For a refinance application taken today with a property that will pay annual taxes in December, there is no "payment" for the taxes due in 60 days. We are assuming we cant put the 7-8 months of property tax we will need to collect at closing under "prepaids", since the taxes are not actually due to the county in 60 days.

We are further assuming that the initial escrow is limited to 2 months for the "initial escrow payment at closing".

I am completely confused, and one of these assumptions is most likely wrong, where do you put the property taxes to ensure the LE is realistic in the amount to close. Please help!!!

Don't look at the appliation date. Look at the anticipated closing date. Assuming that's in October, your first payment date isn't until December so you're going to need to collect an entire year's worth of taxes PLUS your two months cushion. An October closing would put the tax bill within 60 days so on the LE I'd show 12 months in the prepaids and 2 months in the initial escrow section.

You'll want to verify if the borrower has an escrow account at the their current mortgage holder and remind them that they'll get that money back when the loan is paid off. If the current mortgage is with your bank, check if you roll escrows over or credit somehow.

That makes sense, but what if the anticipated closing date was in July?

Closing date in July would imply a first payment on September 1.

You will collect a payment on 9/1, 10/1, 11/1 and 12/1. You will collect 8 monthly installments for the taxes as an initial escrow deposit, not as a prepaid. 10 if you collect a 2 month cushion. If you don't escrow you don't collect anything.