That’s why we’ve been focusing on various parts of the settlement process on our blog and social media over the last few weeks. It is important that you know what these new terms mean. Today, let’s look at taxes and escrows.
At closing, you’ll sign a document from your lender called a tax authorization notice. This document tells you that the lender is going to make sure that those taxes are paid every year. This simplifies your life and helps to protect your lender.
You see, unpaid taxes are one of the few things that can actually affect the lender’s loan. If taxes go unpaid, a government entity could take the home and sell it at a tax sale, which would take away the main security that your lender has on your loan. If the home goes away, your lender has only your promise to pay to fall back upon, and lenders are just not comfortable with that. As a result, lenders take on the responsibility of making sure property taxes and insurance are paid on time.
Your lender takes the tax authorization notice that you sign at closing and submits it to the proper taxing authority to notify them that the lender is going to pay your taxes and that the lender should be notified when tax bills are issued.
Unfortunately, not all taxing authorities pay attention to this document, and they will continue sending the tax bills to you. It is your responsibility to make sure that the lender gets the bills so that they can pay them.
The payments for these tax bills come out of escrow. What is escrow? It’s essentially a fancy word for a savings account that your lender holds. When you pay your mortgage each month, a part of that bill is 1/12 of your annual property tax and homeowners insurance bills. Your lender sets aside this money, and when those bills come due, they pay them out of the escrow account.
If you’ve still got questions about taxes and escrows – or any other part of the settlement process – we hope you’ll give Foote Title Group a call. We may not know all the answers, but we know where to find the right answers and where to find the right people to answer those questions for you. We have relationships with real estate professionals of all kinds, and we’d love to introduce them to you!