DEFINITION of 'Tax Service Fee'

A legitimate closing cost used to ensure that mortgagors pay their property taxes. A tax service fee is typically paid by the buyer at the time the home is purchased, the lender then passes this sum on to a tax service agency. The role of a tax service agency is to look for delinquent property taxes and alert the mortgage company to prevent tax liens from existing against their mortgagors' homes. Since tax liens have priority over lender liens, banks wants to ensure that they, not the state, become the owner of these properties.

BREAKING DOWN 'Tax Service Fee'

For borrowers with impound accounts, property taxes are collected monthly with mortgage payments; in this case, the tax service agency's job is to provide the lender with your property tax bills so that they will be paid on time. For borrowers without impound accounts, the mortgage company will often remit any unpaid property taxes on behalf of the homeowner and then bill him or her for the sum, plus penalties and fees.

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