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Mortgage escrow is short
Posted by: prof
Date: December 08, 2008 07:37AM
I received a letter from my mortage company that my escrow
is $900 below where it needs to be (Merry Christmas, me!)
They gave me the option of writing them a check for $900
now or they will spread it out over the next year and that will
cost me $100 more a month (such a swell company). I'm wondering
if I pay the $900 before the end of 2008, if that will benefit me at
all as far as my taxes. Will it show up on my year end statement
from the mortgage company and is it deductible?? Or does it just
not matter either way???

TIA,
prof
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Re: Mortgage escrow is short
Posted by: Black Landlord
Date: December 08, 2008 07:40AM
This is normal. My letter said mine was over by $2 or so and it didn't make their threshold for a refund check.
If you are doing your taxes right, you are entering mortgage interest and property tax seperately and distinctly in your returns, so the way they pay you has no bearing on your taxes.



[www.papanicholas.com] coffee smiley
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Re: Mortgage escrow is short
Posted by: samintx
Date: December 08, 2008 08:02AM
When I had a mortgage I got this type letter occasionally and as BL said it is legal. I never had one that enormous but it happens. Merry Christmas! ain't life grand?
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Re: Mortgage escrow is short
Posted by: STL
Date: December 08, 2008 08:10AM
As I understand it your mortgage company wants $900 from you to cover your escrow shortfall.

An escrow account on a mortgage typically includes the cost of your home owners insurance and real estate taxes. Of the two usually only the real estate taxes are tax deductible. Note though that you can only take advantage of the tax deduction if you itemize deductions rather than taking the standard deduction.

Assuming itemizing deductions is the best way for you to file your return, paying the $900 now, soon enough to ensure the check is canceled by the end of 2008, results in that portion of the $900 that covers your shortfall in real estate taxes being tax deductible on your 2008 return.

Before you pay the $900 this year contact your mortgage company and get the breakdown of the $900 with respect to real estate taxes and homeowners insurance. If you decide to pay the $900 this year also ensure your mortgage company provides documentation as to the breakdown into real estate taxes and homeowners insurance for your tax records.
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Re: Mortgage escrow is short
Posted by: troywellbuilt
Date: December 08, 2008 08:27AM
Your mortgage co. paid your taxes already. Paying this $900 now or later will have no effect on real estate taxes paid by you in 2008. This happens every year to me as my escrow review is right before my annual property tax increase, so I am always playing catch up. Interest free, so OK with me.
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Re: Mortgage escrow is short
Posted by: Mike Sellers
Date: December 08, 2008 08:54AM
Quote
troywellbuilt
Your mortgage co. paid your taxes already. Paying this $900 now or later will have no effect on real estate taxes paid by you in 2008. This happens every year to me as my escrow review is right before my annual property tax increase, so I am always playing catch up. Interest free, so OK with me.

Yep, which is why there's no tax benefit to pay the $900 in one lump sum. Spread it out over the next nine months.

You may also have the option of eliminating the escrow portion of your house payment and paying the taxes/insurance yourself. This is beneficial if your escrow is generally overfunded because it would allow you to collect the interest on the money you save to pay these vs. your mortgage company collecting it.
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Re: Mortgage escrow is short
Posted by: TheCaber
Date: December 08, 2008 10:57AM
Quote
prof
I received a letter from my mortage company that my escrow
is $900 below where it needs to be (Merry Christmas, me!)
They gave me the option of writing them a check for $900
now or they will spread it out over the next year and that will
cost me $100 more a month
(such a swell company).
...

My simple math skills tell me that $100/mo for one year is $1200 total, or
$300 more than the $900 owed. Hmm. 33% 'interest' for a year is excessive.
I'd find a way to make up the shortfall now.



=TC
"Ye Olde Farte of Ye Internette"--a Wilted Tindmill® Production
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Re: Mortgage escrow is short
Posted by: JoeH
Date: December 08, 2008 11:52AM
The $300 is not interest paid to the mortgage company, it should under federal escrow rules go into the escrow account. But it should leave the account closer to even when the next property tax bills come along. As for what is deductible on taxes, only the amount actually paid out in a year on taxes is deductible. You can not claim it just because it was paid into the escrow account.



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Re: Mortgage escrow is short
Posted by: vicrock
Date: December 08, 2008 12:05PM
Or, you could just not do the escrow at all and pay taxes and insurance yourself. That's what we do.
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Re: Mortgage escrow is short
Posted by: macphanatic
Date: December 08, 2008 12:21PM
Quote
vicrock
Or, you could just not do the escrow at all and pay taxes and insurance yourself. That's what we do.

Not all mortage companies give you the option unless it's required by state law.
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Re: Mortgage escrow is short
Posted by: JoeH
Date: December 08, 2008 02:06PM
Quote
macphanatic
Quote
vicrock
Or, you could just not do the escrow at all and pay taxes and insurance yourself. That's what we do.

Not all mortage companies give you the option unless it's required by state law.

It is required by federal law once you have met the point of having at least 20% equity and are out of an initial time period on a loan that required escrow for being under 20%.



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Re: Mortgage escrow is short
Posted by: TLB
Date: December 08, 2008 03:20PM
Quote
JoeH
Quote
macphanatic
[Not all mortage companies give you the option unless it's required by state law.

It is required by federal law once you have met the point of having at least 20% equity and are out of an initial time period on a loan that required escrow for being under 20%.

Isn't that in reference to PMI, rather than escrow. I thought escrow provisions were a clause in the mortgage contract.
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Re: Mortgage escrow is short
Posted by: JoeH
Date: December 08, 2008 11:17PM
They are a clause in contracts, but at one time they were linked to the PMI provisions. If PMI was no longer required, then escrow could not be required for mortgages to be sold on the open market. It looks like they changed that at some point, can't find when though. But it looks like about 10 years ago. There is another change coming along in April 2010. Under the new Federal regulations, the so-called sub-prime mortgages will be required to have an escrow account, with it possible for the lender to end that after a year. The actual language is for "higher-priced loans" that are "first-lien loans" on a home. Except for that rule coming in, you can negotiate off the escrow requirement in many areas.



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