Property Tax
When you purchase a home, you become responsible for paying property taxes on it. These taxes are levied by the governing body of the area—whether federal, state, local, or municipal—and the amount you owe is typically based on the assessed value of the property and the land it occupies.
Property tax payments have led to the creation of escrow accounts. In this arrangement, lenders include an additional amount in your monthly mortgage payments that accumulates in an escrow account specifically designated for paying property taxes. These funds are held until they are used to cover annual property tax bills. At the end of each year, lenders are required to provide you with a statement detailing the activity of your escrow account, including the amount allocated towards property taxes and other expenses like insurance.
Lenders are particularly concerned about your property taxes because they can represent a liability. If you are unable to repay your mortgage and the lender forecloses on your property, they will be responsible for any unpaid property tax obligations that were originally yours.
This responsibility is also why failing to pay property taxes can be considered a default. It could potentially lead to foreclosure, even if you are consistently making your principal and interest payments. Understanding your property tax obligations is crucial for maintaining ownership of your home and ensuring you meet all financial responsibilities related to your mortgage.
