Paying Property Taxes Through Mortgage Escrow: Understanding the Process

CEO Khai Intela
Image: Paying Property Taxes Through Mortgage Escrow Are you wondering how your property taxes are being paid through your mortgage escrow? It's essential to have a clear understanding of how this process works to ensure...

mortgage escrow property taxes Image: Paying Property Taxes Through Mortgage Escrow

Are you wondering how your property taxes are being paid through your mortgage escrow? It's essential to have a clear understanding of how this process works to ensure peace of mind. In this article, we'll delve into the details of mortgage escrow and how it relates to your property taxes.

How Mortgage Escrow Works

Mortgage escrow is a legal agreement involving a third party holding your funds until they need to be disbursed. In the case of property tax escrow, you provide your lender with 1/12th of the estimated annual taxes each month along with your mortgage payment. The lender holds this tax payment in a restricted or escrow account until the taxes are due.

Your mortgage payment primarily covers the interest due and a portion of the principal debt on the loan. The lender then sends the tax payment to your town or a service company responsible for handling property taxes. It's important to note that federal law requires banks or lenders to give interest on the escrow they collect and provide you with an annual statement showing how your money is being used.

Checking Your Tax Payments

You may be wondering how you can ensure that your tax payments are being made on time. Many towns offer tax records on their websites, specifically in the tax collector department. These records typically include an online lookup feature for tax bills. By entering your name, you can check the tax bills and see the most recent payment made. It's crucial to find the most recent bill, as tax collectors reference the previous year's grand list rather than the due date.

Paying off Your Mortgage and Tax Payments

If you're fortunate enough to pay off your mortgage, there are a few things you need to know. Once you've paid off or retired your mortgage, your lender should send you a "Release of Mortgage" along with your original note marked as "Paid in Full." This document needs to be recorded in your town clerk's office. Once recorded, the tax collector will be aware that the lender is no longer responsible for paying your property tax bill. Going forward, you will start receiving tax bills at your address on file. It's advisable to contact the local tax collector and confirm where your tax bill should be sent. Keep in mind that failure to receive a tax bill will not excuse you from late charges.

The Escrow Balance

You might be wondering what happens to your escrow balance when you pay off your mortgage. In some cases, the lender may include the escrow as a credit when providing you with the final amount to pay off the loan. However, if the lender does not do this, you will receive a check for the remaining escrow balance.

Late Charges for Tax Bills

In Connecticut, the annual tax bill is due on July 1st of each year. However, state law allows for a grace period before charging interest for late payments. If your town has semi-annual tax collection, the first half of the annual bill is due in July. If payment is made in July, no interest is charged. In the case of a payment made in August, interest for both July and August will be added. Interest is calculated on the first day of each month. It's worth noting that, due to COVID-19, many towns are currently offering reduced interest rates, which will revert to the standard 18% per year once the crisis is resolved.

At Cramer & Anderson, we have a team of real estate attorneys with extensive experience in all aspects of the sale and purchase of residential and commercial properties. If you have any questions or need further assistance, don't hesitate to connect with us today.

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