(*Property Taxes are Making My Head Hurt)
A couple of weeks ago, we Oregon homeowner opened our mailboxes and found our annual property tax statements. There’s a quirky collection of (sometimes seemingly-random) (but useful to know) dates connected to property taxes in Oregon. Let’s discuss…
If there’s one date to keep in mind, it is (of course) the due date–that’s November 15. Why November 15? No idea. (My operating theory is that Oregon’s first tax assessor was born on the ides of November, but I have absolutely no evidence to back that up.) Technically speaking that is the first of a few due date for taxes. The county permits installments, of one third each, due November 15, February 15 and May 15. Taxes are not considered delinquent until May 16.
If you pay your taxes, in full, by November 15, the county gives a 3% discount on the total bill. Generous, no? If you elect to pay just the first third of taxes by November 15 and pay the rest by February 15, you get a 2% discount. Pay each installment on time and the full bill by May 15 and you stay in the county’s good graces, but miss out on the discounts.
If you are late on any payment, interest starts accruing on the delinquent amount to the tune of 1.3333% per month.(That’s 16% per year.) (So don’t be late!) And the county has some leverage beyond the interest they charge–they can seize your house. Once taxes are three years delinquent, the county can begin foreclosure proceedings. This will never happen if you have a mortgage. If you look at the closing statement for the purchase of your home, you’ll notice a “tax service” fee (usually $70 or so). That fee hired a company to check, each and every year until your loan is paid off, and make sure taxes get paid.
The fiscal year for taxes matches the fiscal year used by the State of Oregon (and pretty much all government entities, statewide): July 1 through June 30. So come November, when you (or your loan servicer) write the check for taxes, we are already four and a half months into the tax year. And once the check clears, you’re paid up through the coming June 30.
The amount of taxes you owe is based on the “Tax Assessed Value” (TAV) of your home, as assigned by the county on January 1st of the year in which you are paying taxes. If you stop to think about it, that’s quite a lag… you’re paying taxes based on a value of the property six months before the fiscal year starts and ten and a half months before the bill is due. This time warp has some interesting ramifications, especially when a property is changed or new on the tax rolls (read more here if you are curious).
Your tax statement also includes a “Real Market Value” (RMV) (also as of January 1), which you can generally ignore because: 1) your tax bill is based on the Tax Assessed Value, not the Real Market Value and 2) the actual market value of your home is ever-changing and based on market conditions. You’ll get a far more accurate perspective on the actual market value of your home by asking your favorite real estate agent for a market analysis. If you don’t have a favorite Realtor, I’d be happy to provide a referral to a great agent.
Say that again?
You’ll most often see a tax year referred to as something like the “2016 / 2017” tax year. That refers to the the bill you receive in October 2016 is for the valuation date of January 1, 2016, which is due November 15, 2016, for the tax year running from July 1, 2016 to June 30, 2016.
But I have an Escrow Account
If you have an escrow account connected to your mortgage, you don’t need to think about any of this stuff. Your mortgage company is at the helm. Every month, they collect 1/12th of your estimated property tax bill with your mortgage payment and place it into a savings account. When the bill comes due, they dip into this savings account and pay the county for you. They are obligated (by law, actually) to pay the taxes on time and in full, so you’ll get the benefit of the 3% discount. If you’re not sure if you have an escrow account, see our post: “Yellow or Green?”.
The impact on a purchase
So how does all of this play out during the purchase of your home? If you happen to close on the purchase of your home on July 1, things are really simple. You take title exactly when the new tax year starts, so when taxes come due in the fall, the whole bill is (rightfully) yours to pay. But what if you close any other day of the year? Well, then things are just a little more complicated. If you close between July 2 and November 15, your seller owes you a credit for some number of days during which they lived in the property but you will be paying the taxes. If you close between November 16 and June 30, you owe your seller a credit for some taxes, since they will have paid the bill for some days that you own the property. Fortunately, this is another topic you don’t need to dwell on all that much. Your friendly escrow officer (following instructions in your purchase agreement), will work out a prorated credit, for the correct amount, going the correct direction. That’s not the complete story when it comes to property taxes at closing but it’s enough for one post. If you must know more, I’ve got you covered… just click here.
More and et cetera
You can find information about the assessed value and how it relates to the actual market value of your home (and a few other nuggets of information) here and what happens when you change your home and its value here. And keep your eyes on this space for more to come. I admit it’s a kinda, sorta boring topic, but property taxes offer a lot of weird fodder for future posts.