In an escrow arrangement, your mortgage lender pays your property taxes each year on your behalf, but what happens if you accidentally pay your tax bill after your mortgage lender already has done the same? Resolving such an issue isn't as easy as you might think, and if you aren't paying attention, you just might lose that extra money you sent your county taxing authority.
An escrow agreement with your lender is supposed to make life easier for you. Under such an arrangement, you send in extra money with each monthly mortgage payment. Your lender deposits this money into an escrow account. When your property tax and homeowner's insurance bill come due, your lender dips into the escrow account and pays these bills for you. This way, you don't have to worry about saving up throughout the year for these often large bills; you do it automatically with each mortgage payment. Problems, though, can arise if you and your lender both accidentally pay your property taxes.
You might think that you'd never make an unneeded property tax payment if you already have an escrow agreement with your lender, but what if your taxing body sends you a bill? You might automatically pay it, forgetting about the escrow arrangement you have with your lender. And what if you are refinancing to a mortgage loan with a new lender? You might think that you need to pay your upcoming property tax bill, unaware that your old lender actually made that payment on your behalf before your refinance was complete.
It might take some effort on your part to secure a refund when you accidentally make a double payment of your property taxes. Some counties -- such as Lake County in Illinois -- require that both you and your lender provide documentation proving that you both paid the property taxes. You can document your overpayment by sending your county taxing authority a copy of the check you wrote to them. Your lender might also have to send a release to your taxing body saying that it's OK for you to receive a refund instead of having your county send a refund to your lender. Some counties, though, will simply provide homeowners an automatic refund of any overpayment.
Applying to Next Year's Taxes
You might -- depending on the county in which you live -- be able to apply your overpayment to next year's taxes. If you do, your monthly escrow payments will fall because your lender will not need to collect as much money to cover your tax bill. Be sure to call your taxing authority and make sure that the agency will do this. Many homeowners who overpay simply lose that money. Counties will usually hold onto unclaimed overpayments for a certain number of years, often five. If no one claims this money during this time, the county will then deposit the money into its general fund.