Subject To Taxes and Insurance

4 Replies

Hello everyone, I am new to the forum here and hope someone can help me understand a problem I've been having trying to grasp the details of Sub2. I have searched for the answers first, but was unable to find a satisfactory answer. I've seen some discussions about insurance and taxes, but can't find where someone nails down exactly what I'm after.

My question has to deal with paying property taxes and insurance when purchasing Sub2. Say I have an owner deed a property to me and I begin making payments. Of course, part of the payment is for P&I and part goes to the seller's escrow account for reserves to pay T&I.

Here is where I get hung up.

The county will now show that I owe the taxes, not the seller.  If I have the county send the taxes to the lender, why would the lender pay for a bill in "My" name from the "Seller's" escrow account?  I understand that the lender wants the taxes paid for the house, but how are they authorized to pay my bill from another person's account.

Likewise, I have the same question about the insurance.  If I become the "Named Insured" that means I am the owner of the new policy.  Sure, I would have the seller as an "Additional Insured" and the lender as "Mortgagee", but wouldn't the bank recognize that I am the owner of the policy and have a problem paying for my insurance from the seller's escrow account? 

Again, in a nutshell. Without explicit approval by the seller, how is the lender even authorized to pay my tax and my insurance from the seller's escrow account? Because if they don't, then I'm forced to pay for it twice - once to a building escrow account and once for the actual T&I. Maybe I get a refund later by changing seller's address and a POA, but I can't believe that is how everyone else is doing it.

Very sorry this is too long, but I just had to get it out in full in hopes someone out there could help me get it.

Hi George,

There is no reason they can not pay the taxes and insurance. The lender will pay the taxes and insurance because that's the purpose of the escrow to pay the taxes for the property. The person is irrelevant as long as they are getting on time payments from you.

In most cases you will not have issues having the name different from the seller.However, to make life easy, I suggest simply doing this. 

Put the property into a land trust called (Insert The Seller's Name) Family Trust. This throws off no red flags as families use trust for estate planning regularly and your allowed to name the trust whatever you'd like.

Wow!  Thank you for the quick reply. 

So, by using a Land Trust, the bank would be notified the seller has appointed a trustee and thus allow insurance and taxes in the trustee's name to be paid from that account?

If I've got that right, then I agree the land trust sounds like the way to go.  Thank you again.

@Shane Wilson , this is slightly different but along the same concerns of taxes and P&I: When I file my taxes at the end of the year, how do I claim the interest payments made on the loan since the 1099 will be in the former owner's name, correct? 

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