Borrowers receive an escrow analysis letter which is a projection for the next 12 months on how much you will be paying into your escrow account and how much will have to be paid out for property taxes and home insurance.

Payments made into the escrow account are saved up to pay tax bills and insurance as it comes due.

The Escrow payment amount is based on the prior year's property taxes, so once the new tax bil comes in, if the amount is higher, an adjustment in your escrow payment will be needed to account for the difference. Because the amount in your escrow account is insufficient to pay the higher taxes there is an ESCROW SHORTAGE.