On a home mortgage, is there always escrow money to cover unpaid property taxes?

[itsjunglepat]

I was answering a question about tax liens, certificates/deeds, and considering that I've never taken out a mortgage, it's a little blank spot in my knowledge.

[ranger_co_1_75]

Some financial institutions require tax / insurance escrow accounts, some don't.  Currently, I have both types of mortgages on different pieces of property.

[efflandt]

Not necessarily.  There might not be enough if someone estimates incorrectly or taxes go way up.  For example a new home only has a history of taxes on the empty lot, so if whoever does tax escrow fails to properly estimate taxes for the finished home value, the escrow account could end up way short.

But even for an existing home, taxes in some states lag the year they are for.  For example 2008 tax due in 2009.  The seller should give you credit for any tax due through closing, but if 2008 tax is not billed/collected until next year, that amount is unknown at this time.

In my case my lender made a mistake for my double lot (which was on all closing papers) and failed to pay one lot.  Since my lender's tax dept had no public phone and their fax was incompatible with mine, I had to pay the tax myself before tax sale and then tried to explain 3 times by snail mail that I just wanted reimbursement from escrow for the unpaid tax I paid myself.  But they misunderstood, thought they paid wrong lot and would get a refund, and sent me way too much.  I gave up at that point and waited until the following year when I sent them the tax bill telling them to pay both lots on the loan.  They paid my taxes, but then bumped up my escrow payment to catch up.

When I refi'd in 2005 I got rid of escrow, so I can make sure everything is done right.

[A_D]

You don't say where the property is located.  My comments are based on my experience in Austin, TX.

Usually at closing, if the loan amount is more than 80% of the sales price, the lender will require that you have an escrow account for property taxes and home owner's insurance as well as interest and principal payments on the loan.  Part of the monthly payment you make is put aside to cover these costs.  The monthly payment is referred to as PITI (Principal, Interest, Taxes, Insurance).

In this case, part of the closing costs are for Pre-Paids - this includes 15 months of home owner's insurance and 3 - 4 months of property taxes.  Figure 1 month's payment of each is equal to 1/12 cost of estimated year's expense.

The insurance policy is paid one year in advance and your escrow account then has 3 months reserves towards your next year's insurance policy.

Your property tax account has 3-4 months in advance of your estimated taxes as well as the Seller's contribution from Jan 1 thru day of closing.

In this way, your escrow account should always have 3 - 4 month's reserve for your property taxes and your home owner's insurance.

If your property taxes or your home owner's insurance premiums increase, you will receive a notice that your monthly payment will be increasing to cover the increases.

I hope that made sense and answered your question.

[viola_f]

there is escrow to take care  taxes and insurance if your attorney and or bank sets it up that way.  if not you are responsible.   I would recommend you close with a reputable real estate attorney. for you own protection.

[Steve_L]

It is recommended that you have an escrow account to cover taxes. That way you are guaranteed that they are paid as well as the mortgage company. Then should it come up down the line that they were not paid it is the mortgage company that has to straighten out the mess.
If the client on the other hand pay the taxes separately and some how forgets to pay the taxes then the property owner could loose the property and still owe the mortgage company. Cheep insurance for the mortgage company.

[godged]

Most lenders will allow you to do it either way, escrow account for your taxes or pay it yourself.  Since taxes are due 6 weeks before Christmas, many people opt for the escrow account.  But it is allowing the lender to hold your money interest free, so some people would rather handle it themselves.

[peacefuldisaster]

No, because many lenders do not require a tax escrow account on a mortgage if the loan amount is 80% or less of the appraised value of the property. In those cases, a tax escrow account is an option for the buyer. There are some lenders that require tax escrow on all mortgage loans.