Escrow fund should not be short right after closing
Q. We purchased a condo in May of 2010 and immediately rented it to our daughter and granddaughter. They lived there for seven years and in 2017 we sold it to her and we closed on the condo sale. After only a very short time, my daughter has received notice from her mortgage company that her escrow account is short. Because they collect a year's prepayment of escrow money for insurance and taxes, how can this escrow account be short in a couple of months? As the mortgage company advised, she contacted the title company who is "looking into the issue." It appears that the figures shown on the closing paperwork do not match the escrow deposit from the title company.
In addition, the title company also now admits they "made an error" and did not actually show the money required to pay the condo association's processing fees in the closing paperwork. Now the association is requesting its fee of $365 that, according to them, we must pay. Can the title company not obtain all the correct figures from the association and then four months later, tell her they made a mistake and now she owes this money?
A. Let's start with the apparent shortage in the escrow account. Look at the settlement statement you received at the closing. It will indicate how much was deposited into the real estate tax escrow account. That same line in the settlement statement will also show what they are calculating to be the monthly escrow amount. This amount should be somewhere in the vicinity of one-twelth of the prior year real estate tax bill.
You do not indicate where the property is located. If the property is located in Cook County, the first installment real estate tax bill would have been paid prior to the May closing and only the second installment payment would be due for tax year 2016. If the property is located in any of the outlying counties, the first installment tax bill is not due until June 1 or shortly thereafter.
However, most lenders, given the short period of time between your May closing and the date the tax bill is due, will require the title company to hold funds to guarantee payment of the first installment bill. So, I am guessing that regardless of the county, the first installment tax bill was either paid prior to or at the closing.
Presuming this is true, look at what was deposited in escrow at closing plus the additional funds that were deposited in the escrow account through the monthly payments and compare that figure to the actual second installment real estate tax bill. Was there enough funds to cover the bill? If not, that is what triggered the letter. If so, a call to your lender for an explanation is in order.
I'm not sure what the title company is "looking into," unless you are suggesting the amount shown on the settlement statement is different from the actual amount transferred to the lender. The title company receives figures from the lender regarding what to take for the initial tax escrow deposit. The only title issue I could see here is whether or not those funds were actually transferred to the lender.
In regards to the issue with the condo association, what I am guessing occurred here is that on the association's paid assessment letter, they required a payment of $365 for what could be any number of things. This could be a buyer or seller charge. Again, look at your settlement statement. Was this fee paid? If so, this is a problem between the title company and the association. Also look at the paid assessment letter that should be in your closing package. Does that letter require a $365 payment? By who? If it does and this fee was not paid at the closing, one or both attorneys and the closer missed it. Unfortunately, if it is due, it is the current owner that owes the money. If you don't see a $365 payment requirement on the paid assessment letter, ask the association why and by what authority this money is owed.
• Send your questions to attorney Tom Resnick, 345 N. Quentin Road, Palatine, IL 60067, by email to tdr100@hotmail.com or call (847) 359-8983.