Despite falling property values, many homeowners find that their property taxes remain unchanged or even increase, posing a risk of foreclosure if these taxes are not paid. This article explores the complexities of property tax calculations, the impact of economic conditions on property values and taxes, and strategies for managing and potentially reducing tax liabilities.
Property taxes are calculated based on the assessed value of a property, which should theoretically decrease as market values drop. However, this isn't always the case due to the methods and timelines used by local governments to assess property values. For instance, assessments may be conducted only every few years, and they may not immediately reflect sudden market declines.
During the housing boom, many areas, particularly in Nevada, implemented caps on how much property tax could increase annually. Despite recent decreases in property values, the caps during the boom period caused tax liabilities to lag behind the actual value decreases. As a result, even significant drops in market prices have not sufficiently offset the increases from the boom years, leaving homeowners with disproportionately high taxes (Tax Foundation).
Detroit exemplifies the severe impact economic downturns can have on property taxes. With one of the highest foreclosure rates in the U.S., compounded by job losses and economic instability, Detroit has seen a sharp increase in unpaid property taxes. The city's struggle is exacerbated by a record high rate of tax delinquencies, which further strain local government budgets (Detroit News).
Homeowners who fail to pay their property taxes for three consecutive years face the risk of foreclosure. Local governments may seize the property and auction it to recover the unpaid taxes. This has been a significant issue in areas like Detroit, where counties are trying to recoup millions in unpaid taxes.
Homeowners should prioritize paying off the oldest due taxes to avoid foreclosure. Even partial payments can stave off the foreclosure process, as some payment is generally better than none.
Many counties offer extensions or exemptions for homeowners experiencing financial hardships. Contacting the county treasurer's office can provide information on eligibility and application deadlines for such programs.
Banks and mortgage companies may offer programs to help homeowners cover their tax payments. Since it's in their interest to prevent property seizures, many lenders are willing to work with homeowners to find solutions.
Homeowners can request a reassessment of their property's value from their local tax assessor's office. This is particularly important if the property's value has decreased significantly since the last assessment.
Understanding and managing property taxes is crucial for homeowners, especially in fluctuating markets. By staying informed about how property taxes are calculated, actively managing tax payments, and exploring available assistance programs, homeowners can better navigate the challenges of property tax liabilities and reduce the risk of foreclosure.
Resell or Hold?
When deciding whether to sell for a small property or hold on it it, it depends on what financial situation you are in. If you have a cash flow it is highly recommended holding onto the property, eventually the market will go back up. If you are losing vast amounts of money however, short sale and get out of the deal. Look at your financial situation and do what works best for you.
Make Money Renting
Investing in properties is a great long term investment. Instead of selling your house, you may want to have someone rent out your home, which is essence means they are paying your mortgage. Once the housing market goes up again you could have your home appraised and then sell at a higher price than you were once planning on.
Investing During A Recession
Buying Real Estate during a recession may seem like a scary thing to do but it is actually a great investment move. During a recession many homes are being foreclosed or selling at much less than the asking price. If you research why the house is selling, how long it has been on the market, and what the asking price is, you could end up with a great investment during a recession.
