Archive for August, 2008

Property Taxes — Re-visited (blog post re-run)

August 21, 2008

Who knew that “the Mortgage Blog” would be around long enough to start running re-runs?  This topic comes up ever year about this time — people start receiving property tax bills in the mail and always have questions.  So, sit back, relax and enjoy and oldie but a goodie . . . property taxes – what you need to know: 

Ah, one of the two certainties of life . . . taxes. 

At this time of year (in Georgia at least) property tax bills are being sent out by county and city governments, and, as is the case each year, the bills create a certain amount of concern and confusion with homeowners.

Here are some things that you need to know about your property tax bill:

1 — Property taxes are paid yearly in either one or two installments.  In Gwinnett County, for example, the tax bill comes out around August 15th and the first 1/2 installment is due on September 15th and the second 1/2 is due on November 15th.  

2 — If you have an escrow account for your taxes as part of your mortgage payment, the due date(s) for your property taxes were taken into account when establishing your escrow account.  If your tax bill $$ amount increases, your monthly payment will go up accordingly. 

3 — If you have an escrow account for your taxes, you still may receive a copy of the tax bill in the mail.  This is normal.  Some counties will send out dual bills — one bill to the mortgage company and one to the homeowner.  If you have an escrow account and you receive your tax bill, simply make a copy of the tax bill and send it in (the original bill) with your next mortgage payment (you keep the copy).  Or, better yet, look to see if your mortgage servicer has a special address listed for property tax bills (usually can be found on the back of your monthly statement or on the mortgage servicer’s website).  If you receive the bill and you do not have an escrow account, then you (stating the obvious) will need to write a check to pay the taxes . . . hopefully, from the account that you set up when you closed on your mortgage to deposit $200 — $300 per month in to in order to make your 4.5% return (in lieu of having an escrow account).  [note: unfortunately, now in 2008, money market accounts don’t pay 4.5%, but you get the idea]

4 — You are responsible for the ENTIRE amount of the bill.  If you purchased your home this year, the proration of taxes (a $$ credit from the seller to you, or a $$ credit from you to the seller) should have been taken care of at closing.  This proration of taxes can be found on the front page of your HUD-1 settlement statement.  The dollar amount is prorated to the day of closing and is based on the most recent issued tax bill.

For example, if you purchased your home this year on July 31st, because the tax bill would not have been issued yet, the tax proration would be based on last year’s tax bill amount.  Your escrow account should have been set up with about 11 months worth of taxes, and with the seller’s 7 month tax credit on the front page (for the time in which they owned the house, but that you are going to be paying the tax bill for – January 1 through July 31st), it should have had you putting (net) about 4 months of your dollars worth of taxes into your escrow account.

In this same situation, because the tax bill had not come out for the year, if the taxes for this year are higher than the taxes for last year, there should be verbiage in your sales contract that would allow you to request the seller to pay the difference (prorated, of course, for the amount of time they owned the house).

5 — The tax bill will usually be in the name of the owner “of record.”  So, if you purchased your home this year, the tax bill will likely still be in the name of the previous owner.  Because most people put a mail-forward on their address when they leave, it is pretty common that the tax bill will be forwarded to the previous owner.  For Georgians, this situation will be corrected when you file for your Homestead exemption (see next point).

6 — In Georgia, homeowners receive a discount to their property taxes for any property which is their primary residence (Homestead exemption).  If the previous owner had this exemption on the property, you will still receive that benefit for the first year.  You will be responsible for filing your own Homestead exemption with the county the following calendar year.  For county specific information related to Homestead exemption, go to my website for helpful links and details.  If your home is within the city limits (and you pay county and city property taxes), check with your county/city tax offices to make sure that your Homestead exemption will filter down to the city records as well. 

7 — If you purchased your home as a newly-constructed house, your property taxes probably had to be estimated.  Property taxes are based on the condition and value of the property as of January 1st, so if your property was a vacant lot at the time, the actual taxes had be estimated to set up your escrow account.  This situation creates the most confusion, because . . . if the taxes were under-estimated, not only will the monthly payment need to increase to make up the difference for next calendar year, but you will have a balance due to your mortgage servicer (in other words, if your tax bill for 2006 was $2,000 and your mortgage company estimated $1,500, your payment will need to increase by $42 per month to get ready for the 2007 tax bill AND you were short $500 for your 2006 tax bill — to which you will need to either write a check or spread the amount over the next few months.  In this situation, most mortgage servicers will give you 3 to 6 to 12 months to pay back the shortage.  So, if you chose to spread it out over the next 12 months, your payment would go up another $42 per month . . . a total of $84 per month . . . ouch.)

8 — If you receive a large escrow refund check as part of a yearly escrow analysis, check all the facts before you spend the money.  Mortgage servicers are required to review your escrow account every 12 months, and because they are only allowed to keep a certain amount of money in your account (based on taxes, insurance and an allowable cushion) refunds sometimes occur.  In the situation above (new construction), if the escrow account were reviewed prior to the tax bill being issued, it could look like the taxes were only $400 for the year (based on a vacant lot) and your escrow account — based on $1,500 for the year — was outside of the limits.  So the escrow account is recalculated; the homeowner receives a refund check for $800 and some change; the mortgage payment is reduced $92 per month and when the actual bill comes out, there are all kinds of problems.

The scenario described above can also happen on a property owned by someone with additional property tax exemptions — a senior citizen exemption, for example.    

9 — Follow your property tax payments to make sure that the bill is paid correctly.  Some mortgage servicers send monthly statements, others provide online-access to your account.  So, double-check your account to make sure that your taxes are being paid correctly.

10 — Review your tax bill for accuracy.  Your property taxes are based on the assessed value of your property (according to an independent assessment by the county).  If this value is too high, then you are paying too much in property taxes and need to find out the process for disputing this information with the county.  Be smart about this one . . . I had a client once call me and tell me he was angry because he thought the county’s assessed value was too high — $350,000 assessed value, almost $50,000 more than he paid for the house.  “How much would you sell your house for today?” I asked.  “Probably not less than $390,000 or $400,000 . . . but that’s not the point,” he replied.  Really?? . . . Seems like the point to me (that’s what I thought I should have said, at least).  I also had a client once call and tell me that the value listed on their assessment was too low . . . yeah, probably not going to want to argue with the county on that one.

So, that’s what you need to know about your property taxes . . . and, as you may already know . . . “knowing is half the battle” (famous show-ending advice from tv-cartoon-super-soldier GI Joe). [I could have updaed the ending for this re-run re-post, but c’mon, GI Joe is timeless.]

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Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.