Q: Eighteen months ago, I became a happy homeowner. Last week, however, my lender informed me that my mortgage will be raised by $388 a month, starting next month. I have discovered on my own that they have been calculating my property taxes at $363 instead of $2,386 per year. I have been given the option to pay the shortage amount of over $2000 in a lump sum or spread out the shortfall over a one-year period. In addition to the shortfall, my monthly escrow for taxes will also be significantly higher.

Neither option is acceptable, since I am unable to afford the higher monthly payment. I never would have purchased this home had I known the actual mortgage payment. When I calculated my mortgage affordability, these figures were nowhere in the picture.

What can I do to remain a homeowner with good credit?

A: Obviously, something is wrong here, but I don’t know whether to point the finger of blame at you or at your lender.

It is difficult for me to believe that you were unaware of the amount of your annual real estate tax obligations. When you first started looking at this house, weren’t you given the amount of real estate tax for the property? When your lender was in the process of reviewing -- and ultimately approving -- your mortgage loan application, what numbers did they have for these taxes? In most jurisdictions throughout this country, real estate tax information is public information, readily obtainable from a government web site or from the public records themselves.

Let’s first see how to resolve your problem, and then look to whether you have any right to “finger-point”.

I would immediately talk with a top officer at your mortgage company. Explain the situation to them, and see what they can do to assist you. They obviously will not pick up the tax obligation on your behalf, but perhaps they can arrange to spread out the shortfall over a longer period of time.

At the same time that you are discussing the situation with your lender, you should inquire whether your local or state government has any low-income tax abatement programs. Some jurisdictions -- such as the District of Columbia -- have programs whereby low-income homebuyers can have their real estate taxes abated for a period of up to five years. Other jurisdictions have homeowner assistance programs, designed to help people buy -- and keep -- their homes.

After all, home ownership is the great American dream. Many governmental agencies have created programs to assist their constituents to fulfill that dream.

You may also want to consider refinancing your existing loan, so as to reduce your monthly mortgage payment. You purchased your home over 18 months ago. Mortgage interest rates have fallen considerably since that time -- although now they are starting to creep up slowly. You may find that with a lower interest rate, your monthly mortgage -- even with the increased real estate tax – will be more palatable for your budget.

My legal instincts also tell me that you should explore why you thought the real estate taxes were so low. Did the real estate agent involved in the sale of your house give you the erroneous information? Did the seller give you the wrong number? Do you have anything in writing from anyone as to what these taxes were?

If you can prove that someone -- the real estate agent, the seller or even the lender -- gave you the wrong information, then you may have a legal case. But the costs and time involved in pursuing such a matter is Court are probably not worth the effort.

You want to preserve your good credit. In the final analysis, if you are unable to work something out with your lender -- or if there are no governmental programs (or even family members) which can assist you -- then your only real option is to put the house back on the market and sell it.

You probably have had some increase in the value of your property over these last 18 months. If you should sell the property, make sure that you wait until two full years have elapsed before you actually go to settlement and convey the property. Our tax laws allow you to exclude all of your profit up to $250,000 (or $500,000 if you are married and file a joint income tax return). But this exclusion only applies when you have lived in the property for two out of the last five years before the property is sold.

Published: August 18, 2003

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