Sunday, April 25, 2010

query: how much are tax service fees that FHA won't pay

Tax service fees are a one time charge collected at closing by a mortgage lender.  What a tax service does is a bit iffy to me.  I always thought that once a mortgage loan was set up in servicing that the tax service would monitor and oversee the tax payments for that property.

That appears to be partially true in some cases, because we do see instructions for the future billings going to tax services for some lenders.  However, in most cases the lenders are issuing instructions that the tax bills go to their servicing department.  In either case, if the tax bill isn't routed to the correct address, the tax doesn't get paid and so that makes me wonder what consumers are really paying for when they pay these fees.

Most tax service fees range between $70 and $150.  Many are companies owned in whole or part by the mortgage lender.  When a mortgage lender has an ownership interest in a company like this they are not permitted to require use.  That means a consumer could insist that they be able to shop for tax service.  I have never seen a consumer do this, but under our regulatory structure it is an option.

Under current FHA and VA rules, the buyer is not permitted to pay a tax service fee presumably because the FHA and VA believe this is a cost that lenders should provide without charging a separate fee to borrowers.  A few lenders will waive the fee upon request but most will insist that the seller pay it.

If you are a seller and your contract did not include a seller assist, meaning you did not agree to pay for any of the buyer's closing costs, you can refuse to pay for the tax service fee.  That  might result in a classic game of chicken.  Nobody wants to lose the transaction over such a small fee.  If the lender won't budge, who will?  Sometimes the real estate agent pays for it in cases where it is clear that they should have known this was an issue when they drafted a contract including a FHA or VA mortgage contingency clause.  Savvy real estate agents will be sure to include a minimum seller assist in any FHA or VA transaction to cover miscellaneous charges that might be prohibited on the buyer side.

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