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2009 - Looking Ahead. Hoosier's Favorite Pastime!

By
Title Insurance with John Bethell Title Company, Inc.

Looking AheadIf you're not from Indiana, you can't appreciate how involved we all get at this time of year. Watching it on TV. Reading about it in the paper. Passionately rehashing the strategy and decisions every day at the water cooler, in coffee shops and in bars all over the Hoosier State.

Of course I'm talking about Indiana Basketball Property Tax Reform. Yes, that now annual rite when our legislators take up a subject near and dear to the hearts and wallets of their constituency. The time when they feverishly attempt to right past injustices (perpetrated by previous legislatures) and find the holy grail of equity in our Property Tax system.

If you're writing or accepting Purchase Agreements this year, make sure you understand what's going on with the taxes. There are a dozen or more bills introduced that might change what you know.

Last year, taxes on homestead properties benefited from a $640 million dollar one-time state subsidy. This year that subsidy is only $140 million. Off-setting that subsidy reduction, caps on the amount of taxes that can be levied against different classes of property are being implemented. The caps are one and one-half percent of assessed value for residential, two and one-half percent for residential rental and three and one-half percent for commercial and other property. The legislature may vote this session to have the caps put on a ballot so that they can become part of the state constitution. Or they may change it all retroactively. Who knows?

A variety of other factors complicate the uncertainty. The property tax replacement and homestead credits from the state to local government are being eliminated. But the state is taking on much of the school funding responsibilities historically funded by property taxes. Many homes have radically different assessed values. Some counties haven't issued last year's tax bills yet.

I wish I could offer advice as to how this will affect your transactions. I'd just be guessing. And guessing is what I will begin doing. In March I am required to insure lenders that the first installment of taxes is paid even though no bill is available. Title companies all over Indiana will begin escrowing at closing an amount they feel will be adequate to pay the taxes when the bills come out. Two years ago 25 percent of our escrows were short. Last year only two short files. This year-GULP!

The advice I can offer is to be very careful about how you represent property tax issues with your clients. No one can say for sure what taxes will be in the future. Uncertainty is an inherent risk of property ownership that Buyers need to accept. Not their Realtor®. Not their Lender. And not their Title Company.

Comments(3)

Patrick Scott
OConnor Title Guaranty, Inc. - Chicago, IL

Well, I guess at least your legislature is trying to find that elusive equity in the property tax system.  Around here, in a land of tumbling property values, the assessors keep finding our homes to be more and more valuable.  I don't know, maybe it's a matter of pride, that any property in Illinois, Land of Blago, has to be more valuable than people are willing to pay for it.  But I don't think so.

All the same, I don't envy you Hoosier title agents when it comes to figuring out the correct percentage to collect to ensure he taxes are paid in full.  A 25% shortage rate seems like a nightmare (unless you only closed four deals that year, ha ha).  You then have to devote enourmous resources to collection of the shortages.

But you can't overprotect yourself either.  The average Joe may not have all that much cash available to sit in escrow while the county and state officials get their act together.  You can't kill a deal for a comfortable indemnity, so you have to get it just right.  That may be more difficult than the job your lawmakers and assessors are trying to get right.  But I can respect that they are making the effort.

Jan 22, 2009 01:00 PM
Jeff&Grace Safrin
F.C.Tucker 1st Team Real Estate - Valparaiso, IN
SpousesSellingHousesTM

We live in one of those cunties that have not issued last years tax bills yet...hopefully they will be out soon. makes it  difficult for tax proration agreements as well  ( unless final) . Time will tell John :)

thanks for your info

Sincerely,

Grace

Jan 23, 2009 04:53 AM
John Bethell
John Bethell Title Company, Inc. - Bloomington, IN

Pat:Thanks for stopping by and also being a subscriber. You're correct about finding the right number. Last year we escrowed according to a formula and it resulted in about 175% of the previously known installment. This year, I just might use the appropriate cap. 

Most everyone is understanding of the situation. The only flack we got last year was from a few lenders. I offered each the opportunity to take responsibility or hold me harmless for a shortage. All deferred.

Grace: When I hear grumbling, I remind my folks what's going on (not going on?) up your way. I heard a year ago that one title company was over $50K short in their collected tax escrows. Ouch!

 

Jan 23, 2009 09:53 PM