Here's the scenario. Loan closes on 6/15. First payment is due 8/1. Property taxes will be billed and due on 7/1, with a penalty after 9/1. The bank's practice is to collect what they estimate the bill to be at closing, disclose it on line 904 on the HUD, place it in the escrow account, and then pay it 7/1 when the bill is issued, after closing but before the first payment. The escrow deposit and disbursement are not reflected on the initial or annual escrow statements since they occur before the escrow computation year. This seems wrong to me, but I guess that's "the way it's always been done and there's no way around it." I asked why we couldn't just pay the bill between 8/1 and 9/1 (after the first payment but before the deadline to avoid a penalty), but I'm told we always pay property taxes as soon as they're due in July. If I'm correct in thinking that this isn't okay, what should I suggest the bank do differently? And is there a reg or law that I can site that shows that this is wrong? Thanks!

There is nothing wrong with the bank's procedures. Our RE taxes are due May 10th and November 10th. We collect and pay those tax bills the same as you describe for loans closed in April and before 5/10 or in October and before 11/10.

Your escrow analysis is based on anticipated pay-ins and pay-outs during the computation year. Items paid out of proceeds from the closing are not included in that analysis.

Thanks, Dan. It just seemed odd to me that the funds were being placed into escrow at closing, but the HUD did not reflect that. Also, if our estimation is off, the balance at the start of the escrow computation year would not match the initial deposit disclosed at closing. I doubted the practice, but I trust and appreciate your guru advice!

It just seemed odd to me that the funds were being placed into escrow at closing,

OK, we do different in our procedures. We do not place those funds in the borrower's escrow account. We never deposit anything in the borrower's escrow account that is not included in the initial analysis or will be included in the annual analysis.

We cut the check for the taxes due 5/10 and 11/10 and mail it directly to the treasurer's office for loans closed in April, May, October or November where we have the tax bill. For loans closed in April or October where we do not yet have the tax bill we have a holding GL (which is the "escrow" I was thinking of) set up specifically for these loans closed during those months. We then disburse the funds once the tax bill is received. Due the timing of mailing the tax bill we don't have to use this GL very often. It's primarily for loans closed within the first 10 - 15 days of April and October.

What if the amount you held in the GL is too much or not enough to cover the bill?

Bump

Taxes for 2012 are payable in 2013 so it would be a rarity for us not to have the correct amount.

Thanks, Dan.

When you are disbursing to a GL for these, are you still showing it on line 104 on your HUD? Staff here as been showing it on 1300 which I believe is incorrect based on the instructions.

The 1300 series would not be the appropriate section to disclose the payment.