Most borrowers rely on their lenders to make property tax payments using the funds in a mortgage escrow account. Each month, the lender deposits a portion of the borrower's payment into this account, and he uses the balance to pay property taxes by the taxing authority's deadline. Though the law doesn't require it, many lenders will continue to pay property taxes even if the mortgage becomes delinquent and the escrow account's balance is insufficient.
Lenders who require borrowers to maintain escrow accounts must follow the procedures outlined in the Real Estate Settlement Procedures Act. Under RESPA, lenders must use the money in your escrow account to make property taxes on time and avoid any penalties. As long as your mortgage payments are current, lenders must pay these bills even if the escrow account balance won't cover them. However, RESPA does not require lenders to cover these bills with their own funds if your mortgage is delinquent.
Even though RESPA doesn't force lenders to pay your property tax bills when your mortgage is delinquent, many of them will do so anyway. If your property taxes remain unpaid, the taxing authority may place a lien on your property for the unpaid amount plus penalties. This lien takes immediate priority over the mortgage lender's lien, which means that the proceeds from the sale of your home must pay the property tax debt in full before your lender gets any money. For this reason, lenders often advance property tax payments to protect their interest in a home.
If the lender advances his own funds to pay your property taxes, he will bill you for the amount he paid. If your mortgage were current, RESPA would require the lender to spread the repayment over 2 to 12 months. However, if the mortgage was delinquent, the lender can demand immediate repayment. If you don't pay the lender and bring your mortgage current, he may begin foreclosure proceedings.
RESPA requires lenders to use escrow account funds only for property tax payments or homeowner's insurance. Lenders cannot use these funds to cover delinquencies in your mortgage. According to NOLO, some lenders will advance delinquent property taxes even if you don't maintain an escrow account. In such cases, the lender will pay the taxes and send you the bill. Even if you are current on your mortgage, the lender can still foreclose if you don't repay him for the property taxes he advanced.