As a homeowner, how would you like to pay less in property taxes, or even not have to pay those taxes at all? Many homeowners and lenders are familiar with the term exemption. It’s a discount or benefit given for meeting certain requirements. Common examples are a homestead or primary residence exemption, usually a credit applied to taxes if the property being assessed is where the borrower lives. Other common exemptions are disability or disabled veteran, given to people with disabilities or who have served in the military and are now disabled. Exemptions are also usually given to people who are 65 years of age or older, or if the property is used for a special purpose, such as agriculture. Exemptions like these help people who may have trouble paying their taxes keep their properties. Exemptions also lessen the amount that a mortgage company will have to pay if it’s an escrowed account.
The financial effect of these exemptions can be substantial. Some states will give a large credit for the exemptions. For instance, if the property is a combined Homestead and Disabled or Homestead and over 65 status, it surpasses the taxes that are assessed to the property and the borrower does not have to pay property taxes. Sometimes, like in Texas, people with certain exemptions can qualify to have their taxes deferred, so the taxes will not have to be paid taxes until they move, pass away, or try to sell the property. People in Texas also can enroll in a special installment plan. In other situations, the exemption provides a credit that lowers the total taxes that must be paid. The requirements, benefits and application process for the exemptions can vary from state to state, and often local agencies check yearly to see if the exemption still applies. An example would be checking a property with an agricultural exemption to determine the last time there was actually farming on the property). It’s always best to check with the website of each state to understand the nuances of each exemption.
If the county discovers that a property did not qualify for the exemptions granted, a reassessment can occur. When this happens, the taxes that would have been owed if the exemption was not applied become due. As a result, the property will suddenly have delinquent taxes that lenders were not aware of and the consequences of these delinquencies can range from having extra penalties and interest added, to possible property loss depending on how the county manages delinquencies.
It’s always beneficial for lenders to be vigilant and pay attention to what is happening with the properties on which they have issued loans. If a borrower violates a requirement for an exemption, such as not farming on land with an agricultural exemption or filing a Homestead exemption even though it’s being used as rental property or for commercial use, the lender will ultimately end up paying more or even losing the property. One way for lenders/servicers to stay on top of this information is to stay in touch with the county tax offices and assessors and pay attention to any correspondence received from them. This can be a time consuming task. If lenders do not have time to constantly monitor this information, working with a business partner that has employees trained to be experts in tax laws would be prudent. Lenders should look at keeping up with exemptions as protecting their investment and saving themselves from unwanted penalties.
About The Author
Neil Gantan is a delinquency processor at LERETA, LLC and has worked on delinquent property tax research for the last six years. He has a Bachelor’s of Science in Business Administration from Cal-State Long Beach and has participated in 6-Sigma projects and has a 6-Sigma Green Belt Certification.