Can my lender pay my past due property taxed without my consent?

Author: Rob K. Blake | Date: October 23, 2008 | Filed In: Mortgage Answers

Here’s the question,

“Can a mortgage company, in this case the dreaded Litton Loan Servicing, pay my past due property taxes without my consent, thus creating a negative escrow balance which I am expected to rectify?

I know as alien-holder they can purchase homeowners insurance if the owner lets it lapse, but do they have the same rights regarding property taxes?

Thanks,
Brian S.”

In a word, “Yes”.

You see the mortgage note contains provisions for the lender to cover many contingencies. One of them is the contingency to pay monies on behalf of the borrower if not paying those indebtednesses could cause a superior lien to be placed on the lender’s collateral…your house.

Lenders have the right to protect their collateral and lien position. This is the case even you opted for a “no escrow” mortgage.

But in your case, the lender is obviously responsible for paying the property taxes and most likely the hazard insurance as well. If they did NOT pay those items as instructed, they’d be in violation of the agreement with you to do so.

If they are instructed by legal agreement to pay taxes…and there is not enough in your escrow account to cover the taxes in full, they will still pay the full amount…because not only is it their legal responsibility but also NOT doing so could create a superior lien…a lein for taxes. (See Glossary term, Mortgage Lien)

Property tax shortfalls which lenders have to ask borrowers to rectify are a common occurrence. There is nothing “seedy” going on here. They paid what you owe and now they are asking to paid back. Of course, you’ll want to confirm this by looking at your own property tax bill to be 100% certain.

Thanks for the question,

Good Luck!

Author: Rob K. Blake