Over 65 exemptions and escrowed taxes

General Real Estate Investing
1

I have a potential deal where the owner is over 65 and has a tax exemption. Now, when I buy it sub2 and record the deed, what happens with the exemption and the tax differences? what happens with the escrow next year?

2

I don’t have a concrete answers, but noodling it through, I’d say:

  1. The exemption probably has to be filed for each year. When it’s not filed for, the taxes will probably go up.

  2. Either way, I’m thinking the transfer of ownership will put the tax status back to normal, so the taxes will go back up.

  3. The escrow amount will not change until the mortgage company gets the tax bill, sees that it’s under-funded, after which they will ask for either a lump-sum payment from the borrower to get caught up, or they will increase the monthly payments.

  4. Not sure that the increase in taxes will alert the bank to a change in ownership.

Curious to hear what others say.

3

I ended up not buying the house, but I am curious as well what others experience has been for future reference.

I think you are right on the money… they will ask for the difference once they pay the bill.

4

the exemption will stay that way for the complete tax year. As long as there was legally an exemption as of January 1st of that current year. They can sell it January 2nd, and the over 65 exemption will still be there for the remainder.
All exemptions will be removed the next tax year and your taxes/escrow will go up.

At least thats the way it is in TX.

5

Additional comments re Houston-Guy. Texas property taxes are paid once per year. You can start paying in October but they don’t become delinquent until the end of January the following year.

I closed on a TX property in February. The taxes had already been paid by the seller. Escrow prorated the taxes based on the Over-65 exemption of the seller. I got the benefit of the lower tax for the balance of that year. When the seller bought a new home, he formally transfered his Over-65 exemption to his new home and I received a letter from the Tax Assessor’s office telling me the exemption had been removed on the property that I had purchased.

If I remember correctly, you have to be the owner-of-record January 1st in order to protest an assessment in that year. So effectively what happens is that you “benefit” from the seller’s tax rate for the year in which you purchase the property and then are in control to question/accept the tax assessment in the following, second year.