“If you have learned how to disagree without being disagreeable, then you have discovered the secret of getting along — whether it be business, family relations, or life itself.” — Bernard Meltzer

Bank TaxesJeanine and I never fight about money, but I’ve always been candid about when we disagree. We have very different views about cars and early on in our relationship we agreed to disagree on this one. She leases and I buy used.

Our money styles are different too. I definitely fall into the control freak category, while Jeanine is more even keeled about things. But even though our day-to-day approach is somewhat sweeping we agree on the end-game: to retire rich. And in order to do this we need to save, invest and live within our means.

I like to plan ahead especially when it comes to our expenses. Jeanine is a little more nonchalant and always remains calm when we suddenly have to plan for the unexpected. I wig out. I don’t like these types of surprises.

This brings me to today’s topic: property taxes. Property taxes shouldn’t be a surprise since we all know that they are due twice a year. That said… I can’t stand having to plan for this expense. Before Jeanine and I owned a home together, she owned her home and I owned mine. She paid her taxes twice a year. I always had mine impounded because it was easier to budget for them on a monthly basis.

What are the pros and cons of having an impound account? Dian Hymer at DoItYourself.com explains, “Have you ever had a property tax bill to pay and not enough cash to pay it? If so, you might be a candidate for an impound account. An impound account (also called a reserve or escrow account) is a special bank account. It’s set up by the lender to collect money from the borrower to pay future property tax and insurance bills.”

“One advantage of having an impound account is that you participate in a forced savings plan. This can benefit people who either have a hard time budgeting or who are on a tight budget. For investors, impound accounts are useful for accounting purposes.”

“A disadvantage of an impound account is that you can probably earn a better interest rate on your money by investing on your own. Also, you don’t have the use of the money that’s accumulating in your impound account.”

Jeanine and I noted our differences again when she pointed out Kenneth R. Harney’s article in yesterday’s Los Angeles Times called, No Impound? It’s Lending without a Net. Mike Calhoun of the Center for Responsible Lending was quoted as saying, “It’s an upside-down world. The people you’d think need an escrow the most aren’t required to have them, and the people who need them the least are forced to use them.”

This was in response to the estimate, “that a majority of sub-prime mortgages closed during the housing boom years carried no escrows for property taxes and hazard insurance. That is in stark contrast to the prime mortgage market for consumers with good credit, where mandatory escrow accounts are routine.”

Randy Johnson at Credit.com, “In most Eastern states, lenders are used to having these impound accounts and state laws protect their rights to demand that you have one. However, the laws in other states are more consumer-friendly. In California, for example, a lender can require impounds only where the loan is greater than 90% of the value of the home when they did the loan.”

Even when it wasn’t required, I’ve always asked my lender for an impound account. When Jeanine and I bought our home together this was a huge discussion. She wanted to make the tax payments twice a year. I wanted a forcing mechanism to make sure that we were both planned for this expense and the best way to do this was through impounding.

Johnson continues, “It’s not like all aspects of impound accounts are bad. Those Eastern lenders didn’t like it when they came out to California to do loans and were told that they couldn’t have impounds. So they started offering quarter-point pricing incentives. That’s $1,000 reduction in fees on a $400,000 loan. I can guarantee you that it is worth $1,000 to let them do it for you.”

“Also, many homeowners like the convenience of never having to worry about paying the tax bill. In California, taxes are late if not paid by December 10th — right when you need extra money for Christmas — and April 10th — right when your income taxes are due. Not good timing!”

To impound on not… what do you think we do? Well, we compromised when we purchased this house two years ago. We impound our property taxes but pay our homeowners insurance directly to the insurance company. This way, Jeanine feels like we’re not giving the mortgage lender free use of all our tax and insurance money and I feel like there won’t be any surprises twice a year.

Agree to disagree and compromise when necessary. Rules to love by.