When most people buy a home, they deposit money at the settlement or closing with their lender for the payment of future real estate taxes.
Lender’s have a formula for determining how much money they need to hold in escrow to make sure that they have enough cash in the account for the payment of the next real estate tax bill.
Let’s talk about the tax mistake first. If the property taxes were incorrectly reported at the closing of the purchase of your home, you need to make sure you received the right amount from your seller for the real estate taxes. Conversely, if you owed the seller money, you need to make sure you didn’t overpay him.
Once you know whether the numbers between you and your seller are correct, you need to understand what your lender is doing.
If the mistake on the real estate taxes only affected your lender’s computation of the real estate taxes, you need to understand the process the lender uses for the collection and payment of real estate taxes.
If you underpaid your real estate taxes at closing due to a mistake by the title company or the lender, you should know that the lender would have collected from you a significant amount of money at that time to fund the escrow. At that loan closing, you would have had to have come to the table with more money in order to put the necessary funds into the escrow account for the future real estate tax bill.
If the number used for the real estate taxes was $1,200 but should have been $4,800, your lender started out being short $3,600. In addition, when the lender used the $1,200 amount for the monthly payment calculation, your monthly mortgage payment would have been what you needed to pay your loan plus $100 for the real estate taxes.
But that number should have been $400 per month, or $4,800 per year. The net effect is that your lender needs the $4,800 for the real estate taxes and must collect more money each month from you to make sure the coming tax bill is covered.
You’re being asked to pay a lot of money, but the question you have to answer honestly is whether you knew what the real estate taxes were on the home when you bought it. If you knew that the taxes were $4,800, the amount the lender is requesting should not be a surprise to you. It’s only a surprise that it took them this long to catch the mistake.
In some cases, when lenders make these mistakes, they may say they’ll increase your payment by the additional $300 per month they need plus another $300 per month to fund the initial $3,600 required. In this manner, in about a year, you would have funded the escrow the way it should have been and your monthly payments to the lender would stabilize to a number that reflects the actual amounts that the lender needs for the payment of the real estate taxes.
Going back to your original question, if the lender’s computation is correct, you’ll need to pay the lender the money. Whether you and the lender decide it should be paid in a lump sum or over time, that will be up to you and the lender.
If the numbers were incorrect then and are incorrect now, you need to work with the lender to make sure the correct numbers are calculated for your real estate taxes and that you pay the right amount monthly to the lender to fund the real estate tax escrow account.