And now our mortgage payment doubled?

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Prior to buying our first rental property, we had read (and heard) a LOT of horror stories.  Tenants trashing the place. Tenants not paying rent for months on end. Unexpected expensive repairs that cancel out any cash flow you’ve been earning. We knew the risks going in, did our research, and made sure our tenants were thoroughly screened, did what we could to mitigate risks, and just kind of held our breath and jumped in.  

A few months ago, I talked about our first unexpected hiccup of our rental property experience — a cancellation notice for our homeowner’s insurance policy (also called a landlord insurance policy.)  Luckily that all worked out in the end, there seems to have been some lost mail issues from the settlement company that was supposed to send our insurance payment in for the first year after we closed on the house.  

Now, we’ve experienced our second unanticipated issue.  And yet again, it’s not even tenant related.

The “Escrow Account Analysis”

We received a notice from our mortgage company that our monthly payment would be DOUBLING.  

That’s right.  We received a letter from our mortgage company saying that after a recent “escrow account analysis,” that our payment would be going from $578 per month to $1059 per month.  The letter explained that we had been underpaying into our escrow account and that the increase would be needed to make sure we had adequate balances to pay our property taxes.  

Now, Ken and I are well familiar with our mortgage payment changing on our primary residence. I’d say that our monthly mortgage payment changes about $40 either way each year to adjust for our escrow account.  But never has it even come close to DOUBLING.  

Where did they get my tax bill?

After a brief moment of panic (“Well, there goes all our rental property cash flow!”), I knew that something didn’t seem right.  

In Pennsylvania, we pay a separate type of property tax called a “school tax.”  The escrow analysis statement showed that our annual school tax bill was $3800 for the year.  I looked at school tax bills that that the previous homeowner had provided to us, and saw that the previous years’ school annual tax bills had only been about $1000.  I also double checked the property records to make sure that the assessed value of our home hadn’t, you know, unexpectedly QUADRUPLED or anything.  

So then I called the municipal office directly and asked them to send me a copy of the school tax (and other property tax) bills.  They emailed them to me, and sure enough, the school tax bill was only about $1100.  Not even close to $3800.  

Next up, it was time to call the mortgage company.  They were pretty much no help. They kept insisting that my school tax bill was $3800. So I asked them to provide me with a copy of the tax bill that they had received.  In about a day, they emailed me a copy of the bill.  And yet again, nowhere on the bill did it state that we owed $3800 for the year.  It showed the same amount that the municipal office bill had listed.

I called them back after receiving a copy of their bill and wanted to know exactly how they arrived at the $3800 amount.  They said they’d only be able to provide an explanation three weeks later.  They claimed they only review escrow accounts one day of the month.  And, they had me fax them a copy of the tax bill I had requested directly from the municipal office.  

And then we waited.  

The nightmare mortgage company?

We had Googled this mortgage company name, and it turns out that they ALWAYS seem to be f*cking up escrow accounts, whether it be for homeowners insurance payments or property tax payments. One random online reviewer claimed that the mortgage company had been overcharging her escrow account for YEARS and they hadn’t been getting it straightened out. It’s worth noting that we did not choose this mortgage company. We had gone through a local lender, but a few weeks after we closed on the rental property, our mortgage was sold to a larger company.  (Same thing happened with our primary residence mortgage, but not that same company).  

I was trying not to panic too much.  After all, I know that money paid into an escrow account isn’t “lost” money.  But, it was still pretty disheartening to see all our cash flow potential disappear for an undetermined amount of time.  

The mystery check

Then, about a week before our new mortgage payment of $1059 was due, we got a mysterious check from our mortgage company.  The check was for $482, but there was no explanation provided.  It was just a check.  A week later, our $1059 mortgage payment was deducted from our account.  And a few days later, we received a “revised escrow analysis” showing that our mortgage payment was now $578 again.  I guess they weren’t able to adjust the mortgage payment amount for September 1, so they just decided to issue us a refund check for the approximate difference?  Still, it would have been nice to have an explanation (and perhaps even an apology?)

Either way, we’re glad it worked out as quickly as it did. After reading so many online reviewers’ comments about how terrible this mortgage company was with escrow accounts, we were settling in for a long fight.  But, it didn’t end up being so bad after all.

Bottom Line and Next Steps

So, there we have it.  The second big “surprise” of being a landlord.  Ken and I decided that we might try to get an “exemption” for an escrow account. The mortgage company says that after 1 year of on-time payments, we can file an exemption to be able to pay our homeowners insurance and property taxes ourselves, instead of through an escrow account. Based on how much this company seems to be incapable of properly handling escrow accounts, it seems like the best decision. But, we still have about six months before we’re eligible to apply for the escrow exemption. 

Have you experienced anything similar?