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#1863678 - 10/22/13 04:31 PM Purchase Transaction & Taxes
RGS Offline
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RGS
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Home of the 8 time NCAA Champ ...
Background - I'm in a "new seat" and running into something that I haven't previously encountered. That doesn't mean it's wrong, just that I'm not familiar with it (nor are my companions who I now work with who all worked at the same place previously).

During one time of year we have lenders and attorneys who are insistent on disbursing a payment for the real estate taxes that "they expect" to be due "when the bills come out" at closing (even though the bills haven't been issued) with the closing attorney holding the checks. In some cases the closing attorney states that it is possible to go ahead and take the check to the taxing authority and make the tax payment (even though the bill hasn't been issued). In other cases the attorney is going to hold the check until the bill is issued.

"We" can't understand why this is going on and want to 1) assess the bank's risk in doing this and 2) disclose this properly on the HUD if we do this.

"We" can't understand why this is an issue only at a time near when the tax bills are released. It seems to us that if pro-ration of taxes is sufficient in April, it should be sufficient in October - and if it's not sufficient, the third party (if kosher) should hold the amount to pay the taxes in April just as in October.

The pushback is - "all the other banks are doing it", "secondary market does it this way", "you're the only ones mentioning it". I only care what other institutions do if I know the context and have had a chance to discuss with their compliance people, and "we're" responsible for "our" compliance program, so I don't mind being different.

So - prepare for irony of some degree - are the other reasoned compliance folks around here familiar with this practice? Is it normal/acceptable? Is the risk acceptable? We feel that if we do it, we prorate in the 100's and 400's then show the tax disbursement on line 506.

Thanks in advance for any and all input.
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#1863713 - 10/22/13 05:01 PM Re: Purchase Transaction & Taxes RGS
Truffle Royale Offline

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SOP in the industry is for all bills due within sixty days of closing to be paid as a part of the closing.
If no bill is currently available, you figure based on the last known amount.
So far, so good with what you're doing, right?

First of all, I definitely agree that all of this needs to be properly shown on the HUD including prorations and lump sum that will be paid.

Secondly, why a closing attorney or anyone other than your bank would be holding money is beyond me. I'd want that money in-house where I could get the bill when it's issued and pay it asap without having to keep track of which closing attorney has what money for which payment. This is especially true with taxes which would become a lien paramount to my mortgage if not properly handled.

bottom line, imho, you're right in your thinking on this one.

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#1867764 - 11/01/13 08:00 PM Re: Purchase Transaction & Taxes RGS
Always In Training Offline
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Where the Green Grass Grows
"SOP in the industry is for all bills due within sixty days of closing to be paid as a part of the closing."

Maybe SOP for you - but we don't do it. I don't know how you make a borrower pay something before it's due. As a consumer, I'd throw a fit.

We explained to our title companies and lawyers, that our escrow calculations are based on when something is payable. Ex: taxes and a October closing. If taxes are due December 31 - then escrow shows that it will be paid in December. How do you NOT pay it in December and it not throw your escrow off? If you show it due and payable now, does your escrow analysis show it due now? But, next year, you aren't going to pay it in October, you'll pay it in December - which again, messes up the escrow year.

BTW - before we did escrow, we didn't care whether the closing agent did this. It didn't matter to us at all.

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#1867795 - 11/01/13 08:42 PM Re: Purchase Transaction & Taxes RGS
hgliii Offline
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If loan closed in October, we would collect 12 months of taxes as Taxes are billed in October. Our first payment if closed after 7th day would be due December 1. In order to insure we had 12 months taxes we would collect 2 months at closing.
Hopefully, this is not too muddled

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#1867820 - 11/01/13 09:30 PM Re: Purchase Transaction & Taxes RGS
Truffle Royale Offline

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AlwaysinTraining, are you talking about in-house loans? Because paying bills due within sixty days is SOP in the industry, even if you chose not to do it inhouse..

Further, it's mandated by most investors. Their thinking is that they cannot get the loan and get the payment coupons out and servicing set up on their system prior to that so all bills must be paid at time of closing or, at worst, held by the bank and paid when due.

Ex: a full year's insurance policy is required on all new loans. If the next year's premium is due within sixty days of the closing, the borrower is going to have to pay it at time of closing. They'll get the money back from their current escrow within thirty days so our borrowers always understand and don't throw fits.

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#1867862 - 11/02/13 10:17 PM Re: Purchase Transaction & Taxes RGS
rlcarey Offline
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Galveston, TX
Because paying bills due within sixty days is SOP in the industry if you are involved in the secondary market. Fixed

TR - You have to realize that many, many of the banks that post on BOL are not involved in the secondary market. Making a statement about the SOP of the "industry" as a whole without qualification is going to generate a lot of disagreement.
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#1867933 - 11/04/13 04:04 PM Re: Purchase Transaction & Taxes RGS
Truffle Royale Offline

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Randy, I think I made the distinction for secondary market quite clearly. Besides, I've put in my time in banks and the credit union industry too. In all of that time, it was sop to pay bills due within sixty days at time of closing. My own home loan is with a larger bank that keeps their loans and they required payment of bills due within sixty days. If, as hglii pointed out, the bill is not yet out, sufficient funds to pay the bill when available are collected on the HUD plus a two month cushion.

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#1870020 - 11/08/13 10:08 PM Re: Purchase Transaction & Taxes Truffle Royale
Always In Training Offline
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Originally Posted By: Truffle Royale
AlwaysinTraining, are you talking about in-house loans? Because paying bills due within sixty days is SOP in the industry, even if you chose not to do it inhouse.. _snip_

Ex: a full year's insurance policy is required on all new loans. If the next year's premium is due within sixty days of the closing, the borrower is going to have to pay it at time of closing. They'll get the money back from their current escrow within thirty days so our borrowers always understand and don't throw fits.


Yes. All our loans are in-house.

For your example Truff, are you keeping the additional months in your escrow account at closing, or are you paying the insurance company for the full year's policy? (I hope that makes sense.) My borrowers understand that their insurance would need to be paid to the insurance company, but why the closing agent would get to "hold" estimated taxes collected at closing (unless its a matter required by state law.)

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#1870041 - 11/08/13 10:31 PM Re: Purchase Transaction & Taxes RGS
Truffle Royale Offline

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Let me see if I can explain this better.
If a loan closes within sixty days of either the insurance or taxes being due, at best you're going to get one payment before you have to pay the bill.
For insurance, yes, we'd pay the bill right away.
For taxes, if the bill hasn't been published yet, the money will be held in the customer's escrow account and paid out at the proper time.

As to the why and keeping in mind we're talking about escrowed accounts only, if you do not hold the money to pay the taxes, what guarantee do you have that they will be paid? Tax liens can bump your mortgage to a second lien position and we're not willing to take that chance.

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#1870055 - 11/08/13 10:52 PM Re: Purchase Transaction & Taxes RGS
rlcarey Offline
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Galveston, TX
For taxes, if the bill hasn't been published yet, the money will be held in the customer's escrow account and paid out at the proper time.

So you are going to require the full amount sixty days in advance plus two months of reserves - doesn't that really screw up your initial escrow statement???
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