What happens if you refuse to pay your taxes through an escrow account after you began a mortgage, but you continue to pay taxes directly to the?

Asked by Sydneyjd, 46410 Tue Dec 29, 2009


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Don Tepper’s answer
Don Tepper, Agent, Burke, VA
Wed Dec 30, 2009
What happens? Since you're now in violation of the terms of your loan, your lender can foreclose.

The bank is trying to protect its investment. Your property is security for their investment. They want to make sure that nothing happens (such as unpaid taxes) that can threaten their security--your home. And so they want control over the process of making sure that taxes are paid. That's the same reason they want to make sure that you have insurance on your home.

Continue with the escrow arrangement. It's what you agreed to. It doesn't cost anything.
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Erik Armstro…, , 47802
Wed Dec 30, 2009
You should talk to your Lender before making any decisions. You may be able to close your escrow account and pay your taxes and insurance directly, but don't try to just stop paying that portion without communicating with your lender about your wishes first.

For the most part I recommend to my clients that they use an escrow account. It reduces the annual or semi-annual burden by spreading out the payments. Now I have read about people who have exeptionally high taxes and insurance benefit from depositing the funds into an interest earning account but it would have to earn enough interest that it is worth the effort.

Hope this is helpful.
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Debbie Hemph…, Agent, Merrillville, IN
Wed Dec 30, 2009
I agee with the answers below.
Remember your home owners insurance policy is also part of your escrow account. If your policy is not paid, the bank will get a policy that covers the amount of the loan. It is more costly then what you already have, and it would not cover any of your personal belongings or the cost to replace or repair your home. And you would still be responsible to pay for the insurance.
The banks set up escrow accounts to protect them!! To insure the taxes are paid and the insurance policy on your home is current.
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Brent Bell, Agent, West Hartford, CT
Tue Dec 29, 2009
Your bank will explain to you how your payment is applied if you make less than a full payment. For instance, if you do not pay the amount of taxes due to escrow on a given month, the bank will apply your partial payment first to the late fee you created by making a partial payment (often 5% of the principal due, then to your escrow amount (the taxes you are "refusing to pay") and finally to the interest due on your loan.

In essence, you do not have the choice about how your partial payment will be applied to your debt and you will increase your cost of homeownership by not paying the full amount due to the bank or escrow agent.

You can always request a change by your lender or escrow agent to allow you to pay taxes on your own; however, in this economy, they may not be willing to allow this change (since it increases their risk).
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Al Akerman, Mortgage Broker Or Lender, Lakewood, NJ
Tue Dec 29, 2009
When you signed your mortgage docs, you agreed to pay taxes directly to your loan servicer.

Paying your taxes directly to the county or city will ensure that your taxes don't go delinquent. It won't, however prevent you from being in violation with your bank.

The bank would have the right to exercise the "acceloration clause" in the mortgage.

When you applied for your mortgage you may have had the option for a fee of .25% of the loan amount to pay your own insurance and taxes.

You can try contacting your bank and requesting an "escrow waiver" if you are willing to pay a small fee.

Good luck.
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