Today we’re talking about Escrows and Taxes and what does all that stuff mean. And I talked about this a little bit before but I certainly think it definitely warrants have another conversation.
So the lenders is going to have you sign a document at closing called a Tax Authorization Notice. The Tax Authorization Notice is telling you that the lender is going to make sure that those taxes are paid every year as they come due because it’s one of those few things that can actually affect the lender’s loan. If they left it to you to pay your property taxes and you didn’t pay them they can have a big problem because someone could take away that home. If the taxes aren’t paid the county taxing authority could sell your property at a tax sale. If that happens then the loan no longer has anything securing it. Then the loan would be unsecured and you would also be in default.
The Tax Authorization Notice that you sign at closing is a document that they would submit to the taxing authority to tell them that the lender is going be paying the taxes and that they need notice when the tax bills are out and how much they are.
Now, not all taxing authorities actually pay any attention to that. Some will send tax bills directly to your lender when the lender and you authorize that to go to them. But most don’t send it to the lender they send the tax bill to you and it’s your responsibility to make sure that the lender gets that bill so they can pay it.
The other thing we’re talking about is your Escrows. Escrow is just a fancy word for a savings account that the lender holds which is specifically designated for your taxes and insurance monthly payments. Each month, as you make your mortgage payment, you pay 1/12 of your property taxes and your homeowners insurance. This will cover the bill for the end of the year for each of these. The lender will pay the taxes and insurance out of this account for you to make sure that their loan secure by making sure those two bills get paid. So you need to make sure that the lender gets those property tax bills and the insurance bills so they can pay properly pay them out of the escrow account.