Opening Titles and Closing Remarks

Here's an update on the situation with real estate taxes based upon actual knowledge and an informal telephone survey made yesterday.

The Monroe Country Treasurer mailed property tax bills Friday May 29^th. We are now using the 2008 pay in 2009 real estate tax amounts for all payments and prorations. The first installment of Monroe County taxes is due Friday June 26^th.

Greene County property tax bills are mailed and the first installment is also due June 26^th.

Owen County property tax bills were mailed in April and their due date was the statutory May 10^th.  Congratulations to Owen County-one of the few to be on time. Payments made after May 10th are subject to a ten percent penalty.

Lawrence County is awaiting approval of their tax rate. Once their rate is approved they will establish a due date for taxes. Until their rate is approved, we will continue to use 2007 pay 2008 tax amounts for all prorations.

Orange County is in the same situation as Lawrence County.

Brown County is still a year behind and holding.

I will continue to post updates as more information becomes available.

The amounts of Monroe County Property Taxes for the tax year 2008 payable in 2009 should be official this week. The county treasurer will mail the tax bills shortly thereafter and the first installment of property taxes will be due Friday June 26, 2009. 

We currently have access to the uncertified tax amounts and are disclosing those amounts in our title commitments. Once the state certifies the amount we will be able to pay those taxes at closing and prorate the taxes for this year using these new amounts. (Last year an entire township's taxes were incorrectly certified and it did lead to some problems for a few closings.) 

If both the buyers and sellers wish to prorate on the uncertified amounts, we're fine with that. We just need to have them sign our tax proration instructions reflecting that agreement.

I've reviewed a few files with uncertified taxes. It appears that there's little change from last year in the amount of the taxes on properties with valid homestead exemptions. I suspect that on other property types the news won't be quite so good. 

Once the new taxes are certified, we will obtain the new amounts for all our files going back to early March that we holding tax escrows on. We then cut checks to pay the first installment of taxes. After we're certain the payments have been applied correctly, which might not be for six to eight weeks, we will return any balances remaining in the escrow to the owner. 

Even though tax bills are again late this year, it's the earliest they've been out in quite a while. That's good news for buyers and sellers since taxes can be paid and prorated on current information.

Meet Claire Voyant, who just joined John Bethell Title Company, Inc. Claire, is now assisting our closing team in predicting the property tax amounts for our real estate closing tax payment escrows.

Every year at this time lenders begin requiring that we insure them that the spring tax payment is paid. May 10^th is the statutory date in Indiana when the first installment of property taxes is due but that amount isn't usually known until the end of April. To comply with the lender's instructions, we escrow enough money (hopefully) at the closing to pay the taxes after the bills come out. Deciding the amount of the escrow is tricky.

This year, rather than attempt these predictions myself, I decided that we needed the services of a professionally trained prognosticator. Claire comes to us after seven years with a local funeral home successfully predicting death. Claire is looking to expand her professional experience by predicting taxes. She turned down competing offers from the IRS and the Congressional Budget Office.

Claire will gaze into her crystal balls (which I got a great deal on at Sam's Club® but I had to buy a case of them) and advise our closers as to what the future property tax amounts will be.

This is a feat of prophesy worthy of Zoltar, himself, with whom Claire apprenticed early in her career. For you see (actually, Claire sees) there are many changes with Indiana Property Taxes this year.

First, as most Hoosiers know, this year for the first time statutory caps will limit that amount of property taxes that can be assessed. For owner occupied residential property the cap is one and one-half percent. Residential rental, the cap is two and one-half percent. For all other improved property the cap is three and one half percent. Depending upon where you live and what you use your property for, your taxes will go up or down as a result of the caps.

Second, the State of Indiana is eliminating the state replacement and homestead credits (not the homestead exemption-that's different) which in the past reduced local property tax levies. So eliminating these will cause property taxes to increase.

Third, the State of Indiana is assuming responsibility for much of the school funding that used to make up the largest portion of the property tax levy. This will reduce taxes.

Fourth, last year's $640 million state subsidy to local governments that reduced property taxes for homestead properties is only $140 million this year. This will cause taxes to increase.

And fifth, no one knows for sure what if anything the State Legislature is going to do the next few months to change any of this. There are dozens of bills introduced in the current session that would affect property taxes.

You can see that Claire's work is cut out for her. And according to a state official I heard Tuesday only about a dozen counties are expected to mail tax bills on time, so we'll be doing a lot of tax escrows.  The escrows need to be sufficient to pay the taxes when they become known.

Please join me in welcoming Claire to our team. After the need for tax escrows passes, Claire will assume the additional responsibility of helping our employees decipher what I really meant to say when I said something totally different. Claire foresees a rewarding career with John Bethell Title Company, Inc. long after the need for tax escrows subsides.

If 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.