Tax law changes could drive up house payments

CNJ staff photo: Sharna Johnson Curry County Deputy Assessor Shelly Brown goes through property cards Wednesday afternoon. The assessor’s office often receives calls from homeowners whose escrow was calculated incorrectly after property tax laws were changed in 2005.

Sharna Johnson

Homeowners who purchased residential property since 2005 may get struck with lightning — tax lightning that is.

Escrow adjustments that drive up monthly house payments are an unexpected side effect of changes to property tax laws in the state, according to Candace Morrison, Curry County’s chief deputy assessor.

Morrison said her office gets calls on a regular basis from taxpayers confused because of an increase to the amount of money their mortgage company sets aside from each payment for taxes and insurance.

And they’re usually frustrated, she said.

“They’ve been on the phone with the mortgage company, they’ve been on the phone with the insurance company and they feel like they’re getting the run around,” Morrison said.

“Mortgage companies were not aware of this, so they were not taking enough (money) out.”

The assessor’s office has worked to get the word out to taxpayers, and was helped by a new law that requires a disclosure form being included during the closing of a property transaction, but Morrison said, for properties where escrow was calculated incorrectly prior to the notification law, owners are still being impacted.

Before the law changed, Morrison said the most the county was able to increase property values was 6 percent a year, so a lot of homes were being taxed at low rates that probably only accounted for about 50 percent of the true value.

Under the new law, any residential property sold after 2005 is now valued at 97 percent of the sale price.

In addition, the county does a mandatory 6 percent increase every two years on properties.

Property owners have 30 days to protest valuation increases after notices are mailed out in April. But Morrison said many property owners don’t pay close attention to those notices because they are strictly information and require no action.

“But when the money is actually coming out of their pocket is when they take greater notice of it,” she said, which happens when the escrow company sends a notice that their payment is being increased.

If a mortgage was calculated at the tax rate the prior owner had been paying before the sale, the escrow company will discover it usually after the first tax year and will adjust the rate, Morrison said.

But the homeowner will often find their escrow isn’t just raised to the correct rate, they also may need to repay the shortfall for the year the calculation was erroneous.

“They’ll increase it a lot to make up for the deficit until you get caught up,” she said.

Morrison said most of the issues that have happened are due to out-of-town mortgage companies who aren’t familiar with the state law and don’t know a property’s value will increase.

Beyond those issues, the “tax lightning” law means that purchasers are carrying the bulk of the tax burden, she said.

“It’s a major problem and we need to find a solution,” she said.

The problems are well known enough, she said the legislature is planning to hold a special session to try and work out the issues.

In the meantime, homeowners need to be aware that their escrow could increase and should talk with their escrow company and the assessor’s office to make sure they are paying enough.

There are also ways to reduce property taxes, and Morrison said her office can help people apply for exemptions available for heads of household, veterans and the disabled.

Clovis’ Primesource Mortgage owner Rebecca said she works closely with title companies to make sure tax projections are as close as they can get them when closing a mortgage.

So far, she said she hasn’t experienced any issues with tax increases hurting buyers, though she said sometimes insurance premiums affect escrow payments.

Home buyers should always understand and be prepared, she said.

“Taxes and insurance change as those individual things can change,” she said.

And while the only way out of increasing property taxes is to move, Reid-Carlyle said homeowners can shop around for new insurance to reduce escrow.