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Archive for Thursday, June 3, 2004

Tax deadline may raise mortgages

State budget fix creates potential problems with escrow accounts

June 3, 2004

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A scheme used to balance the state's books in 2003 now is driving up monthly mortgage payments for some Kansas homeowners.

Last August, Gov. Kathleen Sebelius approved a measure to move up the deadline for second-half property tax payments this year from June 20 to May 10. The measure -- sold as a way to help the state out of its budget crisis without increasing taxes -- provided a one-time benefit of $179 million to the state general fund and helped the cash-poor state end its fiscal year in the black.

Now some area bankers are warning that homeowners may receive unwelcome news from their mortgage companies as a result of the new deadline. That's because the earlier payment will cause many homeowners' escrow accounts to fall below minimum reserve levels set by federal regulations.

There already have been reports of mortgage companies requiring homeowners to increase their monthly payment or send a lump-sum payment to cover the shortfall in the escrow account, which is the account used to pay taxes and insurance premiums on homes.

Todd Sutherland, president of Lawrence-based University National Bank, said homeowners may want to watch their mailboxes for notices from their mortgage companies.

"I'm expecting to hear some concerns about it this summer. But they ought to direct their venom at the Governor's Office, not the mortgage companies," said Sutherland, who was a contributor to Tim Shallenburger, Sebelius' Republican opponent in the 2002 gubernatorial election.

Nicole Corcoran, a spokeswoman for Sebelius, said the governor still thought moving up the deadline was a prudent move.

"Honestly, we haven't had any calls or complaints about it," Corcoran said. "We had some calls last year when it was first announced because people thought they were going to have to pay more in taxes, but that's not the case. It just changes the date that the taxes are due."

But the change in the due date may force some homeowners to come up with a month's worth of tax payments. For the owner of a $150,000 home in Lawrence, a month's worth of taxes would be about $150.

Sutherland said mortgage companies simply were complying with federal regulations by requiring accounts to be brought up to minimum levels. He said mortgage companies were required to analyze each escrow account once a year to determine that the account wasn't collecting too much or too little money. Federal regulations require at least two months' worth of payments to be in the account at all times.

By moving up the tax deadline by more than a month, some accounts may fall out of compliance.

Not everyone, though, should expect to receive a letter demanding more money. That's because mortgage lenders analyze accounts at different times of the year.

Chris Forbes, vice president of Lawrence's RBC Mortgage, said many lenders analyzed accounts between December and February. By that time, the account should be back in balance.

"Over a course of a year, this should all balance itself out," he said.

Sutherland and Forbes also said people who recently took out a mortgage should not be affected. That's because after the governor signed the change into law in August, most mortgage lenders began planning for it and made sure they received enough prepaid taxes from buyers at the time of closing.

Forbes also said it was possible that some people who were being required to pay extra now, may be due a refund from their mortgage lender in the future. But, he said, homeowners may have to wait a year for another escrow analysis to be completed.

"These analyses go both ways," Forbes noted. "If there is too much money in the account, they're required to pay that back."

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