In one sentence
The reserve a lender collects to fund a property's real estate taxes and insurance premiums as they come due.
The longer version
Tax and insurance escrows are the most common reserves on a commercial loan, protecting the lender by ensuring the collateral's taxes are paid and its insurance stays in force. Shortfalls threaten the lien and the coverage.
The escrow is funded at closing and topped up monthly, and servicers analyze it annually to keep it adequate as taxes and premiums change.
Common questions
- How is a tax and insurance escrow funded?
- With an initial deposit at closing plus monthly payments sized so the account has enough to pay the bills when they come due.
- What happens if the escrow is short?
- The servicer requires the borrower to make up the shortfall, often with an increase in monthly deposits after an escrow analysis.
- How often are escrows reviewed?
- Typically annually, when the servicer reconciles the account against actual tax and insurance bills and adjusts deposits.
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