Escrow re-analysis causing increase in monthly payments

[Vanessa Van Muyden]

Hi! I have an Airbnb in Dallas TX. Recently had an escrow reanalysis and my property taxes went up significantly causing my monthly payments to increase by almost $1300. Now I am far from cash flowing. 

Is there anything I could have done to foresee this? I basically will be in the negative for the next year. call

[Sergey A. Petrov]

Taxes are taxes. They usually go up, rarely down. A budgetary contingency smoothes out the bumps in expense increases 

[Chris Seveney]

@Vanessa Van Muyden

Are you saying your monthly escrow payment went up by $1300/month?

That’s $15k a year - something does not seem right in this situation

[Zach Wain]

@Vanessa Van Muyden - Did you buy the property in the last year or so?  In TX the property taxes are hefty (since there is no income tax, they tax property heavily) and your new property taxes are based on the sales price.  If the old property taxes were low, and the county reassessed your home after your purchase that is the only way I would image a major increase of that size.  Otherwise, it sounds like a problem.  Unless your home insurance went up 4x.

Did your original lender advise you of what your future taxes would be?

[Vanessa Van Muyden]

Hi! Yea I bought the property last year, in my closing disclosures the property taxes were about 2 grand, and this December my escrow account paid 8 grand putting me in an escrow deficiency. 

He didn't really advise me what my future taxes would be like. I was under the assumption it would stay close to 1730 payments. I guess if I pay the ~10 grand in escrow deficiency my monthly payment would be $2,200

[Sergey A. Petrov]

Totally missed the level of the increase! That sounds crazy. Wonder if the property was subject to some exemption previously…

[Vanessa Van Muyden]

Maybe the previous owners had some kind of exemption?? My lender didn't warn me about any 

[Jay Voorhees]

If you purchased the property last year, it may have also been a change in exemptions. In Texas, you have to be careful about homestead and other exemptions existing on the tax bill. If you're not living in the property and it previously had a homestead exemption, this would no longer apply. Lenders should catch this, but if it slips through, you can find yourself suddenly stuck with a higher payment than anticipated.  

I hope this helps and wish you the best in rebalancing cash flow. If you ever find yourself in need of a lender in Texas, feel free to PM me. 

[Sergey A. Petrov]

yep, there it is. different jurisdictions have different tax exemptions. sounds like Texas has a homestead exemption!

[Vanessa Van Muyden]

Am I making up for the homestead exemption for last year too? 

Chase said if I pay the 11 grand to the escrow my monthly payment would be around 2,200

[Sergey A. Petrov]

you are not making up for the exemption. you are just paying taxes at the rate they should've been without the exemption because you no longer qualify for it. paying upfront to replenish the escrow account vs making monthly payments depends on your personal financial situation. i prefer not to escrow for taxes or insurance and just the bill when it comes.

[Bruce Lynn]

This can happen when your taxes and insurance are going up and the value of the house increases.  With 15-25% bumps in values each of the last couple of years, chances are both go up.  If you bought either new construction or a preowned home that had exemptions or super low tax value when you bought it, chances are you've had a nice bump in taxable value.   So what happens is lets say your last year taxes were $3600/year and this year go up to $4800 year....so your lender has only collected on the best knowledge they have....but now they have under collected by $1200 for the past year and also need to catch you up for next year.....so even though they under collected by $100/month, they need to bump you up $200/month to cover last year and next year. Hope that makes sense.  You may also want to save some money back in case you get another bump in value/taxes/insurance for next year.

Also consider fighting your tax appraisal next year if it makes sense.   Of course one issue is if this is standalone AirBNB/investment property you won't get any homestead or other tax breaks.  Not sure if CAD pulls your reported occupancy tax collections or not to see what your gross rent is, but I expect they could and value your property accordingly with some kind of multiplier.  

Often we explain this to our buyers at closing, but there is a lot going on and they never hear or remember this.   You are not alone, many going thru this on new homes and places where values have shot up.

[Theresa Harris]

Your MONTHLY payments went up by $1300? or they increased to $1300 a month?  You can always talk to the city and argue why you taxes shouldn't have been increased.

You mentioned in escrow it went from $2K to $8K-when did you close relative to when the property taxes are paid? 

The tax amount listed on the sale should have been for the full amount, not including any exemptions the home owner might get.

[Jacob Maes]

1300 a month in taxes doesn't make sense... I would definitely dig in to see what's going on... I know taxes are high but I don't think they are that high. 

[Lucia Rushton]

@Vanessa Van Muyden in hind sight yes you could have protested your tax assessed value this past year. Always reach out to the agent that helped you buy the investment to do a new comp against the value the county is providing. So - I have seen TAV reduce year over year but not by much. So my suggestion is your budget moving forward is to match your current escrow expense.

[Patrick Drury]

@Vanessa Van Muyden
It sounds like the taxes got reassessed after the sale of the property and the new taxes are based on the new purchase price. I would talk to an accountant though and have them review everything to see if it is correct or if it's a mistake. 

[Paul De Luca]

@Vanessa Van Muyden

Did you receive a mortgage statement from the loan servicer? They should have sent you a breakdown explaining the increase in escrow amount. Other than underwriting for a tax increase (3-8%), I'm not sure there is much you could have done besides doing your best to estimate your future taxes by looking at the assessed value, previous tax history, exemptions, etc.

[Kevin Johnson]

@Vanessa Van Muyden Hey look on the bright side, you’ve just increased your property tax deduction for 2022 taxes! 

[Eliott Elias]

You could protest them, but it probably won't drop it enough to make it cash flow again. If you're bullish on the area i wouldn't mind holding it with negative cash flow if the appreciation is there