Insane bank screwup on property taxes--anyone been through this?

[Daleth]

Has anyone else ever had this problem, and if so what did you do? Here's what happened:

- Bought a building from a nonprofit (i.e., the seller was exempt from property tax) at a time when local property taxes were being changed, so it was not at all clear how much property tax would really be. At closing the bank calculated the tax at the highest rate they thought likely, and calculated my escrow based on that.

- A year later the bank said oops, we way overestimated, here's $10k back!

- A year later (now) the bank said oops, we underestimated and we not only need that $10k back, but need another $15k to build up the reserves we think we need. We have the option of recouping this $25k over a period of at least 12 months and we have decided to recoup it in... exactly 12 months! So your mortgage payment is going up by OVER 2 GRAND A MONTH due to our screwup.

Um...?!?!?! I'm a lawyer, but this is not at all my area of the law. Just wondering if anyone has dealt with anything like this. The insane irony of it is that the REASON banks think they need a huge buffer of escrowed property taxes (i.e. the extra $15k they think they need) is BECAUSE if people stop paying their mortgage then the bank has to come up with money for taxes itself. Quick question for banks: Does raising people's mortgages by $2k a month (i.e. by over 60% in this case) make people more likely or...LESS likely to keep paying their mortgage?!

[arebelspy]

Yikes.  What are the annual taxes on the property?

I've had escrow disbursements of a few hundred dollars, and had my payments raised/lowered a few dozen bucks at most to cover shortfalls or because less was needed, but nothing on that magnitude.

[3okirb]

Has anyone else ever had this problem, and if so what did you do? Here's what happened:

- Bought a building from a nonprofit (i.e., the seller was exempt from property tax) at a time when local property taxes were being changed, so it was not at all clear how much property tax would really be. At closing the bank calculated the tax at the highest rate they thought likely, and calculated my escrow based on that.

- A year later the bank said oops, we way overestimated, here's $10k back!

- A year later (now) the bank said oops, we underestimated and we not only need that $10k back, but need another $15k to build up the reserves we think we need. We have the option of recouping this $25k over a period of at least 12 months and we have decided to recoup it in... exactly 12 months! So your mortgage payment is going up by OVER 2 GRAND A MONTH due to our screwup.

Um...?!?!?! I'm a lawyer, but this is not at all my area of the law. Just wondering if anyone has dealt with anything like this. The insane irony of it is that the REASON banks think they need a huge buffer of escrowed property taxes (i.e. the extra $15k they think they need) is BECAUSE if people stop paying their mortgage then the bank has to come up with money for taxes itself. Quick question for banks: Does raising people's mortgages by $2k a month (i.e. by over 60% in this case) make people more likely or...LESS likely to keep paying their mortgage?!

We had this happen and what it ended up being is that the county charged tax as if the property wasn't our primary residence.  Once we got that fixed and sent over the new bill to the bank, it fixed the problem. 

That being said, if that's NOT the problem, you still owe the taxes.  The bank is just making sure that they have enough money to write the check.  (Another thing is to make sure the bank didn't send a late payment and is including a penalty in the amount they are charging you).

[marty998]

For the uninformed non-americans out there could you please explain:

a) why the bank collects (state?) property taxes on your behalf?
b) who collects the taxes if you don't have a mortgage?

Also - (not talking about you specifically, but generally) isn't it your responsibility to know and understand your own taxes? Therefore you should know roundabouts what your taxes should be and be in a position to pay it regardless of the number the bank tells you?

Not being snarky but I find it frankly a bit bizarre and weird this system of yours :)

[arebelspy]

For the uninformed non-americans out there could you please explain:

a) why the bank collects (state?) property taxes on your behalf?
b) who collects the taxes if you don't have a mortgage?

Also - (not talking about you specifically, but generally) isn't it your responsibility to know and understand your own taxes? Therefore you should know roundabouts what your taxes should be and be in a position to pay it regardless of the number the bank tells you?

Not being snarky but I find it frankly a bit bizarre and weird this system of yours :)

When you have a mortgage, the bank adds on an escrow account (typically), and on top of your P&I (principal and interest payment) you also pay in taxes and insurance.  This makes up your whole PITI payment to the bank.  The bank then disburses the taxes and insurance to the appropriate parties when necessary.

You are responsible to pay when there is no mortgage.

[Daleth]

For the uninformed non-americans out there could you please explain:

a) why the bank collects (state?) property taxes on your behalf?
b) who collects the taxes if you don't have a mortgage?

Also - (not talking about you specifically, but generally) isn't it your responsibility to know and understand your own taxes? Therefore you should know roundabouts what your taxes should be and be in a position to pay it regardless of the number the bank tells you?

Not being snarky but I find it frankly a bit bizarre and weird this system of yours :)

When you buy a house with a mortgage, banks typically require you to include taxes and homeowner's insurance premiums in your monthly mortgage payments. That portion of your payment is placed in an escrow account that the bank sets up, and the bank pays your taxes and insurance for you from that account. They do it this way because if taxes go unpaid, the taxing body (city, county or state) can, after a long legal process, seize your house and sell it to get the taxes paid. Obviously the bank doesn't want that to happen since the house is collateral on their loan, so they ensure that the taxes are paid by using this system.

Same deal with insurance--the bank needs the house to be insured because it's collateral for the loan, so they ensure that it is insured by paying the premiums for you (you select the insurer and the policy, but the bank makes sure the payments are made).

[Sid Hoffman]

The fact that the bank created the estimate twice and you didn't contest either estimate is probably all the bank needs to demonstrate that they twice made estimates in good faith and you didn't argue with either estimate.  What about if you just pay the property taxes in full yourself and tell them to only collect as needed to cover next year's taxes?  Or did they already send in payment for the previous round of taxes, so they're playing catch-up?

Either way, sorry to hear that happened.  I'm used to things like in my state every property has an assessed value off of which the taxes are computed.  If the owner is tax exempt, then the taxes aren't collected, but it's still easy to calculate what the taxes would be from the LPV listed in public records.

[Mr Fixit]

I would see if you can change over to not using escrow to pay your taxes and insurance.  Not all banks will do it, but I have been able to on two of mine.

[waltworks]

In most cases you do not HAVE to have your taxes escrowed and paid by the bank. Maybe look into that?

-W

[lakemom]

Has anyone else ever had this problem, and if so what did you do? Here's what happened:

- Bought a building from a nonprofit (i.e., the seller was exempt from property tax) at a time when local property taxes were being changed, so it was not at all clear how much property tax would really be. At closing the bank calculated the tax at the highest rate they thought likely, and calculated my escrow based on that.

- A year later the bank said oops, we way overestimated, here's $10k back!

- A year later (now) the bank said oops, we underestimated and we not only need that $10k back, but need another $15k to build up the reserves we think we need. We have the option of recouping this $25k over a period of at least 12 months and we have decided to recoup it in... exactly 12 months! So your mortgage payment is going up by OVER 2 GRAND A MONTH due to our screwup.

Um...?!?!?! I'm a lawyer, but this is not at all my area of the law. Just wondering if anyone has dealt with anything like this. The insane irony of it is that the REASON banks think they need a huge buffer of escrowed property taxes (i.e. the extra $15k they think they need) is BECAUSE if people stop paying their mortgage then the bank has to come up with money for taxes itself. Quick question for banks: Does raising people's mortgages by $2k a month (i.e. by over 60% in this case) make people more likely or...LESS likely to keep paying their mortgage?!

My first line of defense would be to set up a face to face with the escrow department (department manager if you can rather that just an account manager) and have them walk you through step by step everything that has come in/gone out of your escrow account since inception.  If the money they want each month is more than the property can support, have those figures handy and try to negotiate a longer period of "payback/catchup/whatever they call it.  Just randomly raising a monthly payment by 60% seems insane and if you check may violate banking/tax laws in your state (I'd have that info handy too if that's the case).  Good luck...those numbers are enough to take a building from nicely cash flowing to being a cash drain.  Finally, do you have the cash available to just give them a lump sum if there's no negotiating?  That way you cover their need for more money while keeping your monthly payment the same.

[El Marinero]

I've not had an escrow account on my residence or rental property for a decade.  I do need to remember to send in the check twice a year, an pay the insurance. 

It wasn't any problem to decline having the escrow account when refinancing (with 80% loan to value ratio). 

Either way, though, the property taxes are ultimately the owners responsibility, not the banks.  Having worked for a bank, I'm not surprised that that they screwed up a calculation.

[jmusic]

Has anyone else ever had this problem, and if so what did you do? Here's what happened:

- Bought a building from a nonprofit (i.e., the seller was exempt from property tax) at a time when local property taxes were being changed, so it was not at all clear how much property tax would really be. At closing the bank calculated the tax at the highest rate they thought likely, and calculated my escrow based on that.

- A year later the bank said oops, we way overestimated, here's $10k back!

- A year later (now) the bank said oops, we underestimated and we not only need that $10k back, but need another $15k to build up the reserves we think we need. We have the option of recouping this $25k over a period of at least 12 months and we have decided to recoup it in... exactly 12 months! So your mortgage payment is going up by OVER 2 GRAND A MONTH due to our screwup.

Um...?!?!?! I'm a lawyer, but this is not at all my area of the law. Just wondering if anyone has dealt with anything like this. The insane irony of it is that the REASON banks think they need a huge buffer of escrowed property taxes (i.e. the extra $15k they think they need) is BECAUSE if people stop paying their mortgage then the bank has to come up with money for taxes itself. Quick question for banks: Does raising people's mortgages by $2k a month (i.e. by over 60% in this case) make people more likely or...LESS likely to keep paying their mortgage?!

My first line of defense would be to set up a face to face with the escrow department (department manager if you can rather that just an account manager) and have them walk you through step by step everything that has come in/gone out of your escrow account since inception.  If the money they want each month is more than the property can support, have those figures handy and try to negotiate a longer period of "payback/catchup/whatever they call it.  Just randomly raising a monthly payment by 60% seems insane and if you check may violate banking/tax laws in your state (I'd have that info handy too if that's the case).  Good luck...those numbers are enough to take a building from nicely cash flowing to being a cash drain.  Finally, do you have the cash available to just give them a lump sum if there's no negotiating?  That way you cover their need for more money while keeping your monthly payment the same.

This.  In addition, I'd recommend discussing your situation with your municipal tax assessor and find out what's actually going on with your taxes.

[bizzy]

This happened to me. The bank sent more money then I owed on my property taxes. the bank just said to ask for a refund from the county. I did ask for a refund and they sent it to me, but it took a long time for me to get it. So I closed my escrow account and now I just pay it directly. I just add that the only reason the bank paid more at first is because the county had assessed my property taxes higher. they took their sweet time to record the new purchased price of my home when I bought it, so the bank just paid whatever the bank said I owed. Bottom line is that you are better off just paying the taxes yourself. Why do you need a middle man?

[El Marinero]

Bottom line is that you are better off just paying the taxes yourself. Why do you need a middle man?

Spoken like a badass Mustachian!

[Daleth]

The fact that the bank created the estimate twice and you didn't contest either estimate is probably all the bank needs to demonstrate that they twice made estimates in good faith and you didn't argue with either estimate.

Thing is, **one month** after sending me the early 2014 letter saying they had overestimated the taxes and my escrow was going down (and enclosing the $10k check), they received and paid a tax bill three times higher than what they had paid the previous year... and didn't tell me, and didn't adjust my escrow back up or request the $10k back, until getting the NEXT year's huge tax bill a year later! In other words they knew within a month that they'd made a huge mistake on the 2014 taxes, but chose not to tell me, and not to collect enough escrow payments to cover the taxes for 2014 or 2015, for another year!

And then when I called them they said (1) that I somehow should have known they had made a mistake back in early 2014 (them: "You should have known what your taxes were and that our escrow wasn't going to be enough." Me: "But YOU don't even seem to know what my taxes are, and it's YOUR job to set the escrow correctly!"), and (2) that they were legally obligated to collect the deficiency over a 12-month period, no longer and no shorter--which is a lie (it's true that under RESPA it can't be shorter than 12 months, but there is no restriction on how long it can be; they have the option of collecting it over 24, 36, however many months, instead of jacking up the mortgage payment so high most owners would lose the property).

As you and others have suggested, I'm going to ask to pay my own taxes and insurance to avoid this kind of screwup in the future.

Also, I talked to a colleague who knows this area of law and he told me to report it to my state banking department and the federal Consumer Financial Protection Bureau. Done.

[Sid Hoffman]

Also, I talked to a colleague who knows this area of law and he told me to report it to my state banking department and the federal Consumer Financial Protection Bureau. Done.

There ya go - that sounds like a good idea.  Banks have a TON of regulation to comply with nowadays, so I'm sure if the intention was to gain attention, reporting an error of theirs to one of the regulatory bodies will get their attention.

[Another Reader]

Banks servicing loans in California have a lot of difficulty with the supplemental tax bills or refunds that are generated when there is a change in ownership. It sounds like Bizzy bought the property for less than the then current assessed value and the bank paid the current year taxes.  A prorated supplemental refund was probably generated by the county when they enrolled the new base year value.  That check went to Bizzy.  What the bank did in this case was correct.  The regular taxes and the supplemental taxes/refunds are actually based on two different tax rolls.

My father went through this when he transferred his base year value to a home in a retirement community in another county.  The bank estimated the taxes based on the purchase price and over collected for two or three years.  Despite the letter from the assessor accepting the base value transfer that I sent in, along with the summary of the law (Prop 90), the bank insisted the tax roll would be corrected.  When it was not, the money was refunded.

[bizzy]

Banks servicing loans in California have a lot of difficulty with the supplemental tax bills or refunds that are generated when there is a change in ownership. It sounds like Bizzy bought the property for less than the then current assessed value and the bank paid the current year taxes.  A prorated supplemental refund was probably generated by the county when they enrolled the new base year value. 

Yes, that's exactly what happened. I purchased for less then the previous value. Once I called the county they were giving a hard time. One lady told me that they might want to assess the value not based on what I bought if for, but on what they think its worth. She said that maybe if I got a good price on the house then maybe they might tax higher. Eventually they did sent me a refund but it was very confusing and they took about a year to get the refund.

[zinethstache]

It is common in my state when looking at local lenders, to be given the option of no escrow but only if you pay a slightly higher interest rate. I've always shopped around for non-escrow financing without the penalty, so watch the rate you are given and compare to current rates to be sure.

We've never had escrow on any of our primary residences. All of our rentals are escrowed, mainly to keep our twice yearly property tax hit a reasonable rate. I do watch our assessments and know from year to year how much the escrow will change, I don't want any surprises.

Sorry to hear about this mess, not a good place to be for sure!

[Villanelle]

I don't escrow, and I don't know why anyone who is responsible with money would.  I can have that money in a savings account, collecting at least a tiny amount of interest, or I can let someone else collect that interest, and worry about them screwing up besides.

Again, unless someone is irresponsible enough with money that they can't trust themselves to set aside that money and have it available when needed, escrowing is a terrible choice unless required. 

Oh, and I've never had to pay a higher interest rate or anything else. 

[arebelspy]

I don't escrow, and I don't know why anyone who is responsible with money would.  I can have that money in a savings account, collecting at least a tiny amount of interest, or I can let someone else collect that interest, and worry about them screwing up besides.

It saves me effort that is worth more than the tiny amount of interest.

[GizmoTX]

We had escrow for property taxes & insurance on our first house (in the 70s) but not for the 4 houses that we've owned since.

The problem we now have is having to protest the property tax assessment every other year or so. But at least we know what we're paying & control when we want to pay it.

[Villanelle]

I don't escrow, and I don't know why anyone who is responsible with money would.  I can have that money in a savings account, collecting at least a tiny amount of interest, or I can let someone else collect that interest, and worry about them screwing up besides.

It saves me effort that is worth more than the tiny amount of interest.

How much effort? It takes me about 2 minutes--if that-- twice a year, to go to my web bill pay and have a check sent out. 
And it's not just the interest.  It's being in control of everything you you don't end up in a situation like that OP. 

[arebelspy]

I don't escrow, and I don't know why anyone who is responsible with money would.  I can have that money in a savings account, collecting at least a tiny amount of interest, or I can let someone else collect that interest, and worry about them screwing up besides.

It saves me effort that is worth more than the tiny amount of interest.

How much effort? It takes me about 2 minutes--if that-- twice a year, to go to my web bill pay and have a check sent out. 
And it's not just the interest.  It's being in control of everything you you don't end up in a situation like that OP.

Not that much, admittedly, but more than is worth the tiny interest.  Going from paying one bill (mortgage) to multiple (mortgage, insurance, taxes) would add some effort, and actually decoupling it in the first place would be quite a hassle too.

The OP was a unique situation, I'm not worried about that.

To each his own.  I have a bunch that aren't escrowed, but I was trying to explain to you the answer to your "I don't know why anyone who is responsible with money would [escrow]" comment.  :)

[Seeking the Brass Ring]

I'm wondering if this bank was Wells Fargo.  Their mortgage department tried to screw us every time I turned around.  After 18 months we finally re-financed the mortgage and closed all of our other accounts with them.  Ironically, closing the accounts was the easiest thing we had done with them.

[caliq]

I'm wondering if this bank was Wells Fargo.  Their mortgage department tried to screw us every time I turned around.  After 18 months we finally re-financed the mortgage and closed all of our other accounts with them.  Ironically, closing the accounts was the easiest thing we had done with them.

Ugh, they messed up with my escrow account too!  They paid our homeowner's insurance twice this past December and luckily I happened to catch it before property taxes were due in January...I want to ask them to stop making tax/insurance payments but I don't know how to even go about doing that :/

[arebelspy]

I want to ask them to stop making tax/insurance payments but I don't know how to even go about doing that :/

Call them up and tell them that (you don't want your tax/insurance payments escrowed anymore).  If they do it, they'll send you a form to fill out.

[caliq]

I want to ask them to stop making tax/insurance payments but I don't know how to even go about doing that :/

Call them up and tell them that (you don't want your tax/insurance payments escrowed anymore).  If they do it, they'll send you a form to fill out.

Thanks! That's kind of what I thought I should do but then it seemed too simple, lol.

[merula]

I don't escrow, and I don't know why anyone who is responsible with money would.

My lender wouldn't let me not have escrow, and their rate was a full point below anyone else's. It saves time, as others have said, and I earned 6% interest on the money. I had no idea that I had earned this interest and the 1099-INT came in after I had submitted my return, so it ended up being a bit of a hassle, but there are a few good reasons why people would.

[bludreamin]

I have to have escrow as well. I appreciate the simplicity of one bill to cover PITI.  I'm not worried about getting in a situation like the OP because I'm notified by my bank every time there is a disbursement from my escrow account.  If a larger draw than expected happens I'd know within a few days and would work to resolve. I haven't had anything weird happen so far and am confident I'd be able to catch a big change in what's actually disbursed vs what the escrow amount assumed.

[slugline]

It saves time, as others have said, and I earned 6% interest on the money. I had no idea that I had earned this interest and the 1099-INT came in after I had submitted my return, so it ended up being a bit of a hassle, but there are a few good reasons why people would.

6% interest!? Recently? Sounds like a hell of a good deal to me. Mind disclosing the lender?

[merula]

It saves time, as others have said, and I earned 6% interest on the money. I had no idea that I had earned this interest and the 1099-INT came in after I had submitted my return, so it ended up being a bit of a hassle, but there are a few good reasons why people would.

6% interest!? Recently? Sounds like a hell of a good deal to me. Mind disclosing the lender?

You really, really don't want my lender. I had to fight tooth and nail to get them to take off PMI when required, they don't play nice with Mint and they have no idea how to process extra principal payments. (They always put them towards the next month and then when I call about half the time they try to convince me that I should really just leave it because what if I can't pay my mortgage next month?)

BUT, it's not about the lender, I found out. It's legally required depending on the state and loan type. 6% sounds like a lot, but it's really only like $150.