Question

[Anne]

The question I have concerns our construction loan. Hubby and I were told by our mortgage lady before we closed on the c.l. that the money we put into the escrow acct with the title co was to pay the interest payments from the "draws" during construction. She told us the construction division of her co wanted money in an escrow acct, basically guaranteeing they'd get their interest payments during construction. Imagine our surprise when we started getting bills for the interest that we were told were supposed to go to the title co. I called her and she said that no, the escrow money was for any construction cost overages. For over 2 mo's she told us the money was for the interest payments and NEVER said anything about it paying for cost over runs. On top of that, because it took so long to get an answer out of her as to why we were getting these bills, we are late on our very first payment, and will probaby be late on the 2nd. She said she had talked to the construction division of her company and explained the situation to them. They said it was ok, we have 30 days to pay it. Well it took so long to get this info from her, the 30 days has passed. Then she said last week when I talked to her that we would only get charged once for the draws. For example, we have a $9000 draw for the downpayment on our house. we were charged in July for it and again in Aug. She told us we would only be charged for it one time, in July. Now she says no, we have to pay on it every month till everything gets rolled into our final mortgage.Needless to say we are VERY pissed about this. We feel that we were lied to as to why we needed the escrow money in the first place. I guess my question is can she/they do this to us? Thanks for any insight or advice you can give us. p.s. I hope this isn't too confusing, LOL

[rmurray]

It is a little confusing.....I think you should have read the mortgage documents and asked a lot of questions of the attorney or closing agent at the time of closing..

Mortgage originators are salespersons and a few are no different than those you read about here selling manufactured homes..or other high commission items...

I have never heard of escrow for construction mortgage overage....Some thing new...ask the escrow agent what the funds are for and when they will be released and to whom...Sounds odd to me..

Construction interest is due monthly on most construction loans...So..interest payments in July and August are expected and there will be another soon..in September...

You could have a major additional problem...be VERY careful about any payment that goes over 30 days late...The permanent mortgage almost always rechecks credit just prior to final closing..If they get a 30 day late notice on the construction mortgage...you might not be eligible for the loan..your credit score will suffer badly...and/or you might now only qualify for the higher interest "high risk" loan program...PAY THOSE PAYMENTS ON TIME...Make sure all of your payments are on time right now...late payments can keep you from getting permanent financing..Be careful..

[Anne]

First, Thank you for replying to my confusing question. We did ask at the construction closing in front of our mortgage lady and the title company representative what the escrow money was for. We were told yet again that the money was to pay the interest payments while construction was going on. Again, nothing about it being for construction cost over runs i.e. contractors going over their estimates.
I have just now read where it states in our loan contract, quote, " The portion of the Loan allocated on the Cost Breakdown for interest reserve shall be held by Lender as an interest reserve, and Lender may make Advances from the reserved amount of $XXXX to pay interest when due under the Loan. Funds held as an interest reserve Shall Not be advanced for other Expenses. If funds are not available from the interest reserve to pay interest due under the loan, Borrower shall immediately pay any interest due on the loan from its own funds. (The interest reserve is the escrow acct and funds are available, not been used yet.)
On a different piece of paper, a Disclosure Statement, it says quote, "PAYMENT SCHEDULE- My pament schedule is estimated to be one payment of $XXX,XXX plus accrued interest on January 8, 2004, which includes the interest reserve used to pay the 5 monthly interest payments based on the outstanding principal balances, beginning August 8, 2003." This statement is EXACTLY what we were told the escrow money was for. She told us the construction division of her company wanted X amount to cover 5 mo's worth of interest payments, and if there was anything left over after we moved in, that money would basically be a down payment.

As for being late on the payment already, I will be paying the 2nd payment this week since the 1st payment is already late, and is included in the 2nd payment along with late fees. Hubby and I will still call her and the title company again and try to get this matter straightened out and to try to get them to repay what I sent in. Now that I have written proof of what we were told, I feel we are in a MUCH better position arguing with her. I know, I know, we should have read the contracts better when we signed them, lol.

Thank you again for the advice. It's nice to know we have someone objective to go to when we have questions. If you are interested, I'll keep you posted on our progress. Anne

[rmurray]

Keep us posted....Who has the escrow money...The closing agent..If so this is the person to deal with...I am sure bills have to be submitted and then they will pay...Clearly this money can not be used for anything else...including downpayment..If the home is complete early and the permanent loan kicks in..you should get a refund...Or maybe the permanent loan will not kick in until Jan under any circumstance...That means you have NO payments due till Feb or March...Good deal..


Good Luck