Legal Definitions - reserve account

Definition: A type of account, also known as an impound account, that holds accumulated funds for the payment of taxes, insurance, or other periodic debts against real property.

Example: A homeowner sets up a reserve account with their mortgage lender to accumulate funds for the payment of property taxes and homeowners insurance. Each month, a portion of the homeowner's mortgage payment is deposited into the reserve account. When the taxes and insurance bills come due, the lender uses the funds in the reserve account to pay them.

Explanation: The example illustrates how a reserve account works to accumulate funds for the payment of periodic debts against real property. By setting up a reserve account, the homeowner ensures that they have the necessary funds to pay their property taxes and insurance bills when they come due. The lender holds the funds in the reserve account and uses them to make the payments on the homeowner's behalf. This helps to ensure that the homeowner stays current on their obligations and avoids any penalties or fees for late payments.