Paying Property Taxes in Trying Times

If you’re struggling financially, you may have to strategize which debts take priority. This can be tough, especially if you have competing priorities, such as credit card debt, student loans, a mortgage payment, or even property tax bills.

Homeowners can face severe negative consequences from delinquent property tax bills, which makes it critical to pay them on time. So what should you do if you have a large bulky property tax payment coming due?

“Property taxes should be high on the list if you have to decide which bills to pay,” says Andrew Reschovsky, Ph.D., professor emeritus of public affairs and applied economics at the University of Wisconsin-Madison.

The property tax is an annual tax based on the assessed market value of your property in addition to an ongoing cost of homeownership. The government uses property taxes to fund public necessities such as schools, streets, libraries, emergency services, and more.

Local governments put together a budget based on how much money the jurisdiction needs for essential services. A town’s reliance to fulfill those needs with the revenues from property taxes varies by state. In many states, property taxes may be a primary source of revenue, which is why there can be drastic repercussions for those who fail to pay.

Property taxes & COVID19

Generally, homeowners pay property taxes in one or two lump sums. For those with drying up cash flows due to job loss and other economic factors from  COVID-19, paying these taxes can be a strain.

Local governments usually slap delinquent homeowners with hefty interest charges that can lead to tax foreclosures. Because of the financial strain brought on by COVID-19, some governments have been able to change policies to provide slack for taxpayers.

“No city government wants to say they’re going to foreclose on a house today, when they know people are in dire straits of no fault of their own,” Reschovksy says.

Florida, West Virginia, Iowa, and Indiana extended their due dates this year for those who pay property taxes directly, not through a mortgage company. While the extension deadlines may have already passed in some areas, check with your specific state and town to find out about relief options available due to the pandemic.

How can you lessen your property taxes?

In certain situations, your property value or income level may help to provide some financial relief. Here are two potential options to investigate:

Option No. 1: Appeal the assessed value of your home

Property taxes are based off your home’s assessed value, tax rate, and tax lien. While homeowners can challenge the assessed value of their home, their local government sets the property tax rate and tax lien.

Ideally, you can appeal the assessed value of your property when you receive your home assessment, usually at the beginning of the year. Through public records, you can compare the assessed value of your home with other similar homes.

In order to succeed at appealing the assessed value of the property, you’ll have to show the estimated market value is incorrect or unfair. Depending on where you live, there are different requirements homeowners must prove to show the assessed values of their home is incorrect.

Depending on the state you live in, you may have to pay the bill before you can make an appeal. If you win the appeal, you’ll get a refund. Every state and every town has specific procedures residents must follow to appeal their home’s assessed value. A national standard does not exist.

Many cases settle if you file a tax appeal, says Rajeh Saadeh, the principal attorney at the Law Office of Rajeh A. Saadeh, LLC. Whether or not your case will settle can depend on the volume of appeals the town receives.

“Big cities need more money for things such as social and welfare programs, so every dollar counts,” Saadeh says. “In other places, they may settle every appeal that comes in the door because they receive so few appeals.”

Option 2: Apply for a property tax relief  (if you qualify)

Circuit breaker provisions associated with the property tax system can help relieve part of the burden for low-income households. A circuit breaker is designed to

“If you’ve lost your job or you’re unemployed, your normal tax burden goes way up and you may become eligible,” Reschovksy says.

Households need to apply to receive the circuit breaker exemption through their state governments. Some form of circuit breakers -- or property tax relief programs -- are offered in 33 states and Washington D.C., according to the Lincoln Institute of Land Policy. Requirements for circuit breaker provisions vary by state, but some states reserve this relief option for the elderly, disabled, and other vulnerable groups. 

Washington D.C. Hawaii, Minnesota, Montana, Missouri, New Hampshire, New Jersey, New York, Vermont, Wisconsin, West Virginia, and Wyoming don’t have age requirements to take part in their state’s programs.

What if I don’t pay my property taxes?

If you fail to pay your property taxes, the city may sell your debt at a tax certificate auction, which is similar to a foreclosure sale.  

In a foreclosure sale, the property is sold. In a tax certificate sale, the tax assessor auctions off the debt. The debt will no longer be owned to the municipality and it belongs to whoever wins the auction.

Whoever wins the auction has to pay the debt plus interest. If the homeowner doesn't pay the debt in full, the new owner of the tax certificate can foreclose on the property. 

“Property owners can’t let their home fall to a tax lien foreclosure,” Saadeh says. “Worst case scenario, you sell your home and salvage as much equity as possible.”

Escrow accounts

Some homeowners pay their property taxes through an escrow account managed by their mortgage lenders. These types of accounts allow homeowners to pay a portion of their property tax bill each month when they make their mortgage payment. 

Escrow accounts act similarly to payment plans or savings accounts. When you pay your mortgage and escrow bill, lenders will set aside an estimated amount for your property taxes and insurance. Many lenders require homebuyers to set up an escrow account if they’re unable to put at least 20% down.

“If you’re in bad shape and can’t pay your mortgage and have an escrow account, the bank will continue to pay the property taxes because they don’t want the government to foreclose on the house,” Reschovksy says.

If you don’t have an escrow account and pay your property taxes directly to a city treasurer, contact them as soon as possible to inquire about any arrangements that have been made to delay payments.

Debt resources

Managing debt in times of financial hardship can be stressful. If you’re looking for some resources to help you organize your debt, here are a few to get you started:

• Build and Boost Your Credit (While Paying Down Debt)
• Climb Your Way Out of Debt: 4 Strategies to Try
• How to Use a Bullet Journal to Slay Your Money Goals
• How to Pay Off Credit Card Debt

Andrew Reschovsky, Ph.D., is professor emeritus of public affairs and applied economics at the University of Wisconsin-Madison. He publishes widely on topics related to state and local government finance. He spent a year working at the Office of Tax Analysis in the U.S. Treasury, and has also served as an advisor to the Organization of Economic Co-operation and Development in Paris and the Financial and Fiscal Commission in South Africa. In 2011, he was awarded the Steven D. Gold award by the Association of Public Policy Analysis and Management in recognition of his contributions to state and local fiscal policy. 

Rajeh A. Saadeh, principal attorney at The Law Office of Rajeh A. Saadeh, L.L.C., devotes a substantial portion of his legal practice to real estate transactions and litigation, including property tax assessment appeals and foreclosure prevention. He has spoken on numerous panels and made presentations on real estate, and he is an adjunct professor on real estate transactions and related issues to aspiring legal professionals.