I have been getting a few questions lately on scenarios where a borrower either wants the servicer/bank to make a property tax payment early or the borrower wants to pay property taxes themselves (outside of escrow). This is due to a desire to take advantage of cheaper property tax payments that would have an increased amount if paid according to the "usual" schedule. I have been unable to find anything on how to deal with this. Is there any Regulatory guidance on this type of thing? If not, what is a common or best practice amongst servicers? Obviously, the issue with paying early or outside of escrow throws the payments out of wack and will either result in a big surplus (borrower pays) or a deficiency in the account analysis (bank pays early). Do you just perform a new account analysis in such a situation, even though you may have just performed your annual analysis the month before?

1. The bank is under no obligation to make the extra payment.
2. If the borrower chooses to make the extra payment themselves, then the bank is under no obligation to do a short year analysis.

They are doing this is take advantage of the tax deduction that is going to be capped in 2018 under the new tax laws if they are trying to push this into 2017.

1024.17(k)(3) If, however, the taxing jurisdiction offers a discount for disbursements on a lump sum annual basis or imposes any additional charge or fee for installment disbursements, the servicer may, at the servicer's discretion (but is not required by RESPA to), make lump sum annual disbursements in order to take advantage of the discount for the borrower or avoid the additional charge or fee for installments, as long as such method of disbursement complies with paragraphs (k)(1) and (k)(2) of this section. The Bureau encourages, but does not require, the servicer to follow the preference of the borrower, if such preference is known to the servicer.

Thank you! The Regulatory reference does not quite match, as it seems to have more to do with discounts due to annual payments vs. installment payments, but I think I have enough in (k) to work with. Thanks again.

Sorry to bring this tread back up, but I have a question.

Taxing entity produces and mails the tax bill in early November (bill is also available online). There is a discount if the bill is paid early. However, the Bank does not go and pull the bill until after the discount period has expired (but before a penalty is assessed). Could there be potential Fair Banking, Fair Lending and/or UDAAP issues with this practice? Obviously, if we were not consistent in our practice, there would be potential issues related to Fair Banking, Fair Lending and/or UDAAP. But for the sake of this question, lets say the practice is consistent.

Your help is appreciated.

You are talking about a totally different subject. The above is for the payment of taxes for income tax purposes and not receiving a discount on their property taxes owed. While you can pay in annual lump sum payments or in installments, per (k)(3), as you see fit, you cannot avoid paying the property taxes in time for the borrower to receive the discount.

(2) Aggregate analysis. (i) In conducting the escrow account analysis using aggregate analysis, the target balances may not exceed the balances computed according to the following arithmetic operations:

(A) The servicer first projects a trial balance for the account as a whole over the next computation year (a trial running balance). In doing so the servicer assumes that it will make estimated disbursements on or before the earlier of the deadline to take advantage of discounts, if available, or the deadline to avoid a penalty..

Sounds like you might have a huge restitution issue on your hands.

But if we don't have the bill to pay, how can we pay the bill early? We only go and seek out bills prior to the end of year so a tax lien and penalty are not assessed.

If you are in a jurisdiction that offers a discount - you mean they have to pay their property taxes before they know how much they are? I thought they needed to pay by Nov 15th after they received their bill. If you are arbitrarily waiting until after Nov 15th to pull down your property tax payment information in order to make payments by Dec 31st, IMHO you have big problems.

1024.17 has often confused me on this point as it states at (k)(3), " If, however, the taxing jurisdiction offers a discount for disbursements on a lump sum annual basis or imposes any additional charge or fee for installment disbursements, the servicer may, at the servicer's discretion (but is not required by RESPA to), make lump sum annual disbursements in order to take advantage of the discount for the borrower or avoid the additional charge or fee for installments, as long as such method of disbursement complies with paragraphs (k)(1) and (k)(2) of this section. The Bureau encourages, but does not require, the servicer to follow the preference of the borrower, if such preference is known to the servicer." Italicized text is my emphasis. (k)(1) requires it be paid on time. I can't see a lender not taking advantage of a discount - but it obviously needs to be aware of it. In the escrow statement it should be showing the discount amount and when it is paid. Was it on the analysis forecast statement?

In this question, the bill is delivered in early Nov. Are we to assume not to the bank, or that the bank ignores that and instead waits for the year end to get them in a batch, online?

Installment v. annual is one thing. Timing of disbursements is another. Taking advantage of discounts for timing is required for your analysis. If it's not taking advantage of them, then you might have some issues. We have a couple counties that have a discount for paying before the bills are dropped, and it's a pain, but I don't know of any exemptions for county governments being bad at things. Still need to do the analysis based on the discounted timing/amount if it's available.

(2) Aggregate analysis.

(i) In conducting the escrow account analysis using aggregate analysis, the target balances may not exceed the balances computed according to the following arithmetic operations:

(A) The servicer first projects a trial balance for the account as a whole over the next computation year (a trial running balance). [bIn doing so the servicer assumes that it will make estimated disbursements on or before the earlier of the deadline to take advantage of discounts, if available, or the deadline to avoid a penalty[/b]. The servicer does not use pre-accrual on these disbursement dates. The servicer also assumes that the borrower will make monthly payments equal to one-twelfth of the estimated total annual escrow account disbursements.