Receiving a property tax bill despite having an escrow account can be confusing and raise questions about the purpose of escrow and the management of property taxes.Many homeowners entrust their property tax payments to an escrow account held by their mortgage lender.We will explore why you may still receive a property tax bill when you have an escrow account,how escrow works,and the important factors to consider in such situations.
The Purpose of Escrow Accounts
Escrow accounts are commonly used by homeowners to ensure that funds are set aside to cover property-related expenses,including property taxes and insurance premiums.When you obtain a mortgage loan,your lender may require you to establish an escrow account as part of the loan agreement.The purpose of this account is to collect funds from your monthly mortgage payment to cover property tax and insurance expenses on your behalf.
How Escrow Works
Initial Escrow Account Setup:When you purchase a home or refinance your mortgage,your lender estimates the amount of property taxes and insurance premiums that will be due during the year.Based on this estimate,they calculate the monthly escrow payment and include it in your total mortgage payment.
Monthly Escrow Payments:Each month,a portion of your mortgage payment is allocated to the escrow account.The lender holds these funds and uses them to make property tax and insurance payments on your behalf when they become due.
Property Tax Payment:When property tax bills are issued by the local taxing authority,the lender reviews the bill and pays the property taxes from the funds in your escrow account.This ensures that your property taxes are paid in a timely manner.
Reasons for Receiving a Property Tax Bill with Escrow
Despite having an escrow account,you may still receive a property tax bill due to various reasons:
Escrow Account Review:Lenders typically conduct an annual review of escrow accounts to ensure that sufficient funds are available to cover property tax and insurance payments.If there is a shortage in your escrow account or the estimated property tax amount increases,you may receive a bill to cover the shortfall.
Changes in Property Tax Assessment:Property tax amounts can change due to reassessments,changes in tax rates,or updates in local tax laws.These changes can result in adjustments to your property tax bill,even if you have an escrow account.
Insufficient Escrow Cushion:Lenders maintain a cushion in escrow accounts to accommodate potential fluctuations in property tax and insurance amounts.If the cushion falls below a certain threshold due to increased tax amounts,you may receive a bill to replenish the escrow account.
Tax Exemptions or Deductions:Some homeowners qualify for property tax exemptions or deductions based on factors such as age,disability,or veteran status.If you become eligible for such exemptions or deductions,your property tax bill may reflect the adjusted amount.
What to Do When You Receive a Property Tax Bill
Review the Bill:Carefully review the property tax bill to ensure its accuracy.Verify that the property description,assessed value,and tax rates align with your property.
Contact Your Lender:If you receive a property tax bill despite having an escrow account,reach out to your mortgage lender or servicer for clarification.They can provide insights into the reasons for the bill and help you understand the adjustments made to your escrow account.
Assess Escrow Account Status:Request an escrow account analysis from your lender to understand the status of your account.This analysis will outline the amounts collected,disbursed,and any shortages or surpluses.