Lender now responsible for my taxes?

Question

My lender is impounding money for my taxes (+4k/year) and I've heard the county sends the tax bill to them. I found out they paid in March the same amount of tax the previous owner was paying, which is much less than I will be paying. They said don't worry, if there is a problem they are responsible. Is this true?

Jon Holdman · Answer

You mean if the county comes back later and say "oops, your tax bill is more than we billed you for" then you think the lender will pay the difference?  I don't think so.  They will adjust your payments to cover the escrow shortage.  Each year they will do an analysis of the escrow balance, your payments to them and the expected payments they make and adjust your payments.  If there is a surplus, they may send you a check.  If there is a significant shortage, they may request a check from you or ratchet your payments up a bunch to cover the shortage.  But ultimately the taxes will come out of your pocket, not theirs.

Bill Gulley · Answer

Liability for servicers is generally required under state escrow requirements and for lenders as well as funds held in escrow must be released to pay the purpose and use of funds in a timely manner so as not to cause any financial loss. when you change accounts, insurers or there are new assessment, they are not responsible until such are known to them and adjustments are made.

Steve is right, that it can be a hassel and if they can get you to pay it they likely will try, but in the end, if they had the funds, were aware of amounts to be disbursed, they are liable in doing so.

Mark Hu · Answer

I just received a copy of my tax bill, the amount is the same as the previous owner's bill.
I am sure they will update this to the higher rate from when I bought it last year. So I will receive a supplementary tax bill for that along with my regular tax at the higher rate? So come November I will be whacked with a double whammy?

Steve Babiak · Answer

I have had annual adjustments made, some of these might seem atypical but they do happen.  For example, when you change homeowners insurance (or the insurance company for your rental), your bill date with the new company will often change (if you change mid-year).  That will cause the insurance bill to hit at a different time, and that messes up the escrow "low water" point.

I have had two problems where there were mistakes by the lender.  In the one, since there was sufficient money in escrow when the tax bill was sent to the lender, but the tax bill was not paid timely, and the lender was supposed to absorb the added charges for being late.  That required some fighting on my part - they were rather reluctant.  At first they covered the added late charge from the amount I had in escrow, lowering my balance and messing up the re-calculation; they should have taken the late charge out of their own pocket, not mine.  So you do have to stay on top of this.

I also can say that when you get the re-assessment, that throws off the escrow account as well.  Not because of the timing, but because the increased tax bill was not part of the lenders calculation for the monthly bill.  Then you get hit with a much bigger amount (when the assessment increases) in the next year - part to make up the shortage of the prior year, and part to cover the new assessment that they now are aware of.

Mark Hu · Answer

The lender is impounding an amount equal to 1.25% of the sales price per year, which is sufficient. What I am glad to hear is that they are responsible for any penalties if they are late or make a mistake. So I feel great if that is true. Nevertheless we are considering taking over the taxpaying ourselves.

Steve L. · Answer

Mark, it takes the state 6+ months to re-asses the property.  The bank will be issued a "supplemental bill" that will be from your date of possession and catch things up.

Unless you got a killer deal the assessment will be based on your purchase price and I am sure the lender is impounding 1.1% or 1.2% of your purchase price from you, so their reserves should cover the supplemental bill.

San Bernardino County and Riverside County you can see the bills and payment online.  I am sure it is the same for you.

Bill Gulley · Answer

And to add to Jon's comment...."responsible"  is interchangable with liable, the lender or servicer is liable for any penality assessed for late payment but only if there area sufficient escrows to pay the amounts due and to collect no more than 10% of actual assessments,,,basically. Adjustments need to be made in time to collect amounts as they become due, but in the end.....you are the tax payor and are responsible. They seldom screw up so trust them, if there is a problem they may ask for more, but they will be required to fix it as they have assumed the obligation to pay the taxes.

Brian Levredge · Answer

Jon is right.  Your issue seems to be with the assessment though.  Have you contacted the assessor about re-assessing the property?  If it's in CA you probably know that it works a little differently and is based off purchase price in which case you want to contact the assessor if your taxes are based off an old sales price.

Lender now responsible for my taxes?

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