The term Impound Account or Escrow Accounts means a bank account which is set up by the lender to collect future property taxes and insurance bills from the borrower. In an owner occupied mortgage the lender may request you to open an impound account if the loan taken is 90% or more than the purchase price of the property.

It is simply prior payment of obligations you will have in the future. These payments are tax deductible and are paid twice a year. They are prorated in the escrow process; both buyer and seller paying or gaining a credit of his share up to the date of closing escrow.

Insurance is prepaid for one year in escrow. An account must be set up so these costs/bills can be paid from the impound account (sometimes referred to as an "escrow account") when they become due. Bills are sent directly to and paid by the lender - with a copy to the owner. (Keep these copies for your yearly income tax filings.)

How the Impound Account Works?
After the impound account is opened, the lender is entitled to collect money from you totally on the basis of your future property taxes and insurance bills. The lender collects money at the time of closing to fund the impound account. Generally after the closing, the projected property taxes and insurance bills are collected by the lender on a monthly basis. The amount so deposited is used by the lender to pay the property taxes and insurance bills when they become due and in return you receive an interest.

California Tax Impound Schedule:
Close of Escrow Month
First Payment Date
# of Months Collected at Close of Escrow
AprilJune4 Months Collected
MayJuly5 Months Collected
JuneAugust6 Months Collected