Property Tax Appeal and Mortgage Escrow: What Changes

Property tax appeals are common in markets where assessments lag behind price corrections. When an appeal succeeds, the mortgage escrow account needs to be recalculated and the servicer must adjust the payment.

How Escrow Accounts Work

At closing, the servicer collects an initial escrow deposit covering two to three months of projected property taxes and insurance. Going forward, RESPA regulations require the servicer to conduct an annual escrow analysis. The analysis compares actual tax and insurance disbursements against projected amounts and adjusts the monthly payment accordingly. There is an allowable cushion of up to two months of escrow at the low point of the escrow cycle.

What Happens After a Successful Tax Appeal

• ✦The county or municipality issues a corrected tax bill reflecting the lower assessed value
• ✦The servicer receives notice of the reduced tax obligation, either directly or at the next scheduled disbursement
• ✦The next annual escrow analysis recalculates the required monthly escrow based on the new, lower tax amount
• ✦If a tax refund is issued for overpaid amounts, the servicer credits the escrow account and reduces future payment accordingly
• ✦Escrow shortfalls from the overpayment period may result in a one-time catch-up or spread across 12 months

What to Tell Clients During the Appeal Process

Clients should file the appeal well before the servicer's annual escrow analysis date to maximize the chance that the reduced tax is captured in the next cycle. The monthly payment will not change immediately; it adjusts at the next escrow analysis or when the servicer acknowledges the new tax bill. Clients who pay taxes directly (non-escrowed loans) see the savings immediately on the next tax bill.