Is homeowner on the hook for senior exemption not removed from tax bill?
Q: When my mother died some years ago, her senior exemption was not removed from her property, which I inherited and now live in. How do I correct this tax problem? It has gone unresolved for a long time.
I am now 63 years old. I could use the money saved with the streamline to make payments to the tax collector, but I'm afraid it wouldn't be enough. Please let me know what you think.
A: We understand you're concerned about this problem, which has been going on for a long period of time. (We're actually wondering how long it has been going on and why you didn't correct the problem when you first noticed it, but we'll set that aside for now.)
Senior homeowners are typically entitled to take an extra exemption (beyond the standard homeowner's exemption) on their property taxes. In some states, the exemption fixes the property tax bill at a certain place when the senior turns 60, 62, or 65. In other states, the exemption reduces the tax bill (which can rise or fall depending on the value of the property) by a certain percentage.
You didn't include the state in which you live, so it's difficult to know which senior exemption has been applied to your home. What is interesting is that when you inherited the home, and took over the mortgage, that exemption wasn't removed. It is a typical taxing mistake, one you've benefitted from over the years.
It sounds like you are worried that by streamlining the interest rate on your mortgage, which would save you a significant sum of money, you'll trigger the local tax authority to take another look at your situation. Even if you're not doing a complete refinance, lenders will often add an amendment to the mortgage, which will require them to file with the local recorder of deeds office.
The question is whether that will trigger a reset of the senior exemption, and someone will notice that you haven't paid the correct amount in years. The truth is, it might. And, if it does, there's a chance that you'll be billed for the difference between what was paid and what you would have owed without the exemption.
But like with any tax owed, you will usually have a certain period of time to make up the payments. It's also possible the local municipality will put a lien against your property for each year of missing tax money. Those liens would be removed as you make up the payments.
But there's also a chance that you wouldn't be billed for this mistake. Sam has seen this happen several times in his career as a real estate attorney. Sometimes the record is simply corrected and everyone just moves on.
The funny thing is that you're 63. You may be old enough or nearly old enough to qualify for a senior exemption all on your own. If the recording of the mortgage amendment doesn't trigger a change in the tax status of the property, you'll legitimately be able to claim it shortly.
You should certainly take up your lender on the offer of streamlining your interest rate. You will be able to save hundreds of dollars, which will be better off in your pocket than in the lender's. And if the worst thing happens, and you are presented with a bill by the local tax collector, you'll have cash coming in to cover at least some of what is owed.
If you want to find out more, you can consult with a local tax attorney who specializes in real estate. You can also anonymously all the local tax collector's office and speak with someone there about a "hypothetical" situation in which a child inherits a property with a senior exemption that never gets removed. You can ask what happens if this situation is uncovered and is there any flexibility in how the recapture of taxes is structured. We're quite sure you'll find out all you need to know in this way and then you can think about what, if any, move you need to make.
(Ilyce R. Glink is the author of many books on real estate and host of "Real Estate Minute" on her YouTube.com/expertrealestatetips channel. Samuel J. Tamkin is a Chicago-based real estate attorney. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. Contact Ilyce through her Web site, http://www.thinkglink.com.)