Hello Michael,

We are often asked this question.  A LESA (Life Expectancy Set-Aside) is the restriction of a portion of your loan proceeds in your line of credit to be used by the loan servicer expressly for the payment of your taxes and insurance on your behalf by the loan servicer.  But the term “set aside” doesn’t mean that they physically draw those funds and put them in an account somewhere. 

If the lender did this, they would need to establish an account, start charging you interest on the full amount of the LESA funds that you borrowed from the start, and your balance of the loan would include the full amount of whatever funds you drew for your use and the LESA funds from the very first day.  The lender doesn’t do this. 

The funds designated as set aside cannot be used for anything other than your taxes, insurance, etc.   Then, as the lender pays for your taxes or insurance with your funds, only the amount they paid is added to your loan balance, and only as it is paid.  In this manner, you are not charged interest until your funds are disbursed to make the payment, and you don’t owe the money to the lender until the money is drawn.

So when you say you had $38,000 left, there was no money left sitting in an account somewhere.  You just had $38,000 still unborrowed on this portion of the line of credit available that had not yet been borrowed and was designated as set aside for future property charges.  You may or may not have had money still remaining available to you on your line of credit as well.  If you do, this too would not be money owed to you but rather money you never borrowed and therefore will not be money you would be required to repay.  When you pay off your loan, that $38,000 will not be included in the amount required to pay off the loan (because it was never borrowed/used). 

Think of it like a credit card you pay off that still has money available in the line of credit.  If you pay off a credit card that still has money available on the line of credit at the time you pay it off, you would not get a refund of the money you never spent, but you also don’t have to pay back that portion of the line you didn’t use.  You only pay back the portion of the line of credit that you used.  The same is true here. 

There is no money “left”.  You never drew the $38,000 from the line of credit, so you didn’t use the $38,000, you were never charged interest on the $38,000, and you do not have to repay the $38,000 when you pay off the loan.  This is really the better scenario because when you repay the interest owing, there will not be any charged on the portion of the line you did not use.