Brittany, Home Buyer in Chicago, IL

I closed on my home in June 2013. A couple of days ago I received a letter in the mail from my bank that my Escrow was negative. How is that possible?

Asked by Brittany, Chicago, IL Thu Jan 30, 2014

Before I closed I had over 1000.00 in escrow and started my mortgage payments May of that yr. The property was a short sale and taxes were prorated at 100%. I was told that the other half of the 2012 tax installment was paid out. But my question is why would I have to pay 2012 installment when I did not own the property then? Some advice on how I should move forward would be helpful. Thank you.

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13
Paul Garver, Other Pro, Hinsdale, IL
Thu Jan 30, 2014
Brittany-

I don't know the particulars of your contract nor of your property, so I can only talk in general terms based upon what "typically" happens in a real estate transaction.

Remember that taxes are a year deferred in Cook County. So the 2012 tax bills come out in 2013, and the 2013 tax bills come out in 2014. The first installment of taxes for each year comes out in February and is due at the beginning of March. In Cook County the first installment is always 55% of the previous year's tax bill. So the first installment for the 2012 taxes (due in March of 2013) was 55% of the 2011 taxes (last full year's tax bill available at that time). At closing you should have received a tax credit for 100% of the 2011 taxes minus the first installment of taxes (so you essentially got a credit for 45% of the 2011 taxes). The 2nd installment of the 2012 taxes came out in July in 2013. No one ever knows when the 2nd installment of taxes will come out in Cook. Last year it was in July, in 2012 I think it was in November. Since they have a lot of properties to handle they take as much time as they need and they then issue the bill with payment being due 30 days later.

So to summarize you should have been given a credit at closing for that 2nd installment of 2012 taxes and they should have given you a credit for the days in 2013 that they owned the property (this is a daily amount based this on the 2011 tax bill). For an in depth explanation of tax prorations and credits check out my post here http://www.trulia.com/voices/Home_Buying/taxes_for_new_home-201446

Basically they gave you a credit to deal with the taxes moving forward. This agreement between you and the Seller of the property is separate from your agreement with your bank to have established an escrow for taxes (and most likely insurance). Also please realize that since this was a short sale it is possible that the Seller's bank did not allow them to give you tax credits, or may have lessened the tax credit that they gave to you, but this should have been explained to you before or at closing.

You agreed with your mortgage company to establish an escrow into which you put money monthly for taxes and insurance. What I suspect is that the 2nd installment of 2012 taxes came out and were more substantial then they expected (because no one knew what the 2012 taxes would be when you closed as they came out in July). This took more money out of your escrow than was expected thus giving you a negative balance. Your mortgage company will more than likely be doing an escrow account analysis at some point over the next couple of months and they will probably increase your mortgage payment to make up this shortfall and to save enough money for the higher taxes going forward.

As I said earlier without all the information this is only an educated guess. Good luck and feel free to contact me if I can help in anyway.

Sincerely,

Paul Garver
Attorney at Law
Hawbecker & Garver, LLC
630-789-6833
paul@hglegal.com
Web Reference:  http://www.hglegal.com
3 votes
joy.r.sinegar, , Chicago, IL
Fri Jan 31, 2014
The property taxes here are always paid in arrears. The seller gave you that credit back then so you would be able to pay in 2013. However, the taxes have obviously gone up. If you have the appraisal, I would definitely file an appeal for the taxes. Also, your lender may have incorrect tax information so be sure to check your actual tax bill. If you need help finding that, let me know.

Thanks,
Joy R. Sinegar

NMLSID#435804



Mortgage Loan Officer

3525 West 63rd Street,Chicago, Illinois 60629



(815) 474-4683 Cell

(855) 232-9634 Toll Free E-Fax
2 votes
Tim_mccutche…, Home Buyer, Chicago, IL
Thu Jan 30, 2014
Just adding to Jacqueline's excellent answer. During the great depression Cook County deferred real estate taxes for a year. So it has the unusual situation of being a year in arrears. One would think that they would give up on ever 'catching up' on that lost year. But given the county's budget issues one never knows ;).
2 votes
Ivan Sagel, Agent, Chicago, IL
Fri Jan 31, 2014
Brittany,

Paul Garver, Esq., Real Estate Pro, Hinsdale, IL gave you a great answer. I work with Tom Hawbecker in his office often.
1 vote
Matt Laricy, Agent, Chicago, IL
Fri Jan 31, 2014
Everyone provided some solid answers below. I would also just go over it as well with your attorney.
1 vote
Jacqueline S…, Agent, Chicago, IL
Thu Jan 30, 2014
Well, this one is not to hard to detangle. Cook County taxes are paid in arrears, meaning behind by one year. 2012 taxes are paid in 2013. The 100% taxes that the seller paid are 100% of the last KNOWN bill of 2011. However, taxed go up every year. The first half, paid at closing, would have been an estimate of the total bill. The second half makes up the rest of the balance. In which case is left you short on the estimate. Also, the seller may have had a home owner exemption, which the property are no longer entitled, until 2014 to be paid in 2015.

Also check your closing statement and make sure you received credit from the seller for the taxes up until the day of closing. If there is an error bring it to the attention of your broker, attorney and the title company. Also, make sure the closing company did not have any money in escrow to pay the taxes and "forgot" to do so. This actually happened to me once and the taxes had to be redeemed and I made the title company pay the extra costs associated with redeeming and penalty interest.

Talk to your mortgage company and they will do a new escrow analysis and adjust your monthly payment accordingly.
1 vote
Susan Nice, Agent, Chicago, IL
Thu Jan 30, 2014
Hi Brittany,

There could be a few reasons that this could have happened, so you may want to consult with your agent or attorney that helped you with the purchase.

Typically, if the installment isn't yet due at the time of the closing, the seller will credit the buyer at closing for the property taxes for the time period that the seller occupied the property. It is then the new buyer's responsibility to pay the tax bill as the new owner of the property.

I've also seen this happen if the tax bill goes up, so that the escrow amount is not enough to cover the new tax bill amount.

I hope that this is helpful!

Susan
1 vote
Matt Hoyt, Agent, Highland Park, IL
Thu Jan 30, 2014
Your lender or attorney will be able to tell you whats going on. Its sounds like you taxes are being paid out of your escrow account rather than by you when you get the tax bill. Sometimes this detail gets messed up. Your lender should have the answer
1 vote
Matt Hoyt, Agent, Highland Park, IL
Thu Jan 30, 2014
CAll your lender and your attorney ASAP!
1 vote
Jack Lewitz, Agent, Lincolnwood, IL
Thu Jan 30, 2014
Taxes are on arrears. Taxes for 2012 are paid in 2013 . Usually taxes are in 2 installments. 100 % of taxes refers to only those taxes billed if there was no bill for the 2nd half then you as buyer would be responsible when bill is due. Look on HUD to see how taxes were prorated this should help with finding answer to your auestion
1 vote
Thank you very much I appreciate your advice! :)
Flag Fri Jan 31, 2014
Bill J Delig…, Agent, Naperville, IL
Tue Feb 11, 2014
Talk to your current bank and talk to your Loan Officer. They will be able to explain as to why there is a shortage in your escrow account. Your taxes may have increased, but your contribution has remained the same, therefore explaing the shortage over time.
0 votes
Manuel Brown, Agent, Chicago, IL
Fri Jan 31, 2014
Dear Brittany,

The Real Estate Brokers and the Mortgage Broker all gave you sound advice. Always go back to your load officer to step you through you HUD>
0 votes
Matt Bukovy, Mortgage Broker Or Lender, Chicago, IL
Fri Jan 31, 2014
Brittany,

As a lender, I get this question from First Time Buyers every year. You should know that for a loan officer, the service doesn't stop when the loan closes.

Although you've gotten several excellent answers below, keep in mind that most loan officers welcome these kinds of calls, and that you can use them as a trusted source of information long after your loan closes.

So, if you're still confused, give your loan officer a call. Most probably, he/she will be glad to hear from you.

I would.

Matt Bukovy
Senior Mortgage Consultant
Blueleaf Lending LLC
A Division of Midwest Community Bank
773-416+-7107
mbukovy@blueleaflending.com
0 votes
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