In one sentence
A lender-held account, also called an escrow account, that collects and pays a property's taxes and insurance.
The longer version
An impound or escrow account collects monthly amounts from the borrower to pay property taxes and insurance premiums when due, ensuring these obligations that protect the collateral are met. It is standard on many commercial loans.
Impound accounts are set up at closing and managed through servicing, with annual analyses to adjust the monthly amount, part of the ongoing administration a servicer runs.
Common questions
- What is an impound account on a commercial loan?
- A lender-held account that collects monthly deposits from the borrower and pays the property's taxes and insurance when due.
- Why do lenders use impound accounts?
- To make sure taxes and insurance are paid. Unpaid taxes can become a lien ahead of the mortgage, and lapsed insurance exposes the collateral.
- Can a borrower waive impounds?
- Sometimes, on low-leverage loans with strong sponsors, often with springing impounds that start if a trigger is breached.
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