Property Taxes explained

Understanding Property Taxes in Escrow:

Paying Property Taxes in an escrow transaction are among one of the most confusing issues for both Buyers and Borrowers. Whether you are buying a home or refinancing your existing mortgage, taxes are applied in several ways in your transaction. Below are a few that you will find often on your HUD.

Taxes To Be Paid: Property taxes are generally divided so that the Buyer and Seller each pay taxes for part of the property tax year they owned the home. The tax year commences on January 1st and ends on December 31st of the same year.

Tax Impounds: An Impound Account, also known as a Escrow Impound Account or Reserve Account, is an account set up and managed by mortgage lenders to pay property taxes and insurance on behalf of the home buyer. The lender may collect 2-7 months of tax payments with each months amount equal to about 1/12 of the total sum of the annual property taxes when setting up the impound/reserve account. When the time comes to pay the semi-annual property taxes, the lender makes the payment from the funds accumulated in the account on behalf of the buyer. Homeowner Tip:  I really like to keep my taxes (and insurance)  separate from my mortgage payment so that:  1. I can pay them in lump sum only twice a year   2. I can appeal the tax assessment bill $amount. Please ask your loan officer about your option to pay taxes and insurance separate from your mortgage payment. 

Tax Pro-Rations: At the time of closing, the escrow agent will sometimes be required to determine what portion of the next tax installment is the sellers responsibility; they will then charge the seller and credit the buyer the said amount. When the next installment is dues, the buyer will pay the total amount since the buyer was already reimbursed with the sellers portion at closing. Likewise, if the seller has already prepaid the taxes, the prepaid portion will then be charge to the buyer and serves as a credit to the sellers.

Supplemental Taxes: If the market value of property is different from the previous owners taxable value or the previous owner received taxpayer assistance, the new owner will receive a supplemental tax bill. Usually supplemental taxes are not collected in escrow. Notices of supplemental assessment and tax bills are mails after escrow closes. Supplemental assessments are pro-rated from the date of transfer to the end of the tax year (December 31st). Please read your tax bill carefully, or contact the County Treasurer for more information. The sale of a home will trigger a new tax valuation, so be ready to pay (usually more) than what the stated taxes were on the home you just bought!

Property Taxes Due Dates: Property taxes can be paid in two installments. The first installment is due by April 31st and delinquent May 1st. The second installment is dues October 31st and delinquent November 1st.