR)
- CFPB: Is there a limit on how much my mortgage lender can make me pay into an escrow account for interest and taxes? (last reviewed September 11, 2024)
- CFPB: What should I do if I’m having problems with my escrow or impound account? (last reviewed April 3, 2024)
- CFPB: What is an escrow or impound account? (last reviewed September 11, 2024)
- CFPB: Submit a complaint
- Legal Services Corporation: Find legal aid
Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.