My understanding from reading the many threads here is that prepaid property taxes will be in the unlimited tolerance bucket, but Laserpro is showing them as 0 tolerance. Anyone having the same trouble and what are you doing to change that? Is it something our Laserpro Administrator can change?

Yes, yes, and no - it's in the programming. Several users have argued this with D&H and they are standing firm on their interpretation of those as a 0 tolerance item.

Why would prepaid property taxes be an unlimited tolerance item??

Randy, my first question that I have had all along is would property taxes (shown as a prepaid) even be required to be disclosed in the first place if they aren't a condition of making the loan? I think this is an extremely important question to answer if we are going to then subject ourselves to a 0% tolerance. In this example I am specifically discussing an in-house refinance where this is never something that comes up (different from a purchase transaction). I think 1026.37(c)(4) is unclear on this issue, but if we can't even show this is required to be disclosed in this example then I am also having trouble turing around and then saying it is subject to a 0% tolerance.

Below is from another thread discussing whether or not this is in fact subject to a tolerance and the stance of the ABA. I think we would all agree the CFPB could easily straighten this out with further clarification.

• Are property taxes, homeowner association dues, and condominium association dues, paid at or prior to closing, subject to tolerance? The regulation indicates that property insurance premiums and escrowed items are not subject to a tolerance (assuming they are disclosed in good faith), however, there is confusion regarding whether these items when paid by the borrower in advance of the loan or at closing due to the premiums coming due before the first payment are also excluded from tolerance consideration.

Answer: No.
Regarding the preamble to the rule, on page 79829, there is the statement that, as is currently the case under Regulation X, “final §1026.19(e)(3)(iii) provides that property insurance premiums are included in the category of settlement charges not subject to a tolerance, whether or not the insurance provider is a lender affiliate.” The next sentence, however, appears to contradict this language, stating that the final rule “also mirrors current Regulation X in that property insurance premiums, property taxes, homeowner’s association dues, condominium fees, and cooperative fees are subject to tolerances whether or not they are placed into an escrow, impound, reserve, or similar account.”

Informal conversations with Bureau staff clarify that CFPB inadvertently omitted the word “not” from the second sentence above, and that sentence should have read that the final rule mirrors current Regulation X in that “property insurance premiums, property taxes, homeowner’s association dues, condominium fees, and cooperative fees are [NOT] subject to tolerances whether or not they are placed into an escrow, impound, reserve, or similar account.”

The Bureau further clarified that they view these fees as falling under section 19(e)(3)(iii)(e), the full section which reads as follows—
“(iii) Variations permitted for certain charges. An estimate of the following charges is in good faith if it is consistent with the best information reasonably available to the creditor at the time it is disclosed, regardless of whether the amount paid by the consumer exceeds the amount disclosed under paragraph (e)(1)(i) of this section:
(A) Prepaid interest;
(B) Property insurance premiums;
(C) Amounts placed into an escrow, impound, reserve, or similar account;
(D) Charges paid to third-party service providers selected by the consumer consistent with paragraph (e)(1)(vi)(A) of this section that are not on the list provided pursuant to paragraph (e)(1)(vi)(C) of this section; and
(E) Charges paid for third-party services not required by the creditor. These charges may be paid to affiliates of the creditor.”

In informal inquiries, the Bureau has clarified that it places these fees under the last category, subsection (E), as payments for government services instead of payments for third party services. Also, although the creditor is requiring the borrower to pay these fees at closing, these fees are actually required by other entities, and not by the creditor (because they would be paid whether or not the loan actually occurs).

ABA cautions, however, that until these provisions are further clarified, there are certain risk considerations that institutions must undertake because the regulatory language requires that every fee be in tolerance unless specifically carved out. As written, there is no specific carve-out for non-escrowed prepaid property taxes.

As written, there is no specific carve-out for non-escrowed prepaid property taxes.

I rest my case.

But again, if we do not require (don't even check) them to be paid in conjunction with a closing, they are a non-issue. Correct?

We are primarily equity lenders, with an occasional purchase money, but we have never required property taxes to be paid as part of our loan, even on purchases.

If you don't require taxes to be pre-paid then no - it is not an issue.

In some jurisdictions you would be a fool to make a loan without knowing that the property taxes were current.

That is the answer I am lobbying for, but I have just been trying to match it to the reg. 1026.37(2)(v) indicates if the amount is not charged then we just leave that item blank and wouldn't disclose. What I have been getting hung up on is what they consider charged? If we don't require it then we aren't charging it possibly?

Take it one step further to closing. Do we also leave it off the CD if it isn't a condition of closing the loan as in the previous examples we had?

Loan Estimate
(2) Prepaids. Under the subheading “Prepaids,” an itemization of the amounts to be paid by the consumer in advance of the first scheduled payment, and the subtotal of all such amounts, as follows:

(iv) On the fourth line, the number of months for which property taxes are to be paid by the consumer at consummation and the total dollar amount to be paid by the consumer at consummation for such taxes, labeled “Property Taxes ( __ months).”

(v) If an amount is not charged to the consumer for any item for which this paragraph (g)(2) prescribes a label, each of the amounts required to be disclosed on that line must be blank.

Closing Disclosure
(2) Prepaids. Under the subheading “Prepaids” and in the applicable column as described in paragraph (g) of this section, an itemization of each amount for charges described in § 1026.37(g)(2), the name of the person ultimately receiving the payment or government entity assessing the property tax, provided that the person ultimately receiving the payment need not be disclosed for the disclosure required by § 1026.37(g)(2)(iii) when disclosed pursuant to this paragraph, and the total of all such itemized amounts that are designated borrower-paid at or before closing.

If you are not requiring them to be paid, why are they involved in the closing at all?? If they are required to be part of the closing, such as a condition of getting title insurance issued, then they are a loan requirement. So, give me an example of prepaid property tax payments being made in conjunction with a loan closing if those payments are not a condition of the loan?

I don't think there is one...which my point on this has been that they aren't made in conjunction with the loan. I think the concern is that again in the example of an in-house refinance the customer has technically "prepaid" the property taxes for the year, but we aren't requiring it as a condition of the loan. 1026.37(2) never alludes to whether or not it has to be in connection with the loan. I have felt all along it shouldn't be disclosed, but was just trying to find confirmation of this within the reg.

I have thought and thought of a reverse payment on taxes. I don't believe I've ever seen on in all the years I've done mortgage closings. It's always a credit from seller to buyer, not the other way around.

Now, if you have a refi from another lender, you might have an issue with delinquent taxes that would HAVE to be paid to clear title...so you better be checking the tax office on those!

Do you have a change request number with D+H? If enough of us press it, then they move the change request up in priority.

I have a closing today where its a mobile home and our state requires mobile home taxes to be escrowed with the state the 1st year. So, it has to be shown as a pre-paid item. But honestly, its whatever the tax entity decides the taxes will be, so those will be a big issue under a 0 tolerance environment.