Industry professionals still cringe a bit when they hear the word audit. However, that should not be the case with a tax line audit. This is an audit that can not only save in fees but time as well as improve customer service.
A tax line audit reviews of all tax line data elements that could affect the timely payment of real estate taxes or a correct escrow analysis. This audit should be completed 60 days before the real estate tax cycle begins. Since servicers are required to complete an annual escrow analysis on all loans in their portfolio, it is crucial to ensure that the data used to complete the analysis is accurate. The aforementioned is just one of the many benefits of auditing tax line data.
The annual escrow analysis is a calculation required under Real Estate Settlement Procedures Act (RESPA) and determines whether the escrow account is in balance and if the borrower needs to pay more money to make up a shortage or if the lender has collected too much money and the borrower is entitled to a refund. If the tax data reviewed within this analysis process is incorrect, the monthly payment information provided to the homeowner will be incorrect causing overage or shortage conditions in future escrow analysis.
Servicers over time have experienced an increase in calls related to the escrow analysis and the subsequent increase or decrease in the homeowner’s monthly payment. Most often the tax payment made from the homeowner’s escrow account is the cause of concern. Completing a tax line audit annually will provide the answers to those difficult questions related to real estate taxes paid from the homeowner’s escrow account. The questions from the homeowner could now be resolved with only one call.
The three key tax line identifiers that require the most attention and have the most impact on the tax paying process are the payee information (including where the homeowner’s tax payments are sent), the due date and frequency of the real estate tax payments and the tax amounts. All of these factors affect a true and accurate escrow analysis.
Payee – The U.S. has more than 25,000 tax agencies collecting real estate taxes for homeowners’ properties. These agencies, at times, will relocate changing where tax payments should be sent. The address information has to be audited annually to keep the lender’s records accurate to ensure future timely real estate tax payments.
Payment due date and frequency – Tax collecting entities can change the due date and/or frequency of real estate tax payments that they expect to receive during a calendar year. The homeowner’s data also has to be updated to properly calculate the monthly collection of taxes during the annual escrow analysis.
Tax Amount – The annual real estate tax amount is the last vital field that will also require review to determine if there has been an increase or reduction in the amount of taxes the homeowner is responsible for paying. This amount could be affected by a homeowner’s exemption status or a reassessment by the real estate tax agency.
Although servicers will not see an immediate change from completing a tax line audit, the savings will show up during year two of implementing the audit process. Servicers will experience a reduction in customer service inquiries related to real estate taxes, as well as a reduction in staffing for the processing of real estate tax payments due to fewer exceptions during a tax payment cycle and the penalty loss liability will also lessen because of timely and accurate real estate tax payments. The additional work related to completing a new escrow analysis or repaying a tax payment that was incorrectly processed will also significantly diminish.
While this is one of the last operational changes that most servicers implement, there are substantial financial benefits and an overall improvement in customer satisfaction. It proves to be a win for the servicers as well as the customers.