New Construction Tax Bill

[MrChairman]

I just got a new construction tax bill in the mail. I called my servicer and she told me to send it to the tax department. The letter I got with the bill says normally servicers don't pay it. I was just curious as to weather any other new construction buyers paid this themselves or did the servicer pay it out of your escrow?

[ShanetheMortgageMan]

If you send it to your servicer for them to pay, then the escrow portion of your mortgage payment will increase to cover:

1. The amount they just paid

2. The higher tax rate in the future

After awhile (usually 6-12 months) it'll reduce to just cover #2.  This way you are essentially financing the supplemental tax bill through your mortgage payment.

If you pay it yourself, you should send a copy of the paid tax bill to your servicer and the escrow portion of your mortgage payment will increase, but only to cover:

1. The higher tax rate in the future

So it won't increase as much as if you ask your servicer to pay it.

[MrChairman]

Shane,

I'm not sure if I understand what you're saying. We already pay taxes on the purchase price (239K). Our assessed value is (208K) so we will always have extra money at the end of the year in the escrow account. I did the math and there is more than enough in the escrow account to cover this bill, and the full year taxes for 2014. So you're saying my escrow payments would still increase?

[ShanetheMortgageMan]

Usually when you purchase a home and set up an escrow account the mortgage lender will be collecting for the exact amount of property taxes at the time of closing, i.e. if it was $2,400/year then the escrow account will be $200/mo for taxes + $X for insurance.

In case of new construction, the lender usually estimates how much the property taxes will be, and sometimes it is less than the actual amount.  If it is less than the actual amount, then the mortgage company will increase the property tax portion of the escrow account once they are informed of the higher property tax amount.  They will pay the supplemental tax bill immediately (since it's usually due right away), and will increase the property tax portion to account for the higher than originally anticipated property taxes in the future + the supplemental amount they just paid (since that amount usually is retroactive to the date you purchased the property).  After awhile you will have made additional payments into the escrow account that would cover the supplemental tax bill, and the escrow account payment will reduce to where it'll pay for your new higher property taxes going forward.

So going back to the example above, if they originally thought it was going to be $2,400, and it turned out to be $3,000 total (which includes the $600 supplemental tax bill).  Then they will increase the $200/mo portion of your escrow account to $300/mo for 12 months to cover the actual property taxes of $250/mo + will pay back $50/mo of the $600 supplemental tax bill for the next 12 months ($50 x 12 = $600), at which point it'll reduce back down to $250 since the extra $600 supplemental tax bill has now been paid off.  Since I don't know your exact figures this is just guessing on what your situation might be, but it's usually pretty common after someone purchases a home and their lender underestimated what their property taxes would eventually be. 

You said you have more than enough funds in the escrow account to pay for this property tax supplement, but the money in the account may be earmarked to pay your future property taxes.  After you send this supplemental tax bill to your lender, ask them to provide you with an escrow account analysis which will break down the due dates of property taxes, how much they have in the escrow account & how much they will be collecting each month.

[MrChairman]

OK thanks Shane.

[J_G]

Man, Shane your good! You are helping America one post at a time! We couldn't pay for better advice. Thank you

[ezdriver]

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@MrChairman wrote:

I just got a new construction tax bill in the mail. I called my servicer and she told me to send it to the tax department. The letter I got with the bill says normally servicers don't pay it. I was just curious as to weather any other new construction buyers paid this themselves or did the servicer pay it out of your escrow?

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Do as your servicer instructed. Since your original financing arrangement included escrowing for taxes and homeowner's insurance, those bills should have been sent directly to the mortgagor/servicer. Your escrow account will be adjusted up or down once your servicer is able to compare the actual bill with their initial estimates. You benefit by having all of your tax payments fully documented on your mortgage statement and end-of-year 1099 from the lender. Annual escrow account balance adjustments are common.