Be Careful of Property Taxes
Even if the value of your home has drastically declined due to the recent real estate market crash, your property taxes could still be rising.
Many homeowners have been shocked to find that their property taxes are on the rise, even as the value of their home decreases.
Do not assume that because the market has brought down property values, property taxes will follow.
Just the opposite is true, the recent recession has left municipalities cash strapped in its wake and they are hot to find ways to increase revenue to keep up with services.
One of the easiest ways is to raise property taxes.
You might wonder how the tax on your property can go up when the value goes down.
After all, property taxes are based upon the assessed value of your home.
It would make sense that if the value of your home goes down, so should the tax against that value.
Yes, but that is not how it works.
All your local municipality has to do is change the tax equation.
Whatever basis they use to determine your property tax is changed in order to raise the amount you owe.
They just increase the percentage of the assessment on which they calculate the tax, and you wind up owing more.
Do not get confused by this and miss property tax payments.
If you fall behind, you could become subject to foreclosure.
Your property could be sold for the taxes you owe.
Even if you escrow your taxes, you will face an increase.
If your property tax was increased after this year's mortgage payments began, your mortgage company cannot increase the payment.
They will, however, increase next year's monthly payment by the amount they had to make up this year.
They call this paying a shortfall.
They add the total of the shortfall to next year's escrow and divide it by twelve to determine the amount of monthly increase.
They call this a shortage spread.
If your agreement with your mortgage company makes you responsible for the property taxes, but you fall behind, your mortgage company can usually force you into escrow.
This is a clause in most mortgage agreements that is designed to protect the mortgage company against a tax seizure of your home.
If this happens, the mortgage company will pay your back taxes and immediately force you into escrow for next year's taxes.
Your mortgage payment will then increase by the spread of your past due taxes, which your mortgage company paid, and your escrow spread for the upcoming tax year.
So, if you are $4500 behind in your property taxes that run $5500 per year and your mortgage company pays your back taxes of $4500, and forces you into escrow for the upcoming $5500 in property taxes, your total escrow debt is $10,000.
Apply the twelve-month spread, and you could face a monthly mortgage increase of $833.
How are you going to afford that when you could not keep up with the property taxes?
Many homeowners have been shocked to find that their property taxes are on the rise, even as the value of their home decreases.
Do not assume that because the market has brought down property values, property taxes will follow.
Just the opposite is true, the recent recession has left municipalities cash strapped in its wake and they are hot to find ways to increase revenue to keep up with services.
One of the easiest ways is to raise property taxes.
You might wonder how the tax on your property can go up when the value goes down.
After all, property taxes are based upon the assessed value of your home.
It would make sense that if the value of your home goes down, so should the tax against that value.
Yes, but that is not how it works.
All your local municipality has to do is change the tax equation.
Whatever basis they use to determine your property tax is changed in order to raise the amount you owe.
They just increase the percentage of the assessment on which they calculate the tax, and you wind up owing more.
Do not get confused by this and miss property tax payments.
If you fall behind, you could become subject to foreclosure.
Your property could be sold for the taxes you owe.
Even if you escrow your taxes, you will face an increase.
If your property tax was increased after this year's mortgage payments began, your mortgage company cannot increase the payment.
They will, however, increase next year's monthly payment by the amount they had to make up this year.
They call this paying a shortfall.
They add the total of the shortfall to next year's escrow and divide it by twelve to determine the amount of monthly increase.
They call this a shortage spread.
If your agreement with your mortgage company makes you responsible for the property taxes, but you fall behind, your mortgage company can usually force you into escrow.
This is a clause in most mortgage agreements that is designed to protect the mortgage company against a tax seizure of your home.
If this happens, the mortgage company will pay your back taxes and immediately force you into escrow for next year's taxes.
Your mortgage payment will then increase by the spread of your past due taxes, which your mortgage company paid, and your escrow spread for the upcoming tax year.
So, if you are $4500 behind in your property taxes that run $5500 per year and your mortgage company pays your back taxes of $4500, and forces you into escrow for the upcoming $5500 in property taxes, your total escrow debt is $10,000.
Apply the twelve-month spread, and you could face a monthly mortgage increase of $833.
How are you going to afford that when you could not keep up with the property taxes?
