Everything is bigger in Texas, including taxes.
July 7, 2012 9:58 PM   Subscribe

Trying to make sense of our closing costs when purchasing a newly constructed home in Kaufman county (right outside of Dallas, TX) Mainly, property taxes.

We just finished building our new home last week, and our closing was supposed to be last Friday. Due to our wonderful lender going on vacation last week and his back up being unavailable, we were not able to close that day. Another issue we had was the whole tax situation. When we got our breakdown of costs, we had a ball park figure to run with, so we were prepared.

When we got to the title office, (now we live in Texas with really high property taxes) The breakdown that was given to us there was 6 THOUSAND dollars extra. I could see being 1-2k, but 6k?? She explained to us that because the property taxes for our county (Kaufman) were due in October, that we have to prepay for the entire next year. This is the first time we heard about this, and having bought another house in a different state before, we only had to front 3 months worth of taxes for escrow.

I know we are not going to be able to get a hold of anyone regarding this matter until Monday, so I am wondering if anyone out there has any insight or experience with this and if we just need to suck it up and have to find another 6,000 bucks or what?

posted by phox to Home & Garden (7 answers total)
IANAL or a real estate professional of any kind, so caveat borrower. However...

Did they give you a Good Faith Estimate of closing costs? Federal law requires that your lender provide a GFE within three business days of receiving your application. It should look something like this. Line 9 on page 2 is "Initial deposit for your escrow account", including the property taxes. They should have estimated what they're going to want in escrow there. But if they "forgot" to include the property taxes there may not be much you can do about it now.

RESPA does sets some limits on how much can be held in escrow. In general, they allow the bank to hold a two-month cushion, but the whole formula is here.

FWIW, if it makes a difference, the Kaufman county website seems to say that it mails out property tax statements for the coming year in October, but they're not due until Dec 31 and there's no penalty until Jan 31. Obviously you don't want to wait until the last possible day, but its not like the bank is going to write a check on Oct. 1 either. It seems a little aggressive for the bank to ask for the coming year's taxes in July; that may be regulated under RESPA or Texas state law.

Why don't you try calling another title company in the area, tell them your situation, and ask how they would handle the transaction? You - not the lender - gets to select the title company, so if you're not getting answers, you do have the right to go elsewhere, though it may slow down the transaction at this point.

Or try the county tax office. They may be able to tell you how its usually done. Or the Texas Real Estate Commission.

The homebuying and mortgage process are fraught with many perils. Small things can make a huge difference in your financial well-being; do not hesitate to ask question after question until you are satisfied. It is always a struggle to find well-informed, independent sources of information.
posted by RandlePatrickMcMurphy at 11:08 PM on July 7, 2012

Thanks for your answer, apparently we have a lot of people to talk to and only two days to get this done and get this closed. It was very helpful, but another question. When people get FHA loans at really low down payments, do they get slammed with this prepaying taxes a year in advance? It seems like it would defeat the whole purpose.
posted by phox at 12:20 AM on July 8, 2012

Also, I do on my GFE have an "initial deposit for escrow account" Where it is checked that it includes all property taxes and homeowners insurance. This is just all so incredibly confusing and headache inducing at the moment. :(
posted by phox at 12:29 AM on July 8, 2012

That time pressure is one of the things that makes the real estate process so difficult. Personally its always seemed to me that the people involved - the real estate agents, brokers, bankers, etc - go out of their way to make it as frustrating and confusing as possible because that sense of chaos and pressure only increases the control they have and makes it harder for the buyer and seller to figure out what is in their best interest. Anyway...

If I were in this situation, my first call would probably be to the county tax office, to ask if someone there can explain how property tax escrow works in your new county. They open at 8 AM on Monday morning.

I would also call another title company in the area and ask how they would handle the situation. Here's the first one that comes up in google. They should even be willing to email you estimate of what they would charge you for title services and give you an estimate of your total closing costs. Compare that with what your current title company is telling you.

Please remember that you get to choose the title company, NOT the lender. Under RESPA, the seller may not require you, as a condition of the sale, to purchase title insurance from any particular title company. Generally, your lender will require title insurance from a company that is acceptable to it. In most cases you can shop for and choose a company that meets the lender’s standards.

(And even if you're buying from a builder, you do NOT have to go with the builder's preferred lender; in fact in most cases it is not legal for the builder to require you to use a specific lender.)

I don't know Texas, but from what I hear, there's not a whole lot of buyers out there right now, so if you're a credible buyer with good credit, you may have more leverage in this situation than you think.

I don't know the organization personally but these guys may be helpful if you need individual advice.
posted by RandlePatrickMcMurphy at 1:40 AM on July 8, 2012

The fact that the customer can choose the title company is beside the point, given the fact that the lender is the one which imposes the escrow requirement. And the OP may be tied to this lender at this point, construction costs having been advanced.

I would note that requiring more money than customary well in advance means that the bank gets to hold onto the money, and use it, until the property tax bill has to be paid. Several thousands x several months x numerous customers = one hell of a float. That helps to mitigate against the low interest rate, I suppose.
posted by yclipse at 5:12 AM on July 8, 2012

I would have to check my documents and I'm on vacation, but I'm pretty sure we had to prepay the next year's taxes when we bought our newly constructed home with an FHA loan a bit more than a year and a half ago. Since we closed in November, that was not as surprising as a July date requiring full escrow for taxes, but I'm not convinced your lender is completely insane for requiring this based on my experience--maybe just a little greedy. We're in Travis County (Austin).

(Last year we had escrow returns for overpaid tax escrow, btw, so the float doesn't sit there forever. I'm pretty sure it's not allowed to by law.)
posted by immlass at 7:19 AM on July 8, 2012

Kinda late in the process, but do you have the option of switching to a no-escrow mortgage?

I did so myself, after reading countless horror stories of the banks failing to pay taxes and insurance premiums, and guess who gets stuck with the penalties (up to and including your house burning down the day after your homeowner's insurance expires) for that?

That will, of course, require you to manage your budget so you can come up with $6k come December (and another $1500 for insurance every July), but if you can do that, why give the bank a loan for 1% of the rate they charge you?
posted by pla at 8:38 AM on July 8, 2012 [1 favorite]

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