Thursday, August 06, 2009

Property Tax Escrow Windfall

It's happened again: I got a nice fat check refunding escrow overpayments for property taxes paid by my mortgage lender. How nice and fat? Over $5,000!

In a way, this is incredibly annoying. I tried last year to have my escrow amount reduced, since it was still based on an un-abated property tax estimate. After a couple of phone calls and faxes, I got a nice letter from the bank, basically saying "We have reviewed your escrow amount and made adjustments based on your tax bill. Your new escrow amount is [insert OLD escrow amount]." I got frustrated and decided to ignore it for a while, as I knew the escrow balance had to be reviewed annually anyway, which is what just happened.

But back to whether or not this is annoying, in a way I don't mind. It's kind of how I feel about getting a tax refund: they may have just held onto $5,000 of my money without paying me interest, but the money ends up being forced savings. It's a nice lump sum that was hidden from me so I couldn't spend it. Each month, I budgeted for housing expenses that included that higher tax amount, so to get the money back now is like icing on the cake: extra savings I didn't plan for and a nice bump in my net worth. And given interest rates lately, I really didn't lose out on much-- $75 at most, if I'd had that entire lump sum in my highest-earning bank account for a full year. (Yes, it would have been nice to have it in the stock market for the past few months, but that's just bad timing and there would always be the risk of things going the other way.)

Anyway, I'm glad I have my money back, and glad my monthly payments have been reduced going forward-- I'll still probably get a refund next year, but it won't be anywhere near as large. And in the meantime, I won't be spending my windfall.


Gord said...

So the question is, what to do with it?

I'm voting for putting against your mortgage; you can't get a better rate of return on your money than that.

Anonymous said...

That's awesome! Maybe I'll get a check in the mail soon. *shrug* One can always hope.


frugal zeitgeist said...

I agree with Gord - but I'm quite biased on that topic. ;-) If your job looks shaky, though, it would be good to keep it liquid and accessible instead.

mapgirl said...

Ouch. That's a lot of money. That stinks they didn't adjust the amount sooner, but the windfall is pretty awesome. That sounds like 2+ mortgage payments!

Brooklyn Money said...

I agree with Gord. Well, partially. Take 1/2 the money and put it against the mortgage. Take some and invest it and enjoy the rest.

Anonymous said...

Have you considered dropping your escrow account? Put the extra money you pay to the mortgage company for the escrow ammount in your savings, pay the tax and insurance bills yourself when the bills come, and you won't have to think about when the bank we'll get around to its annual review.
It may not be an option for you, but that's how I handle it.


Madame X said...

Deby, I have to say I hadn't really thought about dropping the escrow. I am not sure what the issues are but I may look into it, as it would be nice to just pay my own taxes and keep that money in an interest earning account until it's due!
And yes, Brooklyn Money, FZ and Gord, another pre-payment on my mortgage principal has definitely crossed my mind!

Anonymous said...

the interest on five grand for a year is NOT nothing. the bank is screwing you (probably somewhat purposefully since I have NEVER heard of a bank coming up short on escrow withholdings.)

I switched to an ING direct automatic transfer every month for the escrow amount into an escrow account of my own, which ends up feeling exactly the same (mandatory savings) except with the benefits of keeping the interest (and yes, I used the same overblown amount as my mortgage lender, leading to surpluses each year. I take it out and put it in a Roth IRA after I pay my property taxes.)

If the bank fails to adjust the amount appropriately, I am sure you could take them to small claims and just sue for the amount of the interest for the year since you questioned the amount. They'll certainly pay attention to that.

Another alternative would be to send a letter to them with a cc: to the attorney general. I had a lot of fights with my credit card company (Citibank) where they were failing to let me opt out of changes in my terms (you know, the fine print where it says 'if you disagree with these changes let us know in 30 days and you'll have to pay everything on the old terms') until I sent them a letter saying "no, thank you to your new terms for the third time" and cc:ed it to the chairs of the relevant congressional committees. I got a phonecall from the vice-president of consumer relations of the bank after that!