Author Topic: Property tax escrow account vs. tax bill  (Read 4203 times)

Chris22

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Property tax escrow account vs. tax bill
« on: February 05, 2016, 10:31:16 AM »
Somewhat interesting problem. I received a check yesterday from my bank holding my mortgage, for an escrow surplus. Check for $1400ish. Yay me.

However, I see on their calc, they're estimating my property taxes ~$800 light for the year (I have the first installment tax bill already, they'll pay in a couple weeks).

So to me, real easy, I called them, I have the bill, can you cut me a check for $1400 - $800, I'll shred the $1400 check or send it back? They don't want to do that, they want to sit on the account, actually pay the bill (why? they and I already have the bill, paying it doesn't make a difference) and then make a determination.

The way I see it, I can cash their check, stick the money aside, and then when they come looking for their ~$800, I can just give it to them.

Otherwise, I let them keep my $600, call them in March after the bill is paid, and they return me my $600 at their leisure.

Anything wrong with the way I'm looking at this? Isn't it in my best interest to hang onto the money, vice them doing it? What's the downside I'm missing?

redcedar

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Re: Property tax escrow account vs. tax bill
« Reply #1 on: February 05, 2016, 10:38:48 AM »
Don't try to apply too much logic to the escrow calculation process. It is simple and therefore full of holes.

You are right on. Stash the money in savings and make some interest (ok not much at these rates so maybe look at the prepaid card 5% accounts) and then get ready for the future letter from them stating that you must pay up or increase your monthly mortgage payment.

I have not had $800 swings but I do have many years of passing money back and forth with my mortgage servicers. You owe us more -> hey here is some money -> you owe us more -> and so on.

frugalnacho

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Re: Property tax escrow account vs. tax bill
« Reply #2 on: February 05, 2016, 10:52:25 AM »
Don't try to apply too much logic to the escrow calculation process.

Yep.  They estimate payments, calculate out current payments for the rest of the year, find the minimum balance, and then adjust the payments to the minimum projected balance = minimum requirement for them.  It doesn't make a ton of sense and seems to yo-yo back and forth because it's too simplistic. 

Just stash that money into a savings account, or a brokerage account if you prefer, but just know that shortfall will come up the next time they perform their rigid one-year calculations and they will request you either pay it up front, or they will spread it out over the next 12 payments.  Assuming the short fall will be $600, it will only result in $50/mo increase in payments next time.  I say just invest that money and deal with the $50 increase next year when they revise it.  Should be no problem for mustachian, and you will get the instant benefit of investing $1400 right now.

ZiziPB

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Re: Property tax escrow account vs. tax bill
« Reply #3 on: February 05, 2016, 11:56:51 AM »
In addition to the shortfall, you will also be asked to replenish the cushion that lenders typically require in the escrow accounts which is usually 2 months worth of whatever it is that the account covers.  So say your taxes are $2,400 per year, the lender will want $400 as a cushion in the account.  Knowing that your bill is actually higher than what they estimated, they now will want to do an escrow analysis that will include not only the higher tax bill but also a higher cushion.


frugalnacho

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Re: Property tax escrow account vs. tax bill
« Reply #4 on: February 05, 2016, 12:15:24 PM »
In addition to the shortfall, you will also be asked to replenish the cushion that lenders typically require in the escrow accounts which is usually 2 months worth of whatever it is that the account covers.  So say your taxes are $2,400 per year, the lender will want $400 as a cushion in the account.  Knowing that your bill is actually higher than what they estimated, they now will want to do an escrow analysis that will include not only the higher tax bill but also a higher cushion.

That's what the minimum requirement is in my post above.  From my experience they calculate out the projection for each month, and determine the overage/shortfall by how far off the projected minimum balance for the lowest month is from the "cushion" (minimum balance requirement).  Then they take that overage/shortfall and either refund it to you, or request you make up the difference in a one time payment.  Since I don't think they can require you to pay the full shortage at once (and most non mustachians couldn't handle it) they  spread it out over the next 12 months.  So in actuality you will be below the required minimum balance when that month comes, unless you opted to pay the shortfall in full.

zephyr911

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Re: Property tax escrow account vs. tax bill
« Reply #5 on: February 05, 2016, 12:21:54 PM »
They're offering you an interest-free loan. What's the dilemma, again?

If you can turn money into more money in any reliable fashion - aka "invest" - you shouldn't have to think about this.

frugalnacho

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Re: Property tax escrow account vs. tax bill
« Reply #6 on: February 05, 2016, 12:32:06 PM »
They're offering you an interest-free loan. What's the dilemma, again?

If you can turn money into more money in any reliable fashion - aka "invest" - you shouldn't have to think about this.

It's his own money though, they have just been holding it in escrow.  It's not really interest free, or a loan.

zephyr911

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Re: Property tax escrow account vs. tax bill
« Reply #7 on: February 05, 2016, 12:33:49 PM »
They're offering you an interest-free loan. What's the dilemma, again?

If you can turn money into more money in any reliable fashion - aka "invest" - you shouldn't have to think about this.

It's his own money though, they have just been holding it in escrow.  It's not really interest free, or a loan.
They're offering him money that he knows they're going to end up coming back for, later. Call it what you like. :D

protostache

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Re: Property tax escrow account vs. tax bill
« Reply #8 on: February 05, 2016, 12:35:35 PM »
I actually was able to get our escrow cancelled somehow. I had asked the servicer (Wells Fargo) what the requirements were, and they said they would research it and let me know, but in no uncertain terms they wouldn't not be able to do it until PMI was also cancelled.

I'm still not sure what happened, but one day last week I got a letter saying that our escrow account was closed and we should be expecting a check within. I called them and sure enough it's cancelled for tax and insurance purposes. We still have to pay into it for the PMI, which is just tacked onto our autopay every month.

zephyr911

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Re: Property tax escrow account vs. tax bill
« Reply #9 on: February 05, 2016, 12:37:13 PM »
I actually was able to get our escrow cancelled somehow. I had asked the servicer (Wells Fargo) what the requirements were, and they said they would research it and let me know, but in no uncertain terms they wouldn't not be able to do it until PMI was also cancelled.

I'm still not sure what happened, but one day last week I got a letter saying that our escrow account was closed and we should be expecting a check within. I called them and sure enough it's cancelled for tax and insurance purposes. We still have to pay into it for the PMI, which is just tacked onto our autopay every month.
That is interesting. Now I wanna try.

frugalnacho

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Re: Property tax escrow account vs. tax bill
« Reply #10 on: February 05, 2016, 12:56:16 PM »
I actually was able to get our escrow cancelled somehow. I had asked the servicer (Wells Fargo) what the requirements were, and they said they would research it and let me know, but in no uncertain terms they wouldn't not be able to do it until PMI was also cancelled.

I'm still not sure what happened, but one day last week I got a letter saying that our escrow account was closed and we should be expecting a check within. I called them and sure enough it's cancelled for tax and insurance purposes. We still have to pay into it for the PMI, which is just tacked onto our autopay every month.
That is interesting. Now I wanna try.

I also want to do this so I can double up on my large property tax bills for itemized deductions.  What I mean is i'll pay my large winter property tax bill myself in January, then again in December of the same year for the following year.  Then I can double up and take a large itemized deduction, followed by just the standard deduction the next year, then huge deduction, then standard, etc.

protostache

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Re: Property tax escrow account vs. tax bill
« Reply #11 on: February 05, 2016, 12:59:01 PM »
I actually was able to get our escrow cancelled somehow. I had asked the servicer (Wells Fargo) what the requirements were, and they said they would research it and let me know, but in no uncertain terms they wouldn't not be able to do it until PMI was also cancelled.

I'm still not sure what happened, but one day last week I got a letter saying that our escrow account was closed and we should be expecting a check within. I called them and sure enough it's cancelled for tax and insurance purposes. We still have to pay into it for the PMI, which is just tacked onto our autopay every month.
That is interesting. Now I wanna try.

I also want to do this so I can double up on my large property tax bills for itemized deductions.  What I mean is i'll pay my large winter property tax bill myself in January, then again in December of the same year for the following year.  Then I can double up and take a large itemized deduction, followed by just the standard deduction the next year, then huge deduction, then standard, etc.

Yep, that's not an uncommon tactic when you're right on the cusp most years. It doesn't make sense for us right now because our business deductions handily exceed the standard deduction all on their own, but in future years it'll be nice to have the control.

Psychstache

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Re: Property tax escrow account vs. tax bill
« Reply #12 on: February 05, 2016, 01:01:32 PM »
I actually was able to get our escrow cancelled somehow. I had asked the servicer (Wells Fargo) what the requirements were, and they said they would research it and let me know, but in no uncertain terms they wouldn't not be able to do it until PMI was also cancelled.

I'm still not sure what happened, but one day last week I got a letter saying that our escrow account was closed and we should be expecting a check within. I called them and sure enough it's cancelled for tax and insurance purposes. We still have to pay into it for the PMI, which is just tacked onto our autopay every month.
That is interesting. Now I wanna try.

I also want to do this so I can double up on my large property tax bills for itemized deductions.  What I mean is i'll pay my large winter property tax bill myself in January, then again in December of the same year for the following year.  Then I can double up and take a large itemized deduction, followed by just the standard deduction the next year, then huge deduction, then standard, etc.
This.

The only way it is worth it for me to itemize is to double up my property taxes. Canceling escrow was easy for me. Just walked into a Chase branch and told them to cancel it. Check wad on its way when I walked out.

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