Can you sue a mortgage company over late taxes? - Posted by Sean (TX)

Real Estate Investing
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Posted by Dave T on April 09, 2002 at 13:13:04:

I think you are confusing apples with oranges here.

You said that your friends paid into their escrow account on time and that the mortgage company paid the property tax bill. Since the tax bill was paid late, the mortgage company paid all late charges BUT your friends still had to pay the tax bill from their escrow account. They are not out any money here. They still owed the tax bill, even if the bill was paid on time. I get the impression from your post that the amount of the tax bill is $4000.

Later you say that because they could not claim the property tax deduction on their tax return, your friends have a refund that is $4000 less than anticipated. Here is where I get lost. If the tax bill was $4000, then the property tax deduction (in the 27.5% tax bracket) only increases their tax refund by $1100 at best. If your friends happen to be in the 36.1% bracket, then I suspect that their itemized deductions are limited and that they would not be able to take full advantage of the entire property tax deduction anyway. But since you did not give enough specifics to go on here, I am only taking a shot in the dark.

Since your friends did not “pay” their property tax bill in 2001, their deduction can not be claimed until they file their 2002 tax return. If they happen to have a double property tax payment to deduct next year, then they get a little extra in their tax refund next year.

Your original question was “Can you sue a mortgage company over late taxes?”. I still take the position that your friends did not pay any more in taxes than they were obligated to pay in the first place. Since the mortgage company agreed to pay all late charges, your friends are not damaged, and I suspect that a law suit would not have any basis.

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Can you sue a mortgage company over late taxes? - Posted by Sean (TX)

Posted by Sean (TX) on April 08, 2002 at 23:37:08:

Howdy Folks,

This may be a little off the beaten path but I figured someone here might have an idea on how to handle this one…

A friend and her husband had a mortgage with Chase (perfect payment history). Chase sold the mortgage to Wells Fargo late last year (continued perfect payment). Wells Fargo drops the ball and does not pay her property taxes until this year. They sent her a letter taking full responsibility, apologizing for the oversight, and informing her that they will pay the penalties for late payment of taxes.

OK, that’s fine. However, they also stated that since they didn’t pay them until this year, she can’t claim “property taxes paid in 2001” on her 1040. They claim that she’ll have to file it on her return for this year in addition to her property taxes for 2002.

Is this even correct? My due date for taxes (same county)was 28 Jan 2002. Meaning the mortgage company had until then to pay the taxes or they would pay penalties. As long as I paid my mortgage company to escrow the funds (PITI inclusive) by 31 Dec, I’m able to count the funds as paid in 2001. Shouldn’t she be able to also? Is Wells Fargo all screwed up?

Without this deduction, she loses $4000 off her refund. Anybody else have a problem with this? I do! In fact, I think I’m more torqued off than she is! The way I see it, she loses the use of $4000 for a year. Even if she gets to claim it next year, she may not get the full $4000 value back next year.
She and her husband have kids and a house. That’s their money, I know they had plans for it.

I don’t think Wells Fargo should just be able to say" “Oh yeah, we screwed up. Hope you don’t mind if we take 4 grand from you for a year.” The way I see it is: If someone’s gonna do without $4000 for a year, it should be Wells Fargo. What now, should she send them an “intent to sue” letter unless they come up with 4 grand pronto?

Anybody got any ideas on how to proceed?

Thanks for your help.

Sean

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Re: Can you sue … - Posted by Frank

Posted by Frank on April 09, 2002 at 07:30:22:

How much was their tax bill if they are expecting a $4000 dollar return from the second half tax deduction portion alone. It woulld have to be around $13,000. Are taxes that high in Texas for half a year? or do you pay taxes once a year? If so, are they still that high…$13,000?

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Absolutely - Posted by Wayne (MD)

Posted by Wayne (MD) on April 09, 2002 at 04:39:06:

Real Estate columnis Robert Bruss would say to take them to small claims court and sue for the $4k plus expenses. I think friends most would win, but then I am not a lawyer.

Wayne

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Can you sue a mortgage company over late taxes? - Posted by Dave T

Posted by Dave T on April 09, 2002 at 02:48:03:

Property Taxes may only be deducted on your tax return for the year in which they are “paid”. Amounts paid into an escrow account are still your funds (although held in escrow for your tax and insurance bills). Contributing to an escrow account does not create a tax deduction.

If the property tax bill is due on 28 Jan 2002 and paid between 01-28 Jan 2002, the property tax is a deduction on the 2002 tax return (due April 2003). If the tax bill had actually been paid on or before 31 December 2001, then the tax is deductible on the 2001 tax return.

Your friends are not out any money. They paid into an escrow account during the year, and the mortgage company used those funds to pay the tax bill that was due on or before 28 Jan 2002. That money is gone from the escrow account. It is right and proper for your friends to pay the tax bill, while the mortgage company pays any late charges that may have accrued.

Meanwhile your friends are contributing toward their tax bill due on or before 28 Jan 2003. If that tax bill is paid early (on or before 31 Dec 2002), then your friends will be able to deduct both tax bills on their 2002 tax return.

No law suit here. Because the lender is paying all late fees, your friends are not damaged. When lenders transfer mortgages or mortgage servicing, it often takes some time for everything to catch up. Lenders will generally waive late fees for the first two mortgage payments sent to the new lender, because they expect “shakeout” problems and delays in setting up and posting the new accounts.

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Can you sue a mortgage company over late taxes? - Posted by Sean (TX)

Posted by Sean (TX) on April 09, 2002 at 09:21:52:

Yes, she has suffered damages. As she has lost the use of $4000 for 365 days, not to mention that she had plans for that money. That’s sort of like me saying it’s alright for me to take $4000 out of your bank account and, as long as I paid the interest to you at the end of the year, you have no right to object. It doesn’t wash!

Wells Fargo owes her money now!

Sean