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How are property taxes generally calculated for an excrow account? Is the property re-assessed or do they use the last assessed value (which would be much higher) or is it simply based on the new purchase price. My realtor said the taxes in this area is 1.25% of the purchase price, but my lenders loan disclosure works out to be about 1.42%. Are they just collecting extra for escrow? Will I get a refund at the end of year? or will the escrow payment be adjusted down?
Almost everywhere property taxes are paid in arrears -- the tax bill you get TODAY is for the "services" the government provided LAST YEAR.
The escrow accounts ROUTINELY screw the pooch and DO NOT adjust for the ACTUAL levy until the damned BILLS go out and then they SCRAMBLE to redo your escrow so that the account is OVERFUNDED. You do not get a refund, the "forward apply" the excess to the amount you will owe next year (which in most cases will not go down unless the cost of government goes down, NOT property values!).
Royal PITA! If you have a lender that allows you to budget for your own taxes, and you have the smarts to do so, I highly recommend avoiding the lender's crap...
If I'm reading the OP's post correctly, they've bought a property for less money than it's last assessed valuation.
The escrow account will pro-rate the property taxes due between the seller and buyer based upon the last tax bill or the one currently due. This should be a straightforward escrow amount without any increase of the dollars to be escrowed.
If the process in the state is to re-assess the property based upon the sales price, then it would be reasonable to infer that the next valuation will go down, and the property taxes will go down if the mill levy stays the same. So the next tax bill should be less. But for the taxable year bill paid in arrears that is due at the time of the closing, that bill will not be adjusted; it is what it is. So there will not be a refund of the escrow account money.
Your realtor's advice that the tax bill works out to a certain percentage of the sales price is not correct. The tax bill is based upon the assessed valuation and the mill levy. And, in most states, the assessed valuation is not what you paid for the property, either ... it's what the market sales comparables or "cost of construction data" show the place to be worth. This means that you can have an assessed valuation that is very different than what you paid for a place, perhaps even more than you paid for it ... and that's what you'll pay the property tax on.
When the insurance company gave me an estimate, they came up with a replacement cost at $264k for the house I'm paying $185k for. Does the tax assessment use a similar method of evaluation? If the escrow company is paying the tax bill, do I get to see a copy of the bill to see what they actually paid? Do I have the right to pay the bill on my own or do most lenders want to put it in escrow?
But, if you paid less than the current assessed value, you can usually appeal the next assessment based on current market values, the price you paid. I think mortgage companies are limited on the size of the escrow account (something like taxes and insurance plus 2 months). So if the escrow is over this amount, they are required to cut you a check for the amount over. The only problem is you have to wait until a new escrow analysis is done.
When the insurance company gave me an estimate, they came up with a replacement cost at $264k for the house I'm paying $185k for. Does the tax assessment use a similar method of evaluation? If the escrow company is paying the tax bill, do I get to see a copy of the bill to see what they actually paid? Do I have the right to pay the bill on my own or do most lenders want to put it in escrow?
Tax assessment is usually based on the market value of the property. However, they don't appraise your house every year. They adjust it by a percentage based on home sales in the area.
You can get rid of the escrow account, depending on your loan agreement. For mine, as long as we were not paying PMI, we could handle our own property tax and insurance. I got rid of my escrow account because it was about to go up about $50 when it should have gone down. The benefit now is I'm earning interest on my "escrow" versus nothing before.
Property Tax Assessment: How to Select a Quality Company
Consumers recently have been getting mixed messages about companies offering to help reduce their property tax bills for a fee. As this industry is not well known, consumers can become confused when trying to select a property assessment reduction firm. There are legitimate and quality companies, such as the Property Tax Assessment Adjusters, that actively advocate for homeowners throughout the entire process of review and appeal of an assessed value for property tax purposes. While the process is something that homeowners can do on their own for no fee, legitimate state licensed companies exist to save consumers time on research, paperwork and representation, and tend to be more successful than homeowners in their reductions due to a high level of experience and more accurate data.
Four indicators consumers should look for when selecting a company:
1. Member of BBB and licensed
2. Money back guarantee
3. No specific savings promised
4. Pre-screened mailings
For more information, visit the Property Tax Assessment Adjusters website at [url]www.ptaaonline.com[/url], or the Better Business Bureau at [url]www.bbb.org[/url].
Last edited by PTAA; 05-04-2009 at 02:05 PM..
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Property Tax Reassessment
