Davidson Realty, Inc.

SURPRISE! You Now Owe…

June 18, 2010

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Posted by in News

You close a brand new home mid-year that was still under construction on January 1st when the county assessed the house for the current year. Obviously, the house is not going to appraise at fair market value because it is not finished. Unfortunately, many people aren’t aware that your payments are about to sky rocket.

Your escrow company requires a monthly payment based on the current home assessment (or a prior year tax assessment), but it is an unfinished home, so the amount may be based on just the fair market value of the home site alone. When the home is completed and the new tax year arrives, the value of the home on the tax roll will change to the current assessed value by the tax appraiser.  Therefore, this will be a higher figure than the property was assessed for in the previous year. The homeowner’s mortgage company will get the new assessment from the tax appraiser and will increase their payment according to the increased assessed value.

The real estate taxes will be more and accordingly, the escrow company will require a catch-up adjustment and/or increase the monthly amount to make sure the right amount is available when the taxes are due. People need to be alerted to this situation to avoid the surprise of their new payments!

A real example: The house under construction is assessed at $200,000. The taxes for that year are approximately $3,200 (St. Johns County) and the escrow company requires approximately $267 a month to pay the taxes when due. The following January 1st, the house is finished and is now appraised by the tax assessor at $450,000 – the real estate taxes for that current year will be $7,200 a year, requiring a new monthly installment of $600 a month paid to the escrow company instead of $267. If the escrow company discovers the higher tax assessment at a later date, the monthly amount has to increase enough to make sure $7,200 is available when the taxes are due; sometimes requiring a catch-up payment to the escrow company.

The good news is most county tax assessors’ websites will give you current information on what taxes will be due at the end of the year, so new homeowners won’t be shocked.

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