Title Tip: Autumn Buyers And The Property Tax Surprise
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Property tax bills should start arriving in our mailboxes in the next week or so. October 1 is when tax bills are supposed to go out to property owners. However, they are sometimes delayed a few days or even weeks. Whether you get your property tax bill in the mail or not, the taxes are due and payable when they are mailed.
Once the taxing authorities have posted your tax bill, your taxes are considered due and payable.
While they may be due, most homeowners do not actually pay their property taxes until December or January. Your 2020 property tax bill is considered delinquent if not paid by January 31, 2021.
However, if you are purchasing a property between October 1 and December 31, you will likely need to pay your share of the 2020 taxes at closing. The 2020 taxes are prorated between the buyer and seller with each paying their share of the taxes for the number of days they own –or will own – the property in 2020.
The buyer’s tax share is added to their closing costs, collected by the title company, and then paid to the taxing authority. The seller’s share is also added to their closing costs and paid to the taxing authority at closing.
This may come as a surprise to most buyers who aren’t expecting to pony up for their 2020 property taxes yet. The reason for paying the taxes at closing is that mortgage lenders want the title company to ensure that there are no unpaid taxes on the property. Title companies verify payment (or non-payment) of taxes and issue title insurance accordingly. Many lenders require confirmation that all ‘due and payable’ taxes have been paid at closing.
Here is where it gets tricky.
If the 2020 tax bill HAS been assessed and the tax statements have been mailed but the taxes are not yet paid, then the title company will collect 2020 taxes due and pay them at closing. Each party will pay its share of those taxes.
If the 2020 taxes have been assessed by all taxing authorities, but the tax statements HAVE NOT been (or will not be) mailed by the closing date, then taxes are not collected from the buyer. They are simply prorated as usual. The buyer is credited with the seller’s share of the taxes so that they can pay the tax bill at the end of the year.
Sometimes, the taxes have assessed and mailed by some of the taxing authorities, but not all. For example, Dallas County may have mailed their tax statements but Richardson ISD has not. How that is handled at closing may vary. Some title companies will not collect taxes from the buyer and some will collect only for the bills that have been issued.
Proof of Payment – Not That We Don’t Trust You
When tax bills are out, the title company must collect and pay the 2020 property taxes at closing or show proof that the taxes have already been paid. That proof must come from the tax office.
A seller cannot just pay the taxes and show a receipt. Online or verbal confirmation from the tax office will not work either. These are not certified or guaranteed sources. Title and mortgage companies rely on a third party Tax Certificate to show the status of the property taxes owed.
There must be a verifiable zero balance or the taxes will be collected at closing. No one wants to take the risk of a seller making a tax payment by check or credit card and then stopping payment on the check or disputing the credit card charge.
If you are eager to see your tax statement before it arrives in the mail, go online and search for your county’s tax assessor. That may not be the appraisal district site – they just determine value. The tax assessor issues bills and collects. If you live in Dallas County, go to Dallasact.com to take a look at your actual tax statement.
The opinions expressed are of the individual author for informational purposes only and not for legal advice. Contact an attorney for any particular issue or problem.
