# Sneaky tax on property tax



## gt_23 (Jan 18, 2014)

My mortgage company collects (with biweekly payment) and pays my municipal taxes.

Lately, I had noticed that my escrow account balance was lower than what my records indicated I should have based on the amounts collected and paid. I called the mortgage company and they said the city had started sending them semi-annual bills for "tax administration charge" around mid-2012. The amounts were trivial relative to the total annual bill, but I was blown away by this as both my annual mortgage statement and the online portal to access the tax account balances didn't show these amounts. If I didn't keep my own records and notice something was up, I never would have known at all.

Has this happened to anybody else? If not, beware that it might be happening to you. p.s. the lender is First National.


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## Goose (Mar 23, 2012)

This fee is fairly standard. It's probably specifically noted in your mortgage contract that your lender will pass this fee on to you.

I work in municipal finance in BC. Our office charges $10 for each property a mortgage company requires tax information on, provided they notify us prior to running the tax levy in our software. (Generally May 1st for taxes due July 1st). After this date the fee increases to $45 to encourage the mortgage companies to be organized, as well to account for increased staff time.


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## gt_23 (Jan 18, 2014)

Goose said:


> This fee is fairly standard. It's probably specifically noted in your mortgage contract that your lender will pass this fee on to you.
> 
> I work in municipal finance in BC. Our office charges $10 for each property a mortgage company requires tax information on, provided they notify us prior to running the tax levy in our software. (Generally May 1st for taxes due July 1st). After this date the fee increases to $45 to encourage the mortgage companies to be organized, as well to account for increased staff time.


Fairly standard? Spoken like a true bureaucrat.

Thanks for the reply. I'm going to see if its possible to start paying the taxes directly.

Despite you referring to this as fee, its just another tax. Even it's noted in my contract as you state, I can't imagine why it would not be included on the mortgage statement and history of payments to the city. I'm not really sure why your (or any) municipality would charge a fee for providing a tax statement to the mortgage company, when they provide them for free to regular homeowners.

Governments are shameless.


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## Just a Guy (Mar 27, 2012)

Why would you ever let the banks collect and pay your taxes for you? For one thing, their "savings" for you earns no interest.

Personally, I always opt to pay my taxes myself...and I usually appeal the accessed values every couple of years to ensure I pay the minimum property taxes possible.


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## gardner (Feb 13, 2014)

gt_23 said:


> I'm going to see if its possible to start paying the taxes directly.


The lender should not put up too much of a fight on this. If your mortgage is not, or is no-longer "high ratio" this is a no-brainer.


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## MrMatt (Dec 21, 2011)

Just a Guy said:


> Why would you ever let the banks collect and pay your taxes for you? For one thing, their "savings" for you earns no interest.
> 
> Personally, I always opt to pay my taxes myself...and I usually appeal the accessed values every couple of years to ensure I pay the minimum property taxes possible.


If you have a low downpayment mortgage, I think the banks insist on paying for you. At least that's how I remember it from a few years ago.

Personally I like getting angry and bitter about the ridiculous amount of money I pay in property taxes.


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## cashinstinct (Apr 4, 2009)

With First National, if I had CMHC (less than 20% downpayment), they wanted to pay for me.

Since I had a larger downpayment, I was able to say I wanted to pay by myself.... so they don't take money for this on the mortgage payments.


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## Eclectic12 (Oct 20, 2010)

gt_23 said:


> ... I'm going to see if its possible to start paying the taxes directly.


It's been a while since I've had such a "convenience" offered ... but from what I recall, the choice to do so and the choice to change it is yours.

The only requirement I had from the mortgage company was to file a copy of the property tax statement showing the taxes were up to date. I think they wanted it once a year but I only bothered about every three years.

Always paid my property taxes myself & pocketed any interest while it built up in the accounts.


Cheers


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## Eclectic12 (Oct 20, 2010)

cashinstinct said:


> With First National, if I had CMHC (less than 20% downpayment), they wanted to pay for me.


 ... might be specific to the vendor or a recent change ... my first mortgage had less then 20% down so that it was CMHC but I politely declined the offer of taking care of the property taxes without any issues or pressure.

All mortgages after the first one had more than a 20% down payment (if I recall correctly, the last one was a 67% down payment).


Cheers

Cheers


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## cashinstinct (Apr 4, 2009)

Yeah, possibly, that's why I specified.

You can ask, the worse they will say is "no"


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## Goose (Mar 23, 2012)

gt_23 said:


> I'm not really sure why your (or any) municipality would charge a fee for providing a tax statement to the mortgage company, when they provide them for free to regular homeowners.


Like it or not, Municipalities incurr additional costs to prepare information to be sent off to Mortgage companies. Why should should property owners not requiring this additonal time bare the costs?

As you have already identified yourself, you can always pay taxes yourself instead of having a third party do it for you. Most municipalties offer payment plans paying you interest as well.

Personally, I would never let a mortgage company pay my taxes for several reasons:


Like you, I abhor fees for things I could do myself for free
Mortgage companies are often terribly organized and pay the taxes late. They often attempt to pass the penalties onto their customers despite their it being their error...
Mortgage companies often fail to take into account Provincial grants towards property taxes. Resulting in them collecting and paying too much money.


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> Why would you ever let the banks collect and pay your taxes for you? For one thing, their "savings" for you earns no interest.
> 
> Personally, I always opt to pay my taxes myself...and I usually appeal the accessed values every couple of years to ensure I pay the minimum property taxes possible.


I have other home loans with banks and they let me pay the taxes directly. First National actually earns revenue from their escrow accounts, so I can see why the don't want to give that up.


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## gt_23 (Jan 18, 2014)

gardner said:


> The lender should not put up too much of a fight on this. If your mortgage is not, or is no-longer "high ratio" this is a no-brainer.


It was 95 LTV at inception, but sitting around 70 LTV now.


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## gt_23 (Jan 18, 2014)

Eclectic12 said:


> ... might be specific to the vendor or a recent change ... my first mortgage had less then 20% down so that it was CMHC but I politely declined the offer of taking care of the property taxes without any issues or pressure.
> 
> All mortgages after the first one had more than a 20% down payment (if I recall correctly, the last one was a 67% down payment).
> 
> ...


Yeah I had 95 LTVs with Firstline and they let me pay them directly. I think it seems to be a FN + high ratio thing.


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## gt_23 (Jan 18, 2014)

Goose said:


> Like it or not, Municipalities incurr additional costs to prepare information to be sent off to Mortgage companies. Why should should property owners not requiring this additonal time bare the costs?


Ummm...ok. I guess this is why I would never fit in very well in a Government job, but I still can't understand how it is more costly to send a tax statement to a mortgage company than a homeowner. As the homeowner in this arrangement, I don't get copies of the bills from the City, so it's not like there's any duplication of postage.

I guess this is the same logic used by the Municipalities to charge you $50 for a property tax statement when you buy or sell a house: $1.50 for postage, $0.50 for materials, and $48 for high quality civil servant labour and overhead!


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## gt_23 (Jan 18, 2014)

I just got off the phone with First National. According to them, I am "eligible" to pay property tax directly. I have no idea what that means, but they did ask me if I had ever gone bankrupt.

In the end, the savings will be worth less than my time dealing with this issue, but it is very satisfying to know the City won't have their greasy hand in my back pocket anymore!


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## Goose (Mar 23, 2012)

gt_23 said:


> Ummm...ok. I guess this is why I would never fit in very well in a Government job, but I still can't understand how it is more costly to send a tax statement to a mortgage company than a homeowner. As the homeowner in this arrangement, I don't get copies of the bills from the City, so it's not like there's any duplication of postage.


In BC, municipalities are mandated under Provincial legislation to mail a tax statement to every owner on the tax roll, regardless of who is paying the taxes.

At the very least I think you'd realize that there is a non-zero amount of time and money expended to compile these records.


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## Eclectic12 (Oct 20, 2010)

gt_23 said:


> I just got off the phone with First National. According to them, I am "eligible" to pay property tax directly. I have no idea what that means, but they did ask me if I had ever gone bankrupt.


Logically, this implies there are other mortgage holders who they won't allow to pay the property tax directly ... but who said financial institutions were logical? 




gt_23 said:


> In the end, the savings will be worth less than my time dealing with this issue, but it is very satisfying to know the City won't have their greasy hand in my back pocket anymore!


I see a bit of time to switch over as well as to plan out how the payments will be made ... but after that, I'm not clear on why you'd spend a lot of time on it.

I receive the property tax notice, review it for anything that looks odd & use my computer to setup the payment in advance.
It works out to two notices x fifteen minutes for me. I do check my bank online to make sure payments were processed ... but that's not specific to the property taxes - that's for everything that's happening in the bank accounts.

Meanwhile ... the funds earn interest for me instead of the mortgage company.


So unless you plan on complicated process ... or it's taking away from an exceptionally lucrative activity, the estimated value of avoiding such an easy task seems overblown, IMO.


Cheers


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## MrMatt (Dec 21, 2011)

Eclectic12 said:


> Logically, this implies there are other mortgage holders who they won't allow to pay the property tax directly ... but who said financial institutions were logical?


I did, financial institutions are logical.

Banks don't want the city to seize the property for unpaid property taxes as the municipalities claim supercedes the banks.
So the banks avoid this by ensuring your taxes are paid up.
It's a good risk mitigation strategy, it doesn't even really cost them much.

That doesn't mean they're not wildly inefficient and self confusing bureaucracies, but that's typical organizational incompetence, not a flaw in the underlying business logic.


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## gt_23 (Jan 18, 2014)

Eclectic12 said:


> Logically, this implies there are other mortgage holders who they won't allow to pay the property tax directly ... but who said financial institutions were logical?


To be clear, my gripe wasn't with FN for deducting and paying the taxes on my behalf. It was the fact that I was paying an extra $30 per year to a municipality that already charged me $3500 in tax (on a $325k home), provides little value for it, and charges "user fees" for everything else.



Eclectic12 said:


> I see a bit of time to switch over as well as to plan out how the payments will be made ... but after that, I'm not clear on why you'd spend a lot of time on it.


Simple... my time is worth about $50 per hour and I don't have an excess supply of it, 1-2 hrs to deal with issue, and savings of $30 a year.


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## Eclectic12 (Oct 20, 2010)

... was clear on the gripe.

As for the "not worth it", this only makes sense if you need 1 to 2 hours a year to pay your property taxes. This doesn't jive with the twenty minutes I spend on the same thing.

If I assume 1/2 hour a year @ $50 / hour, you are "losing" $25 in order to spend $30 less. While it's not going to fund early retirement, it appears a net gain isn't hard to achieve.


To put it another way, I'm trying to figure out why you once you take over paying property taxes - more than half an hour a year would be needed.


Cheers


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## Eclectic12 (Oct 20, 2010)

MrMatt said:


> I did, financial institutions are logical...
> So the banks avoid this by ensuring your taxes are paid up.
> 
> It's a good risk mitigation strategy, it doesn't even really cost them much.


I'd call it useless in my case ... I've always paid my own property taxes and rarely provided proof of payment for property taxes.

This includes when I was a first time mortgage holder with a high ratio mortgage. 




MrMatt said:


> ... but that's typical organizational incompetence, not a flaw in the underlying business logic.


If the business logic says " to protect ourselves, we pay the taxes or you prove you paid yearly" then AFAICT neither is done - what do you call it? Logical doesn't seem to fit ...


Cheers


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## Just a Guy (Mar 27, 2012)

Since the amount of your property tax bill isn't known up front, I assume the bank actually takes extra each month to ensure the total is covered...

What happens to the extra money if the taxes are lower than expected?

Where does the money come from if it's higher?

Do they just add it to the principle? Do you pay interest on it?

Do they pay you interest on it?

I know they say they need to pay the property taxes, but are they actually lying about that? I've always understood it to be optional...I don't think they can really insist in most cases. Does the bank charge a handling fee on it as well?

I've never had the bank pay my property taxes, so I really don't know...


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> Since the amount of your property tax bill isn't known up front, I assume the bank actually takes extra each month to ensure the total is covered...
> 
> What happens to the extra money if the taxes are lower than expected?
> 
> ...


These comments are specific to my experience with FN:

- they forecast projected property tax increases and adjust your payment once per year

- if there's a surplus, they leave it in your escrow account. If the surplus is large enough, your mortgage payment might not change every year (to catch up with increasing taxes). They pay you a very small rate of interest - I discovered this again through a reconciliation, they don't actually tell you the rate or show you the interest amounts on a statement. FN earns a spread on what they pay you and what they get (per their mda), however, they don't report the income or assets specifically for this item, so it's impossible to know for certain.

- if there's a deficit, your escrow account goes into a debit. I'm unsure whether they charge interest on debits since it is them that calculates and adjusts the payments to ensure they have enough funds to pay the taxes - so technically their error.

- I recall it being a condition on the approval letter when I originally got the financing, so I don't think I really had the option at that stage. Once you're already in bed with them, I don't think they have any authority to compel you to keep the arrangement, but rather, most likely rely on most peoples' ignorance when it comes to these matters.


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