Duplicate property tax payments

I'll get back to my Top 10 List soon, but I want to address something that seems to be happening all too often right now with property taxes.  Specifically, with transactions that closed from October-December 2011.

Here in Texas, property taxes become due & payable October 1 for the current tax year.  So 2011 tax bills came out in October.  We, the title company, are required to guarantee on most title policies that property taxes are paid current and no tax bill is outstanding.  In October we started collecting for those 2011 bills and mailing tax payment checks to the tax offices after funding.  If it's a sale transaction we are collecting from the seller, and on a refinance we collect from the owner/borrower.

At the same time, lenders (the ones originating the new loan for the borrowers) are putting about three months (sometimes more, sometimes less) of tax escrows into the reserve account in anticipation of the 2012 tax bill later this year.  They state in their closing instructions to us (the instructions that give us their requirements for closing the loan and issuing the lender's title policy) that they want the taxes guaranteed through 2011 (for loans closed October 1, 2011, or later).  We are obligated to pay them and guarantee them as paid in full.

What has happened on some of my files is the new lender (the one who only put +/-3 months of tax escrows in the borrower's reserve account) is paying the 2011 tax bill out of that escrow account, causing a significant escrow shortage.  This is the same tax bill we just paid at closing.  Now the borrower is going to get a bill from their lender because the escrow account was overdrawn, and I'm getting a document from the tax office to apply for a refund.  Frustrating!

I'm sure this is causing people panic when they open a letter from their current mortgage servicer and find out they owe a few thousand dollars because there wasn't enough money in their escrow account to pay the taxes.  Of course there wasn't--the lender only escrowed a few months and expected that we would pay the entire tax bill that was due.

Why this is happening is beyond me.  But if you get a letter about an escrow shortage and you just purchased or refinanced your property in the last few months, verify with the title company before you panic.