It's October Tax Season

For most North Texas homeowners, the 2018 tax statements are out. You may not have received your bill in the mail, but your tax bill is out and due for payment by Jan. 31.

Simply go online and search for your county tax assessor to get your statement before it arrives in the mail. For Dallas County, you can find your statement here.

You’d think property tax bills would be fairly direct: “Here is the property address, here is the tax bill.” But these are government entities. So, let’s see how complicated it really is.

We’ll use Dallas County as an example. In Dallas, you might have Dallas County taxes, Dallas city taxes, hospital district taxes, community college taxes, and school district taxes. You write one check to the tax assessor for the total bill.

But you could live in Dallas County and have Richardson ISD, Irving ISD, or Highland Park ISD taxes instead of Dallas ISD. You might pay taxes to the City of Farmers Branch or DeSoto instead of the City of Dallas. There are various combinations of taxing entities in every county of North Texas.

Here’s where it starts getting complicated. The 2018 Dallas County taxes are posted — except for Dallas ISD. Those won’t be finalized until after the election on Nov. 6. A few other entities here and there haven’t posted their 2018 tax bills as well. And we don’t know exactly when they will post them. It might be tomorrow, it might be in two weeks. A property owner doesn’t have a correct amount due until the tax statement is released by their tax jurisdiction.

This wouldn’t matter much if title companies didn’t have to prorate taxes between buyers and sellers and give accurate tax information to mortgage companies. To explain:

Typically, when you sell your property, the title company pays off your mortgage and other liens from the proceeds of the sale. They also prorate the current year taxes between buyer and seller. For example, if you owned your home 100 days in 2018, then the title company would withhold 100 days of property taxes to be used to pay the taxes at the end of the year. Typically, this amount is charged to the seller and credited to the buyer on the closing statement. But that changes this time of year.

Understandably, mortgage lenders want assurances at closing that there are no unpaid taxes on the property. Title companies issue title insurance that includes endorsements to the lender that there are no outstanding ‘due and payable’ property taxes. It’s part of their job to verify payment of taxes and issue title insurance accordingly.

Let’s take a step back and look why this is so important. In Texas, unpaid property taxes can cause huge issues. The main issue being foreclosure on the property if the taxes aren’t paid.

Remember what I said earlier? Your 2018 tax bill is out and is now due and payable. Or at least part of your tax bill is out and is now due and payable. It depends on where you live. Those taxes that are posted are collected and paid at closing.

It’s not too difficult to prorate those between buyer and seller. But the taxes that haven’t yet been posted (like DISD taxes) fall into a separate category and must be handled differently. How those are handled depends on the mortgage lender, the title company, the buyer and seller.

Title companies and mortgage companies are updating closing statements daily based on available tax information as it comes out. Payments made to tax authorities should be based on actual tax statements, not estimates from previous years. If the wrong amount is paid, then who owes more, who get a refund, etc. can become a problem. Refunds are sometimes issued only to who made the payment – the title company. The title company must then determine who gets the refund – we can’t keep it. The bigger issue is collecting if the actual amount owed is more.

That makes for some challenging dynamics when it comes to buying or selling a home this time of year.

Everyone wants assurances that those ‘due and payable’ property taxes are being paid. That requires the title company to collect and pay the property taxes at closing or show proof that the taxes have been paid. That proof must come from the tax office.

The title company and the buyer’s mortgage company rely on a Tax Certificate to show the status of the property taxes owed. If the tax certificate shows a balance is due, then it must be paid at closing.

But wait, there’s more!

Let’s say you’re one of those homeowners that doesn’t like to deal with those pesky property taxes so you have them escrowed and paid by your mortgage company. In that case, your share of the unpaid 2018 taxes will still be withheld from your proceeds at closing and paid on your behalf by the title company. Because most likely, the mortgage company hasn’t paid those taxes yet. And when your sale closes and the loan is paid off, they may not pay those taxes. The title company must ensure they get paid. Your mortgage company will refund the amount in your escrow tax account after closing.

Couldn’t the seller simply pay their tax bill prior to closing and give the title company a receipt as proof of payment? No. We must have an updated tax certificate that shows a zero balance for taxes. Otherwise, a seller could make a tax payment by check or credit card, obtain a receipt from the county and then stop payment on the check or dispute the credit card charge.

For the folks buying or selling their properties right now, it requires communicating with the title company and their lender to alleviate surprises at closing. Many sellers don’t expect to pay their share of the taxes at closing when they are already being escrowed by their mortgage company. Likewise, some buyers don’t want to be surprised to find they must bring more funds to closing to pay their portion of the 2018 taxes now. But these scenarios are common.

It can be a taxing time of year for buyers, sellers, lenders, and title companies.

The opinions expressed are of the individual author for informational purposes only and not for the purpose of providing legal advice. Contact an attorney to obtain advice for any particular issue or problem. [where: 75230]