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Why Did I Get a Property Tax Bill if I Have Escrow?

Many homeowners finance the cost of their home purchase through a mortgage. When you do this, many mortgage companies will require that your property taxes are paid as part of your monthly mortgage payment, through what's known as escrow.

Included in your escrow payment is likely an amount that goes toward your property tax bill as well as an amount that goes toward your homeowners insurance. Some lenders will allow you to pay both of these bills separately after the first year of your mortgage, many people choose to continue paying it through escrow because of the simplicity of doing so. 

Sometimes, though, you may still get a property tax bill from your local municipality, even if you pay through escrow. Why does this happen, and what are you supposed to do if it does?

How Escrow Works

Escrow is a separate account your mortgage company opens to hold advance payments you make toward your property taxes and your homeowners insurance. Typically speaking, your property tax bill is due on a quarterly basis, and your insurance is due annually.

To make it simpler for you, the mortgage company will estimate your property tax and insurance bill for the year, and then split that into 12 equal monthly payments. Then, you pay your escrow amount in addition to the principal and interest on your home for one total mortgage bill.

The balance of your escrow account will continue to grow each month until the mortgage company makes a payment on your behalf. The taxing agency will send the quarterly tax bill directly to the mortgage company, which will then pay what's due out of the escrow account. 

Many jurisdictions are still required to send homeowners a notice of estimated taxes for the upcoming year. On the notice will be the actual amount of the current year's property taxes, as well as an estimate of next year's taxes. Most of these notices will also commonly state that it's not a bill and is just for your information.

Why You May Receive a Tax Bill

Sometimes, you may receive an actual tax bill from your local jurisdiction, even though you have an escrow account. Here are some common reasons this might happen.

Clerical Error

Mistakes are made from time to time, and if this happens with tax bills, you may be sent a notice for payment. There are a number of reasons why this could happen, including a simple typing mistake or a crossing of information in the mail.

Many clerical errors are easy to solve, and are obviously mistakes.

Change in Servicing Company

The mortgage servicing company that handles your loan when you purchase you home may not remain your servicing company through the life of the loan. Sometimes, your servicing company will chance, and this is a common reason why you might receive a tax bill even if you have an escrow account.

If the change in companies happening during a billing cycle, the jurisdiction may have sent your tax bill to the old company. That old company would obviously not pay the bill, and may not notify the jurisdiction of the change. If this happens, you may receive a tax bill.

Late Payments

If you didn’t pay your mortgage on time, your lender is no longer required to fully pay your taxes. While they have the right to do this, it isn't something that happens frequently. In most cases, if you are late on your mortgage payment, your lender will reach out to you to notify you of the amount that is due. 

They'll also likely to continue to pay your property taxes on your behalf as a way to protect their investment. If the local town puts a lien on the property due to unpaid taxes, it could cause headaches for the mortgage company during any potential foreclosure process.

Mortgage Paid Off

Escrow accounts last for the life of your mortgage, no matter how long that is. Once your mortgage is completely paid off, your escrow account will go away. When this happens, your town will start to send you tax bills directly, as you'll still have to pay them even after the loan on your home has been paid off.

Steps to Take if You Get a Tax Bill

If you receive a tax bill when you have an escrow account, there are a few simple steps that you should take. 

Contact the Taxing Agency

The first step is to contact the taxing agency and find out why you were sent a tax bill. They may not know of your new mortgage servicing company, or they may have just not noted that your bill had been paid out of escrow, for instance. 

That's why it's a good idea to start by contacting them. Many simple errors at the taxing agency can be solved through a quick phone call. They'll also be the ones who can tell you if your mortgage company never paid your taxes.

Contact the Mortgage Company

If the taxing agency says that your taxes were never paid, then you need to contact the mortgage company immediately. Find out why they didn't pay your taxes out of escrow so you can figure out what the next steps are. 

While you are paying your property taxes through escrow, it's still your ultimate responsibility for making sure they are paid to the taxing agency. If the mortgage company doesn't pay them, per the agreement of the loan, it's you who will end up paying the price in the end.

If the reason the lender hasn't paid your taxes is something on your end, you can find out what you can do to correct the situation.

Contact the Taxing Agency Again

Make sure that after you make these first two calls you follow up and stay on top of everything. If your mortgage company says they paid the bill, for example, get a receipt of the payment being made and send it to the taxing agency. 

There are many other reasons that this could've occurred, so just make sure to track the progress all the entities involved are making toward getting the situation solved. You shouldn't simply trust that everything will be solved for you. Be proactive to ensure that your taxes are paid on time, in full, as they're supposed to be.


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