Q: Last September I received a cancellation notice from my hazard insurance company because they had not received the payment from my mortgage company. It turned out that the mortgage lender had paid the wrong insurance company.

My lender ended up paying the same bill three times -- once to the wrong company and twice to the correct one. The lender also informed me that my monthly mortgage payment would be increased because of the increase in the premium. I have written the insurance company and the lender, but have not receivced a satisfactory response. What do you advise?

A: One of the most significant consumer issues in residential real estate involves the money that mortgage lenders hold on behalf borrowers for taxes and the annual homeowners insurance premium. Each month, most homeowners pay one-twelfth of the annual property taxes and insurance to the lender, and the lender holds the money until the taxes and insurance premiums are due.

These funds are called "escrow moneys" and in some states the lender pays the homeowner interest on these funds, while in other states the homeowner loses out.

I have heard of too many instances where the escrowed funds are either not paid out at all, or inappropriately or incorrectly paid.

The specific answer to your question is to write your lender putting them on notice that if the situation is not corrected to your satisfaction within 30 days, you will take legal action.

Write the letter to the president of the mortgage company, with a carbon copy to your attorney -- as well as to the attorney general of the state in which your property is located. This should produce satisfactory results.

More significantly, you should ask your mortgage lender to let you pay your own insurance premiums when they become due. If you have established a history of good payment with your lender, I suspect that the lender may be willing to let you take this responsibility. Legally speaking, however, unless you live in the District of Columbia and put down 20 percent equity or more when you first obtained your loan (after 1974), the lender is under no obligation to let you pay your own taxes or insurance.

In the District, if you did put down 20 percent or more when you purchased your home, the lender must give you the right to pay your own real estate taxes and insurance, if you desire.

However, I advise you to demand from your lender that you be given satisfactory evidence every year that the lender has paid the real estate taxes and hazard insurance on your behalf. Obtain a letter or some other evidence that the money held in escrow has been actually used for the right purpose.

It is important to remember that when the lender establishes your escrow account, it is, in effect, action in a fiduciary capacity on your behalf. In non-legalistic terms, this means that the lender owes you a legal duty to administer your funds properly and accurately.