Impound Account

Impound Account — the terms "impound account" and "escrow account" are used interchangeably in the mortgage industry, though "impound" is more common in western states. Each month, the servicer collects an additional amount on top of the borrower's principal and interest payment and deposits it into the impound account. When property tax bills or insurance premiums come due, the servicer pays them directly from this reserve.

For note investors, verifying the status of an impound account is a key part of due diligence. A properly funded account protects the lien position by ensuring taxes and insurance stay current. If the account is short or if the loan has no impound requirement, the investor faces the risk that unpaid taxes could result in a tax lien taking priority over the mortgage, or that a lapsed insurance policy could leave the collateral property unprotected.