Each state does property taxes a little differently. Some states don’t send a property tax bill until after the year is completely over.
In Georgia, the 2018 property tax bill covers the time from January 1, 2018 through December 31, 2018. If the property sale closes before the tax bill is mailed, the seller pays the buyer the seller’s portion of the tax bill at closing. When the bill does come out, the buyer must pay the full tax bill– even if the seller’s name is still on the bill. In our office we strive to give the buyer an accurate property tax credit at closing– but it is impossible to predict tax bills.
If either party didn’t pay the correct amount at closing, they need to settle-up once the tax bill comes out. Real estate agents don’t enjoy having the property tax discussion with buyers or with sellers, especially when the tax bills are higher than they have been in the past. They will welcome an introduction to a qualified closing attorney who can make sure both parties are aware that they may owe taxes to the other party once the tax bills are out.
Reverse mortgage loans do not require an escrow account, because the borrower receives money, rather than making payments. Since conventional mortgages are usually set up to include property tax and homeowner’s insurance, how does the reverse mortgage loan holder pay for those elements? The borrower acquires and pays for insurance independently, and pays taxes directly to the tax authority.
On-time payment is essential, because if the borrower has paid property taxes late within the last three years, the lender will likely require a LESA account — a Life Expectancy Set-Aside account, which sets aside enough money to pay the property taxes every year of the remaining expected lifetime. Taxes and insurance payments must be paid on time after closing as well. Failure to pay taxes and insurance is considered in default for reverse mortgages and can result in foreclosure.
Does the LESA account really impact the borrower? It can be a big number if the borrower is younger: in 2015, the lender required a $73,000 LESA account deposit for a 62-year old, city of Decatur borrower.
Loan officers and reverse mortgage specialists enjoy working with a closing attorney who can explain the rules, requirements, jargon and singularities in reverse mortgages to homeowners.