http://news.yahoo.com/s/ap/20070924...egulatory_2;_ylt=Auq6UOg3QUecP_7hIkDBbPIE1vAI If mortgage company goes under, so goes your escrow leaving you still liable. How's that for a body slam. American Home Mortgage faces inquiry By STEPHEN BERNARD, AP Business Writer 2 hours, 26 minutes ago NEW YORK - American Home Mortgage Investment Corp. bounced property tax checks for some Maryland homeowners, local and state officials said Monday, and they have demanded an explanation from the bankrupt mortgage lender and servicer. ADVERTISEMENT The Maryland Commissioner of Financial Regulation filed an inquiry with American Home Mortgage on Friday. Melville, N.Y.-based American Home Mortgage has five days to respond to the letter, said Joseph Rooney, the deputy commissioner for Maryland's financial regulator. Officials in New York and Washington state are also looking into bounced checks there. Mortgage servicers typically collect property tax payments each month with a borrower's mortgage payment. The property taxes are then placed in an escrow account and held until property tax bills are due. Because they are placed in an escrow account, funds should always be available to make the payments. The Maryland regulator asked American Home Mortgage to explain why the initial checks failed to clear and to clarify the scope of the incident, Rooney told The Associated Press. One possible explanation, he said, was that the tax payments were caught up in bankruptcy court and frozen. When a company is in bankruptcy court, its assets are frozen to protect creditors. But experts say escrow accounts are protected from creditors, and thus should not be frozen in a bankruptcy proceeding. Whether American Home Mortgage broke the law by bouncing checks from escrow accounts depends on how the account trusts were set up, said Ira Kharasch, a bankruptcy lawyer in the Los Angeles office of Pachulski Stang Ziehl Young Jones & Weintraub. American Home Mortgage did not immediately return calls seeking comment. In Frederick County, Maryland alone, American Home Mortgage bounced two checks totaling nearly $59,000 for property taxes on 12 loans serviced by the company. Frederick County received new, certified checks Friday to cover the payments. In New York, where American Home Mortgage is based, at least one complaint has been filed with the state banking department related to a bounced check, a spokeswoman said. American Home Mortgage bounced one check in Whatcom County, Washington related to a special tax assessment. Those funds were tied up in litigation as mortgage financier Freddie Mac, which owned the loans, wanted to change the company servicing them. Freddie Mac fired American Home Mortgage as its servicer in August. Freddie Mac then seized the escrow accounts, but American Home Mortgage would not release the associated files needed to properly make the payments out of the accounts. The two companies settled the suit last week, and those payments are expected to be disbursed by a new servicer hired by Freddie Mac. "We were assured the money was handed over to a third party" in order to make the payment, Whatcom County tax supervisor Judy Reed said. Regular property taxes, like those recently paid in Maryland, are due in Whatcom County Oct. 31, Reed said. Property taxes are collected at varying levels of government at different times of year across the country. American Home Mortgage filed for bankruptcy in August amid the tightening credit market and demands for more collateral from its lenders. Despite closing down its origination business, it continues to operate its servicing unit. American Home Mortgage was the 27th largest servicer in the country, as of June 30, with $43.49 billion in volume, according to Inside Mortgage Finance. American Home Mortgage is scheduled to sell its servicing unit in a bankruptcy auction this week. Billionaire investor Wilbur Ross, known for purchasing bankrupt companies and turning them around, is expected to be among the bidders for the servicing unit. Ross already has a connection to American Home Mortgage, having provided the lender a $50 million loan to help it finance its operations and pay legal fees during the bankruptcy process.