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Is the bank required to disclose prepaid property taxes on a Loan Estimate if it is unsure whether the loan will close prior to the due date of the taxes?

During an internal compliance audit of Regulation Z, the auditor found a few instances in which the seller’s prepaid property taxes to be paid by the buyer were not disclosed on the Loan Estimate (LE) but were accurately disclosed on the Closing Disclosure (CD). Is the bank required to disclose prepaid property taxes on the LE even if it is unsure whether the loan will close prior to the due date of the taxes?

Yes, any prepaid property taxes, if due at consummation, must be disclosed on both the LE and CD. The Consumer Financial Protection Bureau (Bureau) clarified that certain charges such as property taxes are not subject to an accuracy tolerance but they must be based on the “best information reasonably available” standard. The bank must conduct due diligence in obtaining an estimate of the property taxes that may be due at consummation based upon the estimated closing date.

The Bureau’s 2017 Detailed Summary of Changes and Clarifications explains this further:

The 2017 Rule also provides that the best information reasonably available standard applies to property taxes, property insurance premiums (including homeowner’s insurance premiums), amounts placed in escrow, impound, reserve or similar accounts, prepaid interest, and third-party services not required by the creditor, so long as the charges (or omission of charges) were estimated based on the best information reasonably available.

(February 2021)

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