Property Tax Escrow Question: Anyone buy a home recently?

[ekatiel]

So, we're supposed to close on our new home today. Friday evening, after business hours, the mortgage company sent me a new estimate of closing costs. It is $4500 MORE than the good faith estimate I received from them ! We have the money to cover it, but it will wipe out our savings . In trying to find the difference between the two statements of settlement costs, I noticed that on the new statement, they are collecting 11 months of county property taxes to hold in escrow at closing (but they are only taking 3 months of city taxes??). If they only take 3 months county taxes, the closing costs will be roughly the same as in my GFE. I am LIVID, and of course, I can't contact anyone until they open in a few hours (I did leave a message with my loan processor's voice mail this weekend, though). Just wondering if anyone else had a similar thing happen and how you resolved it. Also, how many months' property taxes did the lender take at closing to hold in escrow on you loans? Thanks for any input-- Katie

 

[clutter]

Is there a credit from the seller for the taxes? Could be that they are due next month. If that's the case, the seller should be giving you a credit for that amount. Other than that, I think there are limits to how many months escrow a bank can take at closing, but I don't know if that's specific to my state or if it's federal.

Are you selling a home as well? If you are, don't forget you'll be getting your escrow back after loan payoff.

 

[mistysue]

What month are the taxes due? Are the taxes for which they are taking 11 months the ones that are being billed for the summer? Look into that, and the actual dates the county taxes for at the time of billing you.
For example- the county might send out a bill in June 2010 that is for June 2010 through May 2011. OR they may send out a bill in June 2010 that covers June 2009 through May 2010. Find out the dates of the billing and the period those billings cover so you can see if the seller needs to reimburse you for part of that. Sometimes you actually need to reimburse the seller if they paid through future dates.

If the taxes are due in a month and you are liable for the full amount- then yes, they will need to collect 11 months from you at closing. When you do taxes and insurance in escrow it means you are pre-paying your bank for paying those invoices for you. It doesn't benefit you in any way unless you don't know how to budget for yourself. If they go to pay and you don't have enough in the account they can either not pay it or will send you a bill for the difference. On the other hand, when you have extra in the account they usually don't care and just hold your money.

 

[ekatiel]

What month are the taxes due? Are the taxes for which they are taking 11 months the ones that are being billed for the summer? Look into that, and the actual dates the county taxes for at the time of billing you.
For example- the county might send out a bill in June 2010 that is for June 2010 through May 2011. OR they may send out a bill in June 2010 that covers June 2009 through May 2010. Find out the dates of the billing and the period those billings cover so you can see if the seller needs to reimburse you for part of that. Sometimes you actually need to reimburse the seller if they paid through future dates.

If the taxes are due in a month and you are liable for the full amount- then yes, they will need to collect 11 months from you at closing. When you do taxes and insurance in escrow it means you are pre-paying your bank for paying those invoices for you. It doesn't benefit you in any way unless you don't know how to budget for yourself. If they go to pay and you don't have enough in the account they can either not pay it or will send you a bill for the difference. On the other hand, when you have extra in the account they usually don't care and just hold your money.

I'm pretty sure the taxes are due in December. The only info I could find on their website was that they mail tax bills by October, so they are definitely not due this (or next) month. I am puzzled by why they want so many months' worth of taxes. 1 and half hours until their office opens. I'm hoping it's a clerical error. If not, I am going to express my strong displeasure about the discrepencies between the GFE and the actual costs . --Katie

 

[DISdreamin']

If they go to pay and you don't have enough in the account they can either not pay it or will send you a bill for the difference. On the other hand, when you have extra in the account they usually don't care and just hold your money.

In my experience, our lender contacts us yearly with new escrow amounts, adjusted for rises in taxes and any overages or deficiencies in the projected monthly amount in our escrow account for the coming year.

Our payments have bounced around quite a bit - being new construction, the first year the taxes were incredibly low, so we actually got a refund of nearly all the escrow money we brought to closing. Then, the following year, our payments jumped up by several hundred dollars due to the deficiency in our escrow account with the new assessed value for our home (no longer assessed as just a vacant lot).

Now that we've been in the house about five years, things are pretty stable. Our biweekly payment might change by $50 or so from year to year, but nothing like the $300 swing we saw the first two years!

 

[Swimalie]

Can you just skip escrow and pay all of them yourself? Then you'd be able to keep most (some will have to be pre-paid) in your bank and earn a little interest and not have to worry about the mortgage company taking too much or not enough out.

 

[Colleen27]

So, we're supposed to close on our new home today. Friday evening, after business hours, the mortgage company sent me a new estimate of closing costs. It is $4500 MORE than the good faith estimate I received from them ! We have the money to cover it, but it will wipe out our savings . In trying to find the difference between the two statements of settlement costs, I noticed that on the new statement, they are collecting 11 months of county property taxes to hold in escrow at closing (but they are only taking 3 months of city taxes??). If they only take 3 months county taxes, the closing costs will be roughly the same as in my GFE.

When are your county taxes due? Our bill comes at the start of July and is due by the end of August, so it would make sense to have the bulk of this year's bill in escrow now. The city taxes are on a different schedule, billed in January, so there'd naturally be a different escrow requirement for those.

 

[Sadie22]

Can you just skip escrow and pay all of them yourself? Then you'd be able to keep most (some will have to be pre-paid) in your bank and earn a little interest and not have to worry about the mortgage company taking too much or not enough out.

Sometimes this is possible, sometimes with an additional fee charge, but the OP would most likely have had to have arranged for this with the lender well beforehand.

The additional fee charged may be reasonable because the lender takes a risk by allowing the homeowner to pay their own homeowners' insurance and property taxes. The risk is that the homeowner will not save the money, will not pay these bills, and then the home could go to tax sale or be damaged with no replacement cost insurance.

 

[dawson5]

In my experience, our lender contacts us yearly with new escrow amounts, adjusted for rises in taxes and any overages or deficiencies in the projected monthly amount in our escrow account for the coming year.

Our payments have bounced around quite a bit - being new construction, the first year the taxes were incredibly low, so we actually got a refund of nearly all the escrow money we brought to closing. Then, the following year, our payments jumped up by several hundred dollars due to the deficiency in our escrow account with the new assessed value for our home (no longer assessed as just a vacant lot).

Now that we've been in the house about five years, things are pretty stable. Our biweekly payment might change by $50 or so from year to year, but nothing like the $300 swing we saw the first two years!

That happened to us with our old house too. Scary stuff.

When we bought, they wanted two months of escrow up front. Every year it is reassessed and we get the updated payment. Also, is part of that your insurance? I know when we built and when we bought pre-existing houses, they wanted the first year of insurance paid. We always paid the insurance agent in full for the year and the escrow was taken out for the next year at the start of payments.

 

[disneyfans95]

We did this also (bought our first house June 2009). We had to pay for the full year of taxes in escrow to close.

We had about $12k in closing costs. My understanding is NY is higher then other states?

At least in NY, you have to have the school and town taxes in escrow for the first year. We are doing that moving forward anyway, but we could not have say, backed out the first year in the closing costs if we wanted to. This was a regular loan 30 years fixed, no PMI and over 20% down.

 

[EnchantedPrincess]

We closed on our new home in March and they held 3 months of escrow and Taxes are due in December. Our realtor and lender both told us due to the new format of GFE required, there shouldn't be any huge discrepancies in the thousands of dollars. Our closing cost actually was almost exactly what's on the GFE. Hope you have gotten some answers by now and the $4500 was a mistake on their end.

 

[benolathe]

Hope you get this resolved.

My thought when reading your post was - WOWZER, can't imagine paying property taxes that high!! Guess I'm just used to paying on a 30 year old home and should be thankful that our annual property tax is just over $2K. I just had to pay half of it this month (1/2 due June, 1/2 due Dec) as we do not escrow

 

[Pumbaa_]

Shouldn't the prior owner be paying half the annual taxes since they owned it for half the year?

 

[kydisneyfans]

I absolutely refuse to escrow and will not finance with anyone who requires it. I put aside the same amount every pay into a savings account and pay the taxes and insurance myself. We tell that to the mortgage processor up front though, it may be too late in your case. We had to come up with a large chunk of money unexpectedly and will not do it again.

 

[DisneyMissy318]

If you have an escrow account with your current lender - those funds will be returne to you in 4-6 weeks or so. It could off-set the amount you are having to pay upfront for your closing.

 

[GingerJay]

Your lender will have to collect for the full amount of the year in your closing costs so that you will have enough in escrow to pay the full amount of taxes in December. HOWEVER, your seller will reimburse you for their portion of the year's taxes and that will come off your closing costs as a credit. So- what your GFE states as your total costs may not actually be what you have to bring in.

Are you closing in an attorney's office or title agency? Maybe they can draft a settlement statement for you for an estimation of closing costs for you.

 

[TxRabbit]

To the OP...

Are you buying in Houston? Texas taxes are due by Jan 31 for the previous year. The bills are sent in October. If you pay them by year end, then you can get that deduction this year. If your escrow doesn't pay them until during January, then you will not get the deduction for paying the taxes this year.

If you close here in June, then they need to collect almost 6 months worth of taxes from you at closing to make up for the payments that they didn't collect from you for that time period. If you just paid your monthly mortgage payment, there wouldn't be enough to pay your taxes, because they would only have collected about 6 months from you (or less if they pay your taxes early).

A 5 month cushion seems a bit extreme, I have seen a 3 month cushion more commonly, but perhaps the escrow knows that it will pay the taxes after the October billing comes out? Since they want to pay taxes in November, they should have collected 9 months worth of payments from you, but they didn't because you only took over ownership in June, so they are adding a 2 month cushion? OR they know they will pay in December (very helpful for tax purposes) and so they are adding the more common 3 month cushion.

Regardless, there should be a credit at closing from the seller because they are the ones that are actually responsible for the taxes on the home from Jan 1 to the time of closing. You might need to actually talk to a representative at the Title company in order to verify that the paperwork is showing a seller credit.

I live here in Houston area. My mother was a mortgage broker. HTH.

 

[canwegosoon]

Not all lending banks have escrows, and while your GFE might have been correct(no escrow for the mortgage company) you are now getting a clear to close doucment that shows your taxes. They are 2 seperate amounts because they are 2 different doucments. Your mortgage broker should have made you aware that your mortgage is not going to escrow your taxes/and insurance(which could account for some of the difference in dollar amount) or that you need to have a year in escrow. Either way non-escrow or escrow with a large deposit- there is not much you can do. I am glad you have the money in savings. As quickly as possible try to replenish those savings.

 

[ekatiel]

OP here. Thanks for all the input, guys. We just got back from closing, and it's all worked out. The $4500 difference was apparently sent by a computer generated email before all the figures and credits had been added in. Our actual closing costs ended up being very close to our GFE (thank goodness!). I have informed USAA that they need to think about the following from now on: 1) They need to revise their "system" so that they do not send automated emails during weekends or non-business hours AND 2) Their email system should not autogenerate closing cost estimates until most of the figures/credits have been inputed. I have already written a long letter on their survey at closing, and I will be writng another letter to them. The fact that the loan processor wasn't even aware that I had received this email is definitely a problem. I would not recommend USAA for their mortgage services. I have been thouroughly unimpressed with their lack of service. --Katie

 

[cm8]

OP here. Thanks for all the input, guys. We just got back from closing, and it's all worked out. The $4500 difference was apparently sent by a computer generated email before all the figures and credits had been added in. Our actual closing costs ended up being very close to our GFE (thank goodness!). I have informed USAA that they need to think about the following from now on: 1) They need to revise their "system" so that they do not send automated emails during weekends or non-business hours AND 2) Their email system should not autogenerate closing cost estimates until most of the figures/credits have been inputed. I have already written a long letter on their survey at closing, and I will be writng another letter to them. The fact that the loan processor wasn't even aware that I had received this email is definitely a problem. I would not recommend USAA for their mortgage services. I have been thouroughly unimpressed with their lack of service. --Katie

We recently had that happen to us as well when we refinanced last year and I totally agree! The communication on their part SUCKED!