Property Taxes: Where Does That Money Go and What Happens If I Don’t Pay?

 

No one likes paying property taxes, but if you own a home (or real estate of any sort), property taxes are part of the deal. While many of us pay property taxes, few of us seem to have a good grasp on how those taxes are calculated, where the money goes, and what happens if we don’t pay up. Even fewer people realize that when they purchase a home, they have a one-time opportunity to challenge the property value the taxes are based on, and if successful, they could save themselves a bundle of dough for years to come.

Property taxes are based on the market value of the property when it changes ownership. Generally, this is the sale price, but not always—the Assessor’s Office determines this “base value.” The first year you own the property, you pay about one percent of the base value in property taxes. Each year, the taxable value of the property goes up a maximum of two percent—and it’s compounding. So, if your property is worth $300,000, you’ll pay $3,000 the first year. The next year, you’ll pay $3060. The following year, you’ll pay $3121, and so on.

When you purchase your home and the Assessor’s Office determines the base value, if it seems higher than similar properties in the area, you can appeal it. A citizen’s committee of real estate experts appointed by the county will hear your appeal and potentially change the base value. If you appeal during the first year when the property’s base value is being determined, it can affect all future property tax payments. If you wait until after the first year, your appeal only applies to the year of the appeal.

If you do not pay your property taxes, the county can sell your property at public auction. This is why lenders make sure you pay your property taxes, and will sometimes set up an impound or escrow account requiring you to pay a twelfth of your tax bill each month so they can send a check to the county when the bill comes due. If you cannot afford to pay, things can go south in a hurry. If your payments are late, you’ll be charged a 10 percent late fee the first year. If your payments continue to be delinquent, your outstanding balance in future years will rack up an 18 percent annual late fee, plus some one-time charges. If you cannot pay for several years in a row, you can lose your home.

If you are a senior citizen struggling to pay property taxes, relief may be on the way. A waiver program is being reinstated in September 2016 allowing you (and those who are blind or disabled) to apply for a program that allows you to defer those payments in return for a lien on your property—the outstanding taxes are paid when you sell the house or pass away. You must have at least 40 percent equity (ownership) in the property, and mobile homes do not qualify, but otherwise, I’d say it’s worth looking into.

So where does all this tax revenue go? Our tax collector, Sheri Schapmire, told me that the $120 million collected each year is distributed as follows:

63 percent to public schools
30 percent to the county
5 percent to special districts (like fire and sewer)
2 percent to incorporated cities

 

I know that sounds like a lot of money, but for a county our size, it isn’t. Our county and other rural counties are often asked to do more with less, but the benefits of living here generally make it worth it.

And, just a reminder, if you haven’t entered the Safe Mendocino contest, there’s still time! Visit http://realtyworldselzer.com/safe-mendo for details.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.