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Old 04-01-2015, 12:18 PM
 
Location: Denver CO
18,975 posts, read 10,032,914 times
Reputation: 27746

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I bought new construction last year, closing in November. My lender calculated taxes based on the improved value of the home, and it was the amount I expected it to be given the value of the home. My pre-paids at closing and my current mortgage payment was based on that amount. However, the official calcuation of taxes for 2014 was based on 10/12 months without an improved valuation on the property. My understanding was that was taken into account for the prepaids and as far as I knew, everything was good.

Now I've received a somewhat large check from my lender and they have recalculated my escrow. The amount is wrong - I know the tax rate for where I live and they are not escrowing enough - they are dropping my payment about $150 per month.

My big concern is that they are going to realize this is wrong at some point and then come looking for the money. I don't want to have to come up with a large lump sum or have my monthly payment go back up not just the $150 per month, but then another $150 or something a month to cover the shortfall.

I don't have a tax bill from the county yet, I just know what the rates are where I live, and there is an additional mill levy that the rest of the city doesn't have. My best guess is they have somehow calculated my projected taxes without that extra levy.

What would be the best way to handle this?
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Old 04-01-2015, 12:44 PM
 
Location: Boise, ID
8,011 posts, read 22,499,039 times
Reputation: 9212
Quote:
Originally Posted by emm74 View Post
I bought new construction last year, closing in November. My lender calculated taxes based on the improved value of the home, and it was the amount I expected it to be given the value of the home. My pre-paids at closing and my current mortgage payment was based on that amount. However, the official calcuation of taxes for 2014 was based on 10/12 months without an improved valuation on the property. My understanding was that was taken into account for the prepaids and as far as I knew, everything was good.

Now I've received a somewhat large check from my lender and they have recalculated my escrow. The amount is wrong - I know the tax rate for where I live and they are not escrowing enough - they are dropping my payment about $150 per month.

My big concern is that they are going to realize this is wrong at some point and then come looking for the money. I don't want to have to come up with a large lump sum or have my monthly payment go back up not just the $150 per month, but then another $150 or something a month to cover the shortfall.

I don't have a tax bill from the county yet, I just know what the rates are where I live, and there is an additional mill levy that the rest of the city doesn't have. My best guess is they have somehow calculated my projected taxes without that extra levy.

What would be the best way to handle this?
This is totally normal on New Construction, especially if you live in an area where taxes are paid in arrears. If the current taxes are 2014 taxes being paid are on the lot, and haven't caught up with the house being on the lot yet, then if they escrow for the "right" amount (what you know it should be), they will end up over the federally allowed limits in the account, and BY LAW, they have to refund you. They will eventually come looking for the difference when the 2015 taxes are due, which include the house.

You said you just received a large-ish check from them. Keep that money so you can pay back into it when required. It isn't like you'll have to come up with the money out of pocket later...you've just been given it, to give back to them in a year or so.
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Old 04-01-2015, 12:45 PM
 
147 posts, read 151,827 times
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1. Make a one-time payment to the escrow account for what you project the shortage to be ($1800)

2. Make an additional $150/mo escrow payment each month.

You're right, when they get the 2015 tax bill, they'll adjust your payment to account for the escrow shortage.
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Old 04-01-2015, 12:58 PM
 
Location: Denver CO
18,975 posts, read 10,032,914 times
Reputation: 27746
Quote:
Originally Posted by Lacerta View Post
This is totally normal on New Construction, especially if you live in an area where taxes are paid in arrears. If the current taxes are 2014 taxes being paid are on the lot, and haven't caught up with the house being on the lot yet, then if they escrow for the "right" amount (what you know it should be), they will end up over the federally allowed limits in the account, and BY LAW, they have to refund you. They will eventually come looking for the difference when the 2015 taxes are due, which include the house.

You said you just received a large-ish check from them. Keep that money so you can pay back into it when required. It isn't like you'll have to come up with the money out of pocket later...you've just been given it, to give back to them in a year or so.
Thank you so much, this really helps explain it!

I spoke to the assessor's office, and they also helped clarify. Taxes are paid in arrears, so in 2016, I will be paying for the improved value for 2015.

It doesn't sound like I would owe any lump sum back to the mortgage company, just that they will go ahead and readjust my escrow again, based on the assessed value and the new figures as of 2016. At that point, I should be paying about what I expected each month. But I'll make sure to keep this money set aside, just in case!
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Old 04-01-2015, 01:00 PM
 
Location: Denver CO
18,975 posts, read 10,032,914 times
Reputation: 27746
Quote:
Originally Posted by Sam.adams33 View Post
1. Make a one-time payment to the escrow account for what you project the shortage to be ($1800)

2. Make an additional $150/mo escrow payment each month.

You're right, when they get the 2015 tax bill, they'll adjust your payment to account for the escrow shortage.
Thanks for the reply. I don't think I can do either of those because the issue is that they sent me back money I had already paid into the escrow account. I believe they would just send it back to me again. But I will "escrow" it in my own account, just in case I need the lump sum, although per my reply to Lacerta, I don't think that will be the case.
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Old 04-01-2015, 04:09 PM
 
Location: Boise, ID
8,011 posts, read 22,499,039 times
Reputation: 9212
So here is the detailed explanation.

The escrow accounts are allowed to keep a "buffer", but the government puts a cap on that buffer. The cap is such that they take your insurance payment and your tax payment, and add them together. At the lowest balance of the year, you can't have more than 1/6th that amount in the account.

So for example, just to use easy numbers, if your insurance was $600 and your taxes were $2000, then your lowest balance of the year can't be more than $2600/6, or $433.33. If your lowest balance was $500, they have to send $66.67 back to you.

You COULD make extra payments, however, now that you are past that "low balance" point for this year, since you need to build up for when the 2016 payments are due. If you don't, then when your taxes are due, one year from now (whatever month yours are paid, mine are December and June, but they vary), you won't have enough in escrow, since you won't have built them up. So then they will either ask for a lump sum, or raise your payment. They wouldn't be likely to send it back again, since by the time they reaudit next year, the taxes WILL be higher.

They almost for sure would NOT just turn around and send the money right back to you. They are only required to do that once per year.

Personally, I would just wait until they ask for it, and then pay it back. But you could pay back in at any time. You just need to make sure that your extra payments are designated as being for escrow, not for principal.
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Old 04-01-2015, 04:10 PM
 
Location: Boise, ID
8,011 posts, read 22,499,039 times
Reputation: 9212
Think of it this way. They sent you the money back AND lowered your payment. If they had just done one or the other, you wouldn't owe anything a year from now, but by doing both, they sent you back the extra AND aren't building up for next year.
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Old 04-01-2015, 04:19 PM
 
Location: Denver CO
18,975 posts, read 10,032,914 times
Reputation: 27746
Quote:
Originally Posted by Lacerta View Post
Think of it this way. They sent you the money back AND lowered your payment. If they had just done one or the other, you wouldn't owe anything a year from now, but by doing both, they sent you back the extra AND aren't building up for next year.
Yes, right! I wish they would just keep it at the amount it should be. But if they only send back the refund once a year, and I can keep paying what I know is the right amount, I will just do that. I was planning to keep paying the same amount anyway, and designate the extra toward principal. But if I can designate it as escrow and be caught up when they adjust it, that probably makes more sense. I will get a notice of valuation in May from the assessor's office, so I'll be able to confirm that the amounts will be where I expect them to be before I get to the point of paying too much if for some reason, it assesses lower than I expect it to.
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Old 04-02-2015, 05:39 AM
 
Location: MID ATLANTIC
7,598 posts, read 17,614,249 times
Reputation: 8078
I would take those funds and put them in an account in a different bank (that won't cost you anything). Then, sign up for payroll deduction for $150 a month to the same account. The absolute worse scenario if the funds are never needed is you have a rainy day fund. You can't make saving any more painless. As the funds grow, you can invest in other venues.
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