Mortgage payment too high?

Assessor says don't discount the possibility that you're being overcharged


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Is the property tax escrow on your home mortgage growing at a faster rate than the property taxes on your home? More importantly, did your eyes glaze over after reading the above sentence? If they did, wait! Although the topic may not seem exciting, many homeowners in Oak Park and in other Cook County suburbs south and west of Oak Park may be able to receive a modest reduction in their monthly mortgage escrow payments by reading this article. If the prospect of saving some money piques your interest, read on!

Many mortgage companies require homeowners to include money for property taxes with their monthly mortgage payments. The money for taxes is deposited into a tax escrow account, and twice a year is distributed when tax bills are due. The payments into the escrow account are typically determined by taking the most recent annual tax bill and dividing it into twelve equal monthly payments.

In my capacity as Oak Park Township Assessor I hear all sorts of tax complaints, but this year I have heard an unusual number of complaints about excessive increases in tax escrows. I began to suspect this was a widespread problem, which was confirmed when I learned that an important, respected, yet modest Oak Park resident (umm...that would be me...) had also been hit with an excessive tax escrow increase. I have decided to use my situation to illustrate the problem.

The tax bill I received in October, 2004 indicated that my property taxes this year increased by about 3.9 percent over last year. My mortgage company, however, estimated that my taxes would increase by 6.6 percent over last year, and charged me for this increase. In addition, my mortgage company, along with most others, requires that I maintain a minimum balance in the escrow account at all times. How much is the minimum? It's 16.7 percent of the estimated annual tax bill. You know what that means? If the estimated tax bill is too high, the minimum is also too high! And I am the person left paying the bill for these erroneous estimates.

Who is likely to have problems similar to mine?

This problem is most common among those who experienced large increases in their property taxes in calendar year 2003 compared to 2002 (a common result in Oak Park and other suburbs to the south and west) and those who received  adjustments to their escrow payments from their mortgage companies between February and October of 2004. In addition, those who received revised tax bills because they did not receive the homeowner's exemption or other exemptions may also be making excessive mortgage escrow payments.

There is a simple solution to the problem of excessive tax escrows: compare your property's total tax bill for calendar year 2004 with your mortgage company's estimate of property taxes sent to you in its annual escrow statement. If your total annual tax bill is less than your mortgage company estimated, you should notify your mortgage company. Many mortgage companies will lower your escrow payment if presented with a tax bill indicating that their tax estimates were too high.

But be warned! The annual escrow statement can be a document of mind-boggling complexity, festooned with numbers which somehow lead to a conclusion about your monthly escrow payment. Merely finding the company's estimate of your property taxes on the statement, much less understanding it, can be a chore. Moreover, if you do find the estimate and it is in error, some mortgage companies will not adjust their monthly escrows. They will instead maintain the overcharge in the tax escrow this year, and promise to correct this year's error with a smaller charge next year. Indeed, if your tax escrow is too high and you do nothing, a downward correction is likely to happen to your escrow the next time it is adjusted.

The key to correcting the problem with escrows lies in understanding that there can be dramatic differences between the first and second installment tax bills both within a year and between years in Cook County. To be accurate, mortgage companies should base their estimates on the total of the first and second installment bills for a given year. Unfortunately, they do not always follow this advice.

For example, my tax escrow account is updated every September. Since last year's second installment tax bills were mailed in late-August, my mortgage company was able to accurately calculate my escrow payment because its estimates took account of last year's first and second installment bills. This year, in contrast, the second installment tax bills were not mailed until mid-October. Thus when my mortgage company updated my escrow payment in September of this year, it did not have a second installment bill on which to base its estimate.

Without a second installment tax bill for this year, my mortgage company simply took the last two payments for which it had records, the first installment of this year's taxes plus the second installment of last year's taxes, and assumed that the sum of those payments represented the annual tax for calendar year 2004. Although this may be appear to be a reasonable approach, the sum of those payments turned out to be 2.6 percent greater than the tax bill actually was. My tax escrow payments are too high as a result.

Many residents of Oak Park and other parts of suburban Cook County are likely to experience the same problem with tax escrows that I have. For those who are struggling financially, a modest reduction in the monthly mortgage payment can make a real difference. If you are such a property owner, or if you simply prefer to keep your money rather than needlessly putting it an escrow account, you should take action. I did, and succeeded in reducing my monthly escrow payment by more than 5 percent. I just hope that the prospect of such savings is adequate compensation for the pain of reading an article on real estate tax escrow accounts!

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