Property Taxes: How to Avoid Overdue PaymentsBy sedoo
Our clients often ask us how property taxes work and to many, property taxes are a novel issue that they have not dealt with before. Here are some tips on how to deal with your property taxes and how to avoid potential issues after a real estate closing.
Typically, on a purchase transaction, your real estate lawyer will contact the municipality to advise them of the ownership change. It is possible that due to a backlog, the change of ownership takes weeks or even months to record by the municipality. Depending on the time of year, this may cause the new owner to be late on a property tax payment that is due and interest and penalties may then be added on to the amount due.
To avoid a property tax bill not being issued to the new owner and then falling into arrears on their property tax payment, it is important for the new owner to contact the municipality once the real estate transaction closes. This is to advise the municipality of the recently purchased property and to ensure that the municipality amends their records to reflect the new owner.
Interest on overdue property taxes is charged at a rate of 1.25% on the first day of default, and on the first day of each month thereafter, as long as property taxes or charges remain unpaid. For this reason, it is in the property owner’s best interest to pay property taxes on time. It is also important to stay on top of your property tax payments because the municipality may proceed with a municipal tax sale if an owner of a property has been in arrears for at least three years.
To stay on top of property tax payments, property owners may be able to set up pre-authorized payments with the municipality. This is an easy way to ensure that property tax payments are not missed. To set up a pre-authorized payment, the owner should contact their municipality directly to see if they offer this program to enrol in.
Some mortgage lenders offer to pay your property taxes for you. If you choose this option, your mortgage payment will likely be increased by a monthly property tax amount. This property tax amount is placed into a property tax account and the lender submits property tax payments on your behalf prior to taxes becoming due. This is a helpful way to ensure that your property tax payments do not go into arrears. If you are interested in enrolling in a property tax payment program with your lender, then you should contact your mortgage lender to inquire if they can add this property tax payment to your mortgage payments.
Further, on a purchase transaction, it may be wise to request that your real estate lawyer include the entire interim or final (depending on time of year) property tax bill in their final accounting and pay the bill on your behalf. This way you don’t have to worry about property taxes for a few months and you won’t fall behind on your payment.
As always, if you have any further questions on property taxes you should speak to your real estate lawyer.
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Seth D. Freedman is an Associate with Kormans LLP. His practice areas include residential and commercial real estate, corporate and commercial law, and wills and estates. You can reach Seth at firstname.lastname@example.org
All blog entries are for your reading pleasure only and are not posted to provide legal advice. For your matter, we encourage you to consult with a lawyer to review and discuss your specific facts and circumstances.