Taxes can be a very difficult thing to measure when you are preparing a GFE or trying to explain overall closing costs to a borrower. Taxes need to be paid at time of closing. I am often asked the question "why do I have to pay for the taxes in my payment if I am paying them at closing?". Well the reason is because school taxes and property taxes are due different times of the year. Sometimes taxes are paid semi-annually instead of annually (such as Long Island, NY). When you pay the taxes at the closing table if taxes are due they are paid right away. If School tax is due on Oct.1st and Property tax is due Jan. 1st and you close Oct. 8th school taxes will be paid immediately. Now if you do not pay the full years (unless semi-annual in which case 6 months) taxes there will not be enough in escrow to pay taxes in Jan. When you make your monthly payment the tax amount is not paid to any government tax collector right away. Instead it is deposited into your escrow account where it sits and builds up until tax time comes around when the holder of your escrow account pays off the taxes that are due.
Tax issues can become confusing and it is best left to the attorney's and CPA's, but it is important to have a good understanding of taxes just so that you can give your clients an idea of the dollar amount that they are going to have to bring to the table on the day of closing.
Today I called my clients attorney to try to figure out exactly how much my client is going to need to bring in tax funds to the table. He was very short with me on the phone. The confusion stemmed from the fact that I am doing my first deal in Long Island, NY and I did not realize initially that taxes are collected in Long Island on a semi-annual basis instead of on an annual basis. I told my borrower that she would need to bring the full years taxes to the table, she called her attorney who told her that she will only need $2400.00. Taxes for the year are $7200.00. I called him to find out why there is a discrepancy between my figures and his. He told me not to worry about it, that it "doesn't concern" me and that the "attorney's" will handle it then promptly hung up. Well that is all fine and good; I would rather them handle it anyway, I am a mortgage advisor not a tax advisor but still my borrower comes to me to get her questions answered and I would like to be able to provide her an answer. I called the attorney representing "us" afterward to see if he could help answer my questions. He explained the tax break-down for the region to me and I did the math myself. By my calculations she will have to bring around $4,800.00(including the escrow set-up) to the table not $2,400.00.
I know that the taxes are not my responsibility but we as mortgage professionals are in an interesting position. We are the glue that brings a deal together. Although everyone has a different role borrowers always call on the lender to answer all of the questions. We deal with realtors on both sides, attorney's on both sides, the lender (if you are a broker) the underwriters, processors, and appraisers etc... the list goes on and on.
Whether it be a tax question, a legal question, or any number of questions that may come up during a real estate transaction the borrower typically goes to their mortgage advisor for an answer and we are expected to deliver. So although none of these contingencies may be your area of expertise it is crucial in this day and age that we have a vast personal database of knowledge with regard to every detail of a real estate transaction.
When a borrower comes to "us" with a question it is our duty to know the answer or be able to get it fast.
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