What Happens If Your Property Taxes Are Miscalculated?
If your property tax payments are escrowed—that is, added to your monthly mortgage payment and paid by your lender—you may not give much thought to these payments as long as your lender promptly makes them. However, a miscalculation in the amount of property tax due can dramatically increase your mortgage payment and potentially lead to foreclosure. Read on to learn more about what you can do to prevent defaulting on your mortgage payment.
Why are taxes escrowed?
Some lenders require that taxes be escrowed and remitted by the lender to the taxing entity. This process allows the lender to ensure that no one can place a lien on your property for unpaid taxes. Such a lien would take priority over the lender's claim, and if your property entered foreclosure, your lender may not be able to recover enough funds from the sale of your home to recoup its investment.
What happens if taxes are miscalculated?
When your taxes are escrowed, your lender will likely ask you to promptly remit any tax information you receive from your city or county so that they can correctly calculate the amount of money to place in escrow each month. In some cases, your city may even send the information straight to your lender.
However, computer glitches or human error can often cause the amount of annual taxes to be miscalculated. If this calculation is not corrected by the time the tax information is provided to your lender, your lender may base your escrow payment on an incorrect tax bill.
One common example can take place when a taxing authority changes from an annual tax payment to semi-annual payments. Rather than dividing the initial annual payment by half, some taxing authorities may accidentally keep this payment the same—essentially billing you (or your lender) for double the amount actually owed. When your lender calculates your escrow, it will include this double billing and raise your mortgage payment. If you fail to pay the increased payment while negotiating the true amount with your taxing authority, your lender may declare you in default and file a mortgage foreclosure action.
What should you do if this happens to you?
Fortunately, the foreclosure process can be a lengthy one, giving you plenty of time to correct this mistake.
First, be sure to carefully review your annual property tax statements before forwarding them to your lender. If your taxing authority sends these statements directly to the lender, ask to receive a copy so that you can ensure they are using accurate data.
Second, once you become aware of a mistake, immediately alert both your lender and your taxing authority. You'll want your taxing authority to issue a corrected bill as quickly as possible, and also want your lender to be on notice that you are appealing this amount.
Finally, keep detailed records of all transactions and conversations you have with regard to this issue. If your lender threatens to file foreclosure, you may need to speak with an attorney (such as one form Thomas M. Denaro, Esq.). Ensuring that you have documented your efforts to fix this mistake can help your attorney resolve this matter without impacting your credit report or mortgage amount.
