New home owners are prone to wrong buying decisions. This could be as a result of over emphasis on mortgage interest rates and price of the house while ignoring the closing costs. Closing costs refers to all other costs associated with the process of transferring home ownership. Closing costs and procedures vary from one locality to another depending on the federal and state laws. These costs are common to both parties during the home buying process. Closing costs are usually not included in the quoted mortgage price. Potential home buyers need to exercise caution when engaging in a mortgage agreement. It is important for home buyers to conduct a detailed assessment of different closing costs items before finally entering into a home buying contract.
What is Tax Service fee?
Tax service fee is a component of the closing cost in a mortgage agreement. Tax service fee refers to the amount paid by a mortgage borrower to the mortgage company as collateral for property taxes. Due to high competition in property market, some mortgage company allows bargaining of tax service fee. The market rate for tax service fee currently ranges between $50 and $150. Property taxes are unavoidable in many parts of the world. Any default in payment is equal to tax default offence, which attracts fines and penalties.
In order to avoid instances of property tax default, mortgage offering institutions incorporate tax service fee in the monthly or yearly mortgage bills. In some instances, the mortgage company engages a tax service agent to monitor the client payment of property taxes. Tax service fees is important to the lender. This is because it indicates tax compliance of the client and allows access to the property. This happens in case a client fails to honor his/ her property tax obligations.
Tax Service fee payment process
For long, tax service fee liability lied on the client under a mortgage agreement. Payment of tax service fee procedure however varies from one mortgage provider to another. Two common employed alternatives in tax service fee payment include monthly and annual billing. In monthly billing the annual property tax is broken down into 12 equal repayments then billed to the clients’ monthly mortgage repayments. On the other hand, annual tax service fee is payable once a year.
In some instances, the mortgage company sets a different impending account to monitor clients’ payment of closing costs such as tax service fees. A tax service agent notifies the company when property tax fall due and money is transferred from this account to settle the tax obligation. There are times when the company can use its money to cater for property tax. Such a company will then claim it back from the client later.
Legal obligations related to tax service fee
Administering of tax service fee by mortgage companies is legally recognized as a means of ensuring that clients pay their tax obligation on time. The state has authority to seize the house in case of outstanding property tax. The outstanding tax could either be from the current or previous owner.
It is a legal requirement for mortgage companies to provide potential home buyers with property tax and service fees related to purchasing property in a particular location. This disclosure should be made prior to entering into a binding agreement between the two parties.