Pub. 12 2022-2023 Issue 5

The Challenges of Escrow Tax Processing By Info-Pro Lender Services Introduction Even in cases where escrow is not required, many borrowers find convenience in having their financial institution take care of paying the property taxes and insurance on their property. Banks can also find escrowing beneficial as they can be sure the property taxes and insurance are being paid on time. However, tracking and gathering the property tax data needed to make these payments correctly, then actually making those payments, can be a massive undertaking. Banks that do not currently deal with any escrowed loans, or only have a few, can be caught off guard when it comes to mergers and acquisitions. An institution may only have mortgages in one or two states. However, after acquiring another institution, that bank can suddenly be faced with mortgages in new geographical areas where they have no experience in gathering and paying property taxes. Going through an acquisition can also drastically increase the number of escrowed loans in the organization’s portfolio, requiring more staff and resources to keep up with tracking and processing escrow amounts. The prevalence of escrowed mortgages appears to be increasing as well, based on data from Info-Pro Lender Services. Over the past five years, Info-Pro has seen escrowed loans being added to their system increase at a 40% higher rate than non-escrowed loans. The increase in first-time homebuyers coupled with an increase in government-backed mortgages is a likely driver of this increase. Furthermore, as millennials enter the homebuying market, it can be expected that many of them will require escrow due to having smaller down payments. This means that banks will need to have a robust property tax tracking and escrow processing solution in place to make sure they stay compliant and manage risk. Property Tax Nuances There are currently over 26,000 taxing agencies in the United States. Each one of these taxing agencies can have wildly differing nuances for gathering property tax data as well as how to make property tax payments. If a bank has escrows, they are the ones responsible for making sure the property tax amounts are accurately researched and payments to the correct taxing agency are made on time. Doing so can become even more complicated when tax bills are required for payment. Let’s look at some of the property tax nuances banks may encounter: Due Dates Property tax due dates are extremely important for banks to understand. They inform them as to when property taxes are due, how early an institution needs to start looking for www.coloradobankers.org 20

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