How you lose your house to unpaid property taxes
Posted on September 12, 2007
Filed Under Home Finances |
A friend recently shared with us how many young couples in her neighborhood have lost their homes due to having tax bills they were unprepared to pay. Perhaps they had plenty of time, but the impending expense did not show up on their radar screens, so to speak. This is a common trap that can be avoided. (continued…)
Getting your mortgage quotes is behind you and closing the deal is next. Should you escrow your taxes, or pay them annually? That is an important question that deserves important consideration. Let’s take a look at the two primary options.
Escrowing your taxes
When you escrow your taxes, you are having your mortgage company collect from you at every payment money to be paid to your county tax assessor for your annual property taxes. Your tax bill may not be due until January of the next year, but you are paying the prorated tax amount up to 12 months in advance because you don’t want to be hit with a lump sum payment obligation right after Christmas. Your monthly discipline keeps you out of trouble at tax time.
The down side is that your are giving up the opportunity to use or earn interest on money that is rightfully yours during the interim.
Pay your taxes on your own anually
When you pay your taxes on your own, you can use your own money however you please until you pay your taxing authority once per year. You can put it into a mutual fund or any other type of interest bearing investment vehicle. Or you can put it into the stock market. Or you can even take a vacation with it. It is your money and does not belong to your mortgage company or anyone else - until your property taxes are actually due.
But when they are due, they are due. There are substantial penalties for being late. And the worst case scenario is that you don’t have the money when you absolutely cannot get it. There are lots of people in each camp (since everyone is in one or the other). Usually people feel very strongly about their position, or they are operating in one mode and don’t know about the other.
I know some people who live on 20 acres in a fast growing community. Their taxes are unbelievably low - less than $1,800 per year. They get their income tax refund early and pay their property taxes on their own.
We also know quite a few people whose taxes are $4,000 or $8,000 per year. They know that they would not be able to save that amount of money on their own to pay such a lump sum every year, so they escrow.
Now is a chance to think about your choice and decide what works best for you.
Regards,
Stephen Dunbar
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