What is an escrow account?
Most (but not all) mortgages have an “escrow” account for taxes and homeowners insurance. If your loan has an escrow, you are paying one twelfth of your taxes and insurance together with your loan payment each month. Each month, your lender deposits these funds into an escrow account. When taxes and insurance come due, your lender pays them, from this account. If you are not sure if you have an escrow account, reference page one of your Closing Disclosure. Where your projected payment is broken down it’ll say “YES” under “In escrow?”, if you’ve got an escrow account. Or just call us (we know these things).
When should I look for a bill?
Property taxes come due once a year in Oregon (November 15) and twice a year in Washington (April 30 and October 31). Homeowners insurance usually comes due annually just before the anniversary of your closing date. If you do not have an escrow account you’ll receive a bill from the county and your insurance company and pay directly.
Don’t worry
Even if you do have an escrow account, you will get a copy of your bills (don’t be alarmed!). Clark County (helpfully) sends out a postcard notifying you that your lender is paying. In Oregon tax bills are (cryptically) color-coded: yellow means a lender is paying; green means you pay. If you get a green bill and you have an escrow account (it does happen, especially if your closing date is close to tax time), call up your loan servicer. They may have you send them the bill to pay.
Most counties do a good job of providing information about taxation, assessments and reading your bill. Here are links for some counties in which we frequently work: Clackamas County, Clark County, Columbia County, Multnomah County, Washington County and Yamhill County. Some of these change annually, so let us know if you find a dead link here and we’ll fix it.
Your escrow statement
Every year, usually in January, your loan servicer will analyze your escrow account. You’ll receive a statement showing what you paid in and what your lender paid out on your behalf throughout the year. At its low point (typically right after your taxes are paid), your escrow should still have a balance equal to a month or two of taxes, a cushion to allow for increases.
Why is my escrow account short?
Like everything else in life (sigh), you can pretty much count on taxes and insurance increasing. As a result, expect that your escrow will have a bit of shortage each year. Usually, you will be given two options to remedy the shortage:
Your lender will adjust your monthly payment to include an extra amount each month to pay back the shortage in installments.
OR
You can write a check for the shortage.
Which is the better option?
The first option is a tiny way to get one over on The Man. Your loan servicer paid your taxes and insurance, effectively lending you the shortage. If the payment is affordable, why not take them up on what is basically an interest-free loan? Just remember that your monthly payment will increase by enough to pay back the shortage and save for the right amount next year.
If you elect to pay the shortage in a lump sum, your payment will still adjust, but only by the actual difference in taxes and insurance.
Important note regarding automatic payments
If you’ve set up an automatic payment through your loan servicer, your payment will automatically change. But if you have an automatic payment set up through your bank’s bill payment service, watch closely for your annual escrow account statement and make sure you adjust your payment. Late fees, damaged credit and frowny faces will result if you don’t.
Keeping Oregon weird
Oregon has some downright weird stuff going on when it comes to property taxes. Measure 50 is to blame. Flash back to 1996, when Oregon voters passed Measure 50. Up until then, county assessors across Oregon would figure a “real market value” (RMV) for each property each year—the tax assessor’s estimate of the actual property value—and levy taxes on that amount. When implemented, Measure 50 decoupled market values from the taxed value, creating a “tax assessed value” (TAV). (Sometimes, the TAV is called the “maximum assessed value” or, you guessed it, MAV.)
RMV or TAV?
County assessors still go about their business, figuring out an RMV for each property each year. You’ll see the market value on your property tax statement, but you can generally ignore it—it’s not the value on which you pay taxes. You pay taxes on your assessed value, the TAV. The first assessed value for each property was 90% of its 1995 market value. Going forward, Measure 50 capped increases to the assessed value to no more than 3% per year…so long as the property is unchanged.
Wait. 1995?
Yes. If your house existed in 1995 and has not been significantly altered since then, your tax bill is based on the value of your home in 1995. Weird, right? If your property changes, the assessor is permitted to increase your assessed value by more than 3%. The most extreme case would be a brand new home but less dramatic changes can trigger an increase too. Multnomah county, for example, increases your assessed value if you make improvements that add more than $10k in value in a year or $25k over 5 years. More from the County here.
The tangled webs we weave
There are all kinds of wild consequences from Measure 50, ranging from school funding issues to wildly disparate taxes on similarly valued homes. We’ll resist the urge to ramble on, but it doesn’t take much to get us going. Call if you have questions.
