The Property Tax Shuffle

by Ouida on May 18, 2010

I am working on a post, “Why Medicare Sucks.”  I am having difficulty writing it.  Not because Medicare is perfect.  It isn’t.  But because so many users of Medicare believe it is a great program.  Great insurance.  It isn’t.  I have written about the perils of the stock market and home ownership as wealth-creation vehicles.  Both are lousy wealth-creation vehicles, but most of the people who were told to invest in the markets for retirement or that a home was an investment have learned the bitter truth.  The same with Medicare.  As I put the post together, I will take you from my cousin’s practice in Atlanta, to a conversation that I and 2 other doctors had almost a decade ago on the beach in Santa Monica, to a conversation I had with a retired doc who told me that the happiest day in his practice was the day he closed his doors to both Medicare and Medicaid.  The post is coming.  Watch out for it.

Now for a rather abrupt change of topic.  Something rather interesting happened the other day that I just have to share.  As I mentioned before, when I was getting my financial life together, I read beaucoup books on personal finance.  Still do.  But I came across some advice from Suze that I should manage my property tax and insurance payments myself.  At the time I was paying a certain amount each month to my mortgage company so that they could escrow the funds for me and make the property tax and insurance payments on my behalf.  Millions of American homeowners do this:  pay additional money to the bank each month that the bank then sets aside, so I was not special in this regard.  You can understand why the bank might want to do this.  When a bank loans money for a home, they actually own the home and they just let the mortgagee live in it.  The insurance is there to protect the bank’s collateral, the home.  Property taxes actually trump a mortgage.  A home owner or mortgagee can fall so far behind in property tax payments that a county can order a home sold for the unpaid taxes leaving the mortgage company stuck with a loss on the mortgage.  It is in the mortgage company’s best interest to collect the property tax payments from the mortgagee and pay the taxes.

The reason I don’t escrow is simple I want to control my cashflow and banks are allowed to keep a cushion in the account as stipulated by the mortgage contract.  As an example, that cushion may be equal to 90 days of property taxes and 60 days of insurance premiums.  The bank is not required to pay interest on that cushion.  So for a home with a $720 dollar insurance premium and a $2400 dollar tax bill the monthly escrow amount would be $720+$120+$2400+$600 = $3840/12 = $380.  The balance in the escrow account must never drop below 60 days of insurance premiums plus 90 days of property taxes or, in this case, $720 dollars.  If it does, the mortgage company will increase the mortgagee’s payments to escrow to make sure they can make the property tax and insurance disbursements and maintain their target cushion.  If you are a home owner, you know that that cushion represents a new washer, dryer, water heater and it is just silly having that money literally locked in a bank just to make the bank feel better about lending you the money in the first place.

But what happens if the bank doesn’t actually do with the money what they were supposed to.  What if they don’t make the payments or make them on the right property. This is a rare occurrence, but something that happened yesterday put me right in the middle of such an event.  I made property tax payments on the properties that I hold before I went on vacation.  When I returned, I ran the checks to make sure they had cleared.  Two of the properties I hold are right next door to each other.  I placed the property tax checks for those properties with coupons in the same envelope and sent it in.  When I ran the checks I realized that the county treasurer had only cashed one of the two checks I placed in the envelope.  When I called the county treasurer they told me that they had received so many property tax checks they were behind in data entry, the fact that they hadn’t cashed my check didn’t mean they had lost the check and asked me to check back with them in a week.  They ran the account for the property and pronounced that the tax account had a surplus on it and that Chase Financial had been making payments as well as lil’ole me.  That’s all well and good except that Chase wasn’t the lien holder on the property.  B of A was.  In other words Chase was mistakenly making tax payments on a property they had NO financial interest in.  How could this happen?  I asked and a mistake of this type can happen pretty easily.  See a financial institution like Chase sends over a portfolio of parcel numbers to county tax assessors across the country.  These parcel numbers are data entered in to a company like Chase’s system a simple key error could produce an incorrect parcel number. The parcel numbers are not sent with a corresponding property address which would allow crosschecking to occur at the county tax assessor’s office.  The tax assessor sends the bill to Chase or any other requesting financial institution and the institution pays the bill. No questions asked.

By this point I had the supervisory treasurer on the phone and she gave me the contact for Chase Financial.  Her contact information was not valid and it took me several tries to get a live body on the phone which, at least for Chase, is virtually impossible if you don’t have a Chase account.  The rather stunned Chase property tax representative said, “Now, let me get this straight.  Chase is making property tax payments on a property we have no financial interest in?”  When I told her yes, she made a move to get off the phone to confer with her supervisor.  The problem with conferring with her supervisor was that she had no information, she was so flabbergasted that all she could do was think to confer with her supervisor.  I pointed out that she had no way of researching the property without a parcel number and situs address.  I provided both.  Now the information I provided was the correct information for MY property (okay the one I co-own with B of A), but the parcel number should allow Chase to back track and find an associated loan number and correct property address.  I also gave the Chase representative the name of the supervisor in the county treasurer’s office so that they could request their money back.

Why did I even bother to phone Chase?  I wasn’t worried about myself because I don’t have Chase’s money, the county treasurer’s office does. I phoned because somewhere out there a home owner or investor is paying into escrow believing that their lender is correctly making payments on their behalf.  At this point that home owner or investor is now one year behind in their property taxes and it is not their fault.

This odd situation is a reminder to me that the homeowner or investor is ultimately responsible for all expenses on their property even if they escrow and it behooves the homeowner or investor to follow up with their property tax office and insurance company to make sure those payments are made.  If your accounts are delinquent and you escrow, be sure to obtain documentation of your delinquency from the tax office then contact your lender’s property tax division.  Make sure they have the correct address and parcel number for your property.  If they don’t correcting the information will require you to provide that information to your lender in writing.

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Paying for Your Child’s Education

by Ouida on May 15, 2010

My mother recently told gave me a startling statistic:  That $40,000 today buys what $16,000 bought in 1970.  The trouble is that today there is so much more to spend your money on.  Most of it is junk, but when you make that purchase there is so much rationalization about why a purchase that is really a luxury is a necessity. That is marketing.  Does your child really need that $400 dollar high chair you just bought? Of course not.  But what about your child’s education?

Statistics are clear that a college graduate will out earn a high school graduate over his or her lifetime. But graduation statistics for the United States are not good.  As of 2006 68% of high school students graduated highschool.  62% of these students went on to college and the college graduation rates for the United States are all over the map at 22% for Alaska (I’ll censor the Palin jab I had planned here) to 69% for Massachusetts.  The average rate was 56%.  This data was taken from

Looking at those numbers, a kid has less than a 50% chance of going to college and only about a 50% chance of graduating with a bachelors in 6 years.  Now there are many reasons for this.  A great deal is written about student indebtedness, poverty and the failure of our public schools.  Unfortunately very little is written about student motivation.  Some kids lack the personal maturity and discipline to enroll in, attend and complete a 4-year degree.  Children are about dreams, not reality and, unfortunately, parents are not very good at recognizing and working with their child’s limitations.  I had a colleague who diligently set aside funds into a 529 plan to plan for his kid’s college. Except as the child got older I was pretty sure his true destiny was to become an arsonist or serial killer.  That child needed resources TODAY.  In that context a 529 plan or any thought of saving for college is silly.

I have seen grand kids not only fail to complete their degree, but default on loans cosigned by grand parents.  I have seen kids drop out of college at the last moment, because they were willing to stay in as long as mommy and daddy were paying the bills, but didn’t value their educations enough to remain in college when the money dried up and they had to find a way to fund the final semester or two of college.  I have also seen the opposite.  I dated a young man in college who found out that the money he thought was going to be available from his parents for college wasn’t going to be.  His parents exhausted the college fund during an extended period of unemployment.  They always thought they could re-build it, so they never told him the money was gone.  Jim didn’t find out until the end of his sophomore year that his family did not have the funds he expected them to have.  Jim returned as a junior using a combination of part time work and loans.  Jim illustrated an important concept.  It is important to have skin in the game and all too often, kids who do not share the financial responsibility for their education have no appreciation for the sacrifices made by their parents and grand parents to help them stay in school and gain a leg up on the financial compensation ladder.  Attaining higher education is akin to obtaining a high-powered insurance policy.  It is about attaining a level of success equal to or better than your parents.  What parent wouldn’t want that for their child?

Having a child, raising that child and paying for a child’s education take real dollars.  The estimates are that it takes $200,000 for a middle-class family to bring a child from infancy to age 18.  That number does not include private high school or college.  Real dollars spent paying for educational expenses are dollars that won’t be available for retirement expenses in the future.  For the first time since the post World War II era, Americans are responsible for the majority of their retirement expenses.  Assuming that a child whose education you paid for will achieve enough financially to support you in your retirement is little more than a gamble.  Given the present college graduation statistics, the odds are that half the time, the money spent on college by parents will be wasted.

I just tweeted about an article on CNNMoney this morning:  Readers to the Rescue.  A father asked if he was being selfish by not paying for his child’s graduate expenses.  The discussion is pretty interesting.  All of the respondents who paid for their own education said that they valued the educational experience more. A few even acknowledged that their educational expenses even bankrupted their parents in retirement and wished their parents had made other choices during their working years.  A few even said that because they, not their parents, were on the hook for the money, they chose careers and degrees they could actually earn a living in.

Should parents pay for their child’s education?  I think it depends on whether or not all retirement needs are being met, but my overall bias is no.  I think it is more important that parents instill the notion of sacrifice in their children and give their children the skills of weighing evidence and making decisions based on that evidence.  If kids had those skills maybe our graduation rates would be higher.

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Am I exagerating?  No.  I am middle-aged and I am sick of sitting through bad films.  There I was sitting at a UA Theater in Los Angeles having paid $8.50 for a matinee feature and I get macho male blow ’em up schlock.  Let’s just dispense with the plot why don’t we as long as we can just blow something up?

I guess it is okay to expect a blockbuster to be followed by a flop.  Lazy writers and lazy directors who understand that they will simply get paid for getting out of bed as long as they make a movie on the coattails of a block-buster.

Robert Downey, Junior should really be getting tired of playing the drug addicted playboy or the drug addicted detective sorely in need of rehab.  It’s getting old and becoming a cliche.  I say move on, brother.

And speaking of brothers, are we not supposed to notice that Don Cheadle and Terrence Howard got swapped out while playing the same character? Take s0me poetic licence writers and change the name of the character because, folks, we don’t all look alike.

I am tired of watching Gweneth Paltrow play an airhead.  Well okay, this time she was an hysterical airhead.  But high-pitched babble does not dialogue make.  You know, since she got the Accidental Oscar a few years ago, she seems to think she can act.  Or maybe she has realized she can’t act, got lucky and is now just along for the ride.  I cannot figure that one out. Robert Downey, Junior and Don Cheadle who did little more than carp at each other didn’t do much better in the dialogue department.  Note to Hollywood, bitchey is sooooo not in.  Everyone just needs to go back and rewatch “Freebie and the Bean” to see how it’s done.

This movie was so bad that they wasted a great bad guy, Micky Rourke, who has truly become scary in middle age.  Hopefully he got paid well, because this movie will do nothing to move his resurging career forward.  Since the writer was hell-bent on not working and the director was hell-bent on having an excuse to blow things up, anyone could have stepped into Rourke’s role, shoved more metal in his mouth than the most jacked up gangsta rapper,  mumbled a few words in Russian and given Iron Man an excuse to sober up and blow lots of things up all for the common defense.

Am I mad about the $8.50?  Nah…I am just wondering why we don’t get to expect quality for that $8.50.  If quality happens in sequels, it happens more by accident than by design.  Peter Jackson is THE notable exception.  If I had my copies of the LOTR Trilogy with me, I’d plop them in right now to wash the memory of last night’s debacle right out of my mind.

My youthful Saturday Mornings were spent watching the super heroes.  Instead of being transported back in time, I sat trapped in my seat praying for a mistake to end.  The Avengers are on tap for 2012. The Avengers has been plugged at the end both Iron Mans and The Hulk.  After Hulk and Iron Man I I was hopeful that it would be a great super hero movie.  Now…not so much.

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Tips from the Financial Literacy Group

by Ouida on May 7, 2010

About 5 years ago I came across and article in the Albuquerque Journal.  A group out of Santa Fe had procured a grant to travel the state and host financial literacy seminars for women the grant targeted women for two reasons: First because the odds are overwhelming that at some point in her life a woman will become the financial head of household and second because women are more responsible with money than men.  Teaching women about financial literacy and how to make sound financial decisions can help keep families out of poverty.  Other organizations like seek to raise the standard of living in communities by targeting young women and providing them with books.  Programs aimed at improving the educational level of young girls are at least as effective as providing contraception in reducing the incidence of unintended pregnancy and early child rearing two correlates of poverty in communities.

I contacted the group from Santa Fe and they agreed to come to Gallup, NM.  I just had to advertise the seminar and find a venue.  The venue part was easy.  Low cost advertising was not.  I tried word of mouth but got few committals for people to attend.  I put up a sign in our local chamber of commerce.  On the day of the event, I approached the head of our hospital and asked permission to send a mass e-mail to hospital staff.

The event was well attended, standing room only.  It is pretty clear to me that people want information about how to manage their money.  Most folks are willing to attend a class, but few are willing to read a book or ten or make learning and living financial literacy a habit. But attending a seminar is a start.

The leaders of that seminar espoused a philosophy that is antithetical to the way that most people, especially women who tend to nurture the people in their lives, think.  What they advised was not to put any money away for your child’s college until all savings and retirement needs are met.  Their rationale was simple, having a comfortable retirement depends on the length of time money is put away for retirement and it is hard to make that amount of money up later in life.  “Your child can always take out loans,” they said.  They also said that a child is likely to be more responsible with the money if they are taking out loans.

During my mother’s talk on financial literacy that I alluded to in an earlier post, she expressed considerable concern that graduating with significant undergraduate debt would stunt the economic prospects for kids.  In this arena, I truly don’t know what to think. My mother and I had a deal.  She took care of undergraduate school and I was responsible for my graduate education.  It makes me quake in my boots to think that the assistance that my mother provided my brother and me may have stunted her retirement prospects, yet I did ask the question in an earlier post if living in a pension-less society will force parents to choose themselves over their children when planning for the future.

Today is May 7th.  Yesterday the DOW lost 998 points in intraday trading. The year is 2010 not 2008.  We are supposed to be experiencing an economic recovery.  We had a net gain of 290,000 jobs in April, beating economists’ forecasts yet the markets are down.  The markets are really like a party.  The folks who arrive early have their choice of the available foods and can eat their fill, the folks who arrive later are left to pick over the remains and the folks who arrive at the end of the party are shut out altogether.  Trouble is that when the food first arrives it seems to be without limit.  No one knows when it will run out but everyone understands that it will run out.  Those who benefited from the unprecedented bull market of the 1990s were in the market in the 1980s, they were early arrivals to the party.  The market activity of the last 24 hours  proves, yet again, that you cannot use the markets to goose retirement savings, so the only asset you have is time: saving early, saving often and prioritizing that saving over everything else.

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