The more I think about and research this program, the less attractive it sounds. To recap: the program allows the deferral of taxes on any amount over the first 10% of assessment growth. Other requirements:
- Must have lived in home for at least 5 years.
- Combined household income cannot exceed $100,000.
- Taxes deferred will carry an interest rate of 3.5%.
- Amount of taxed deferred will be due upon sale or transfer of the property.
For the sake of calculations, assume your property was assessed at $200,000 in 2005 and increased 25% in 2006, to $250,000. So, the amount eligible for referral would be the taxes on $30,000. At $1.28 per $100 of assessed value, that amount would be a whopping $384.
As originally explained, the city would hold a lien against your property for this. So the first thing I see is that the city would have a lot of small dollar value liens against people’s property. Somebody has to prepare and file these liens. Will the city attorney take on this task or will it be handled by the same firm that handles the other tax liens (i.e., those for people who don’t pay their taxes)? If an outside firm handles this, they are going to want to be paid. Will that fee be rolled into the lien?
The second question is who is paying the recording fees for these liens? My guess is that the recoding fee will be rolled into the amount of the lien. How much will that be? $100? $200?
My last question relates to how mortgage companies will respond to such liens. Fortunately for me, I have clients that own mortgage companies so I asked this question of a couple of them today. Without hesitation they both said the lenders are not going to go along and the reason is the priority of real estate tax liens. Most of us with mortgages have our real estate taxes and insurance escrowed. The primary reason for doing so is that the lenders want to be protected. In the event that you default on your mortgage, they want to be in first position to get paid. According to my clients, real estate tax liens have priority over the mortgage lenders. (I’m not a lawyer, so maybe somebody else can chime in here and verify this.) Being in second position (like on a second mortgage) usually results in higher interest rates. In addition, I’m told that if you do go for the tax deferral and get the lien filed, expect that you will have to pay it off in the event of refinance.
I have no doubt that our esteemed council members have thought about all this and have a reasonable explanation. I wish they would share it with us so that we can understand just how this program is supposed to work before we jump in.
Or better yet, just reduce the rate a bit more 😉
VIVIAN J. PAIGE | All Politics is Local 