Q: My wife and I are caught in the middle of a disagreement between our mortgage company and the county tax collector, and it appears that we are going to be the looser. In March, 2001, we refinanced our mortgage with a local bank, but since then the mortgage has been sold twice to out of state mortgage companies. Our mortgage requires an escrow account for property taxes and insurance.

We recently received a notice from Fairfax County that the property taxes had not been paid and that we would have to pay a large penalty. We called (and wrote) the mortgage company, who claim that the taxes were paid.

What can we do to resolve this difficult situation and protect our credit rating – and our house.

A:Don’t fret! You will not be the looser. This is typical of many of the horror stories I have heard (and seen) when lenders escrow money monthly for payment of future real estate taxes and insurance.

This is really not a difficult situation. If your current lender claims that they have paid the real estate tax, demand that they produce proof of that payment. Either the payment was made or it was not. If the bank can produce proof of payment, show that proof to the County and let the County work out the situation with your lender.

On the other hand, if your lender cannot produce proof, demand that they immediately pay your real estate tax – which would include any interest and penalties associated with the late payment.

You should also demand that the lender send you a letter of explanation, so that if this late payment is reported to a credit reporting bureau, you can send the letter of explanation to that company which will be kept in their files, and hopefully clear up the situation.

This, unfortunately, is a problem which happens all too often. You obtain a mortgage from a local lender, but the loan is immediately sold to another lender who may be located in Oklahoma, California or some other state far away from you. That lender may have honestly sent in your real estate tax payment, but it may have been misdirected to some other branch within the county in which your property has been located. Clearly, the lender in the West may not know the exact address for the local taxing authorities.

There is, of course, another explanation. As we all know, the recent Anthrax scare has played havoc with our mail – especially here in the Washington metropolitan area. Many of us are still receiving letters which were postmarked weeks – if not months – ago.

However, your current lender should be able to determine whether they sent out a check for your real estate tax, and if so, where it went and whether their check was cashed.

If should be pointed out that often, when lenders send in the real estate tax bills to a local county, they bunch the tax bills together. In other words, instead of sending in separate checks for each individual tax bill, they send the county one check, representing tax payments for all properties within that County. It is also possible that someone made a typographical error when transmitting the tax bills, and misspelled your name – or transposed the legal description.

However, your current lender should have records of what they sent to the taxing authority in your county, and these records – if they exist – should immediately provide the answer as to where your tax money went.

If, on the other hand, your current lender either refuses to produce proof of payment of your tax, or does not have any proof, I suggest that you immediately contact all appropriate federal and state banking offices, and file a complaint. The complaint should be lodged both in Virginia – where your property is located – as well as in the state where your current lender has its home office.

You should also talk to the County, and see if they will assist you. Ask the County to give you a moratorium on paying the tax and that they should waive the penalties until the matter is resolved.

Here’s a suggestion for all homeowners who are required to pay money into escrow by their mortgage lender. Each year, immediately after your real estate taxes were to have been paid, send a demand letter to your current letter, asking that they provide you with proof of payment. Additionally, if the lender also escrows for insurance, send a similar letter requesting proof of that payment.

After all, lenders want to escrow for taxes and insurance so that they can make extra money on the float. They normally do not pay you any interest on those escrowed funds, and this can add up to a lot of extra money in the pocket of that lender.

If a lender insists on an escrow for taxes and insurance, they have a duty – as an escrow holder – to properly account for those funds. And properly accounting also includes providing you proof that your real estate tax and hazard insurance has been paid – and paid promptly.

Published: March 18, 2002

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Author of the weekly Housing Counsel column with The Washington Post for nearly 30 years, Benny Kass is the senior partner with the Washington, DC law firm of Kass, Mitek & Kass, PLLC and a specialist in such real estate legal areas as commercial and residential financing, closings, foreclosures and workouts. Mr. Kass is a Charter Member of the College of Community Association Attorneys, and has written extensively about community association issues. In addition, he is a life member of the National Conference of Commissioners on Uniform State Laws. In this capacity, he has been involved in the development of almost all of the Commission’s real estate laws, including the Uniform Common Interest Ownership Act which has been adopted in many states.