Property taxes and escrow accounts of various types are frequently intertwined. If you aren’t careful, and don’t get the right help and representation, common issues can put a big dent in your finances.
Property taxes in NY are already pretty controversial. Many have become wise to this ongoing fiasco, and know all too well that they need to build in a big financial cushion for ever increasing property taxes, and to routinely challenge their property tax assessments and bills to foil efforts to overcharge them each year.
Escrows are another area in which the interests of property owners collide with taxes. Here are some of those scenarios you should be watching out for whether buying, refinancing, holding or selling property.
Escrows Collected When Buying & Refinancing A Property
When you finance a property the closing agent (title company or law firm) will collect prorated property taxes for the year. This is money which is supposed to be kept in escrow until the tax bill is due. The escrow agent is responsible for making sure they are paid.
They will normally de-risk their situation by asking for additional months in escrow, and overestimating the bill.
This can add a lot to your cash out of pocket closing costs when buying a property. You can challenge this and ask them to minimize it. Otherwise this is money you can’t use or earn interest on, and which is harder to get back if there is a surplus.
You also need to follow up and ensure they actually pay the bill, and on time. Otherwise you may be shocked to find out a tax lien was placed on your property, along with extra fees and interest. If you don’t catch this in time, they could foreclose and auction off your home.
Property Tax Escrows As Part Of Your Monthly Payments
If you have a mortgage on your property, it is quite common for lenders to require monthly escrow payments. This is on top of your monthly principal and interest mortgage payment. It typically includes property taxes and insurance.
It should be the equivalent of your annual bill, broken into 12 equal monthly payments.
It is a red flag when lenders and servicers try to squeeze you for extra money, above estimated or actual bills. If they are going to nickel and dime you on this, then you may question their values and intentions. It can be a warning sign that they are not financially sound or solvent themselves.
If they are doing things right, then they should be updating, including lowering these monthly escrows when you qualify for new exemptions, like homestead, and when your property taxes are reduced.
Property Tax Escrows When Selling Your Property
The same applies when selling a property. The closing agent may collect prorated and estimated taxes from both you and the buyer. If it is too much, it can break the deal. As can having a high property tax bill, which is not competitive with other homes for sale.
You also want to be sure your property taxes are all paid up to date before you try to list and sell your home or business property.
Property taxes present a variety of threats to property owners. It may not be fun to deal with, but ignoring them, and the rights you have usually only lead to more pain and cost.
Challenge and reduce your property taxes now, hold title companies, and mortgage lenders and servicers accountable. If you don’t, you will at best over pay a lot, and could lose your home or business property, and all you’ve invested in it.