Don't Cash That Check
Another Repercussion of the Indianapolis Property Tax Issue
We all love receiving an unexpected check in the mail. Usually, our first response is, “Great, a refund”. Well……….if you are one of the Indianapolis homeowners who recently received a bonus check from your mortgage company, don’t run to the bank to cash it until you know the repercussions of doing so.
Here’s the deal – Our infamous Indianapolis property tax issue has created yet another payment balancing fiasco -this time for your mortgage company. You see, the C-bill or reconciliation bill recently mailed was also mailed to your mortgage company.
Your mortgage company has no idea the bill was a reconciliation bill; they only know they have money set aside in an escrow account to pay your tax bill when it arrives.
Their paperwork is computer generated and it is highly unlikely there is someone auditing your account – that is, unless you get behind in your payment.
Real Life Example
So, what’s happening – let me give you a real life example.
My daughter called me two days ago to ask me if the check she received for $1500.00 was actually “hers”.
She knows I have been trying to educate people about the property tax situation in Indianapolis for the last few years. She said her mortgage company sent her the check and her payment was recalculated at $200.00 less per month.
Exciting, yes! Reality, NO!
The mortgage company recently paid her $200.00 reconciliation bill as if it were her first half taxes. Her first half taxes are normally $1200.00. The computer did what it is programmed to do; kicked out a refund and reset the monthly payment.
Yes, she can cash the check, but what will happen.
In a few months, when the actual property tax bill comes out, there will be no money in her escrow account for the mortgage company to pay the bill. They WILL pay the bill, because they don’t want a tax lien on the home, but next year, when the computer realizes there is not enough money, they will charge her double or she will have to pay the shortage to keep her payment at the current amount.
By the time the second half taxes have been mailed out, she will owe about $2500.00, just to keep her payment the same as it was before the reconciliation bill.
What To Do With The Check
You will probably have a difficult time explaining the situation to someone at the mortgage company. Heck – I can’t even explain it so it makes sense. My suggestion to my daughter was to either send the check back as a credit to her escrow account, which may or may not work. Mortgage companies are only allowed to keep a certain amount in an escrow account.
You may be able to work something out with your mortgage company. If that doesn’t work, I told her to send the additional amount in her payment each month and make sure it is applied to her escrow account. Instead of paying the current $900.00 payment – she should continue to pay $1100.00, as she always has.
If not, next year her payment will probably go up to about $1500.00 for a year, until she has paid the back taxes. Her mortgage company will recalculate the difference twice – once for the next years taxes and once for the back taxes owed to her escrow account.
This solution still may not solve the problem, though. Our May tax bills should be out in the next few months, then the November tax bills will be late. Hopefully, she will have enough in her escrow account, so the computer doesn’t kick out another “alert”. My prediction is, it will continue to be an accounting nightmare for mortgage companies and homeowners until 2012, when we finally get to the 1% cap on property taxes.
At that point, it will probably turn into an Assessors nightmare, but that’s a story for another time.
Please note, this only applies to Indianapolis residents in Marion County, not all of the Metropolitan Indianapolis area.
Here's some links for to help answer questions you may have about property taxes.