Q: I fell several months behind on my mortgage and my property taxes when my hours were cut back earlier this year. Fortunately, my lender agreed to modify my loan, and now I’m on time with my mortgage again. Unfortunately, this did nothing for my property taxes, and now I’m about $5,000 behind. There’s no way I can come up with that lump sum on what I make. Do you have any suggestions for how I can catch up?
A: Count your lucky stars that your lender worked with you at all. Your efforts to obtain a modification — and your lender’s cooperation — have definitely put you in a position to recover from the financial trauma of lost income. This is a great time to get a handle on your tax situation.
Mindset Management
While people who’ve never had a financial crisis might assume that someone in your situation is a deadbeat or irresponsible, by now almost everyone has had a financial crisis (or is close to someone who has) and understands that it’s just not that simple. When the money isn’t there, bills don’t get paid, and my experience is that most people in your situation stay awake nights with anxiety when they fall behind and desperately wish they could have stayed current on everything.
So, kudos for taking the bull by the horn and working to get your situation resolved. Two things will be critical for your continued recovery. First, you need to ensure that you don’t fall any further behind on your property taxes.
Assuming your loan modification did not require that you pay into an impound or escrow account for your property taxes, I would encourage you to institute an automatic deduction from your regular household bills account into a separate, interest-bearing savings account from every paycheck for that time period’s prorated amount of the property taxes.
Do not get any further behind — as you’ve seen, those monthly amounts can snowball into a big lump-sum arrearage, and those lump sums are emotionally daunting, as well as realistically difficult to tackle.
Second, you need to make sure that you stay "simpatico" with your lender. Being in default on your property taxes might be a violation of the terms of your loan modification. The very last thing you need at this moment in your career as a homeowner is to have your modified payment jeopardized.
Even more likely than revoking your modification agreement, though, is that your lender will notice the default and simply pay off the tax arrearage themselves. While this seems fabulous, the way this works is generally that the lender pays an arrearage then increases your monthly mortgage payment by the amount it would take to pay them back for the property tax payment in a year or two.
This could be a significant increase to your monthly payment, and could very well negate the savings you achieved with your loan modification.
If keeping your mortgage payment at the lower, modified payment is essential to keeping your home, get very aggressive about eliminating your back property tax bill. Getting current on your property taxes might be necessary to save your home, in the final analysis, so use that as your motivation to get current as quickly as possible. …CONTINUED
Need-to-Knows
I see many consumers doing what you’re doing, in assuming that catching up on arrearages of any sort — mortgage, credit cards or property taxes — necessarily requires the full lump sum to be paid at any given time. In reality, everyone, everywhere has been hurt by this recession — your county included! Think of all the property taxes that they’ve lost due to the decline in property values and all the mortgage-defaulted and bank-owned properties whose owners are simply not paying the property taxes.
As a result, most county property tax collectors are happy to work with homeowners who are behind and want to catch up. I work in four different counties, and they all have some sort of payment plan available for homeowners who have fallen behind. Usually, some sort of downpayment and monthly payment paid directly to the county to reduce your balance owed is required. These payment plans tend to require extremely reasonable, low monthly payments, and most tend to put you back in good standing with the county as long as you observe the agreed-upon payment schedule.
Also, you didn’t mention whether you have applied to have your property taxes reduced due to any decline in market value, but if you haven’t, you should consider doing so. In most areas, it simply takes a single-page form you can obtain on your county’s Web site and a few recent data points of comparable homes in your area that have sold for significantly below your home’s current assessed value.
This might reduce your property tax payments going forward, freeing up some funds for you to reduce your arrearage.
Depending on how your state’s tax year falls vis-à-vis the calendar year, your reduced tax assessment might even be applied with slight retroactivity, also potentially chipping away at that back tax bill.
Action Plan
1. Reread the terms of your loan modification agreement to get clear on how your tax situation impacts it, if at all.
2. Visit your county’s Web site and, if it makes sense, apply to have your current and recent property taxes reduced due to the decline in your home’s market value.
3. Contact your county tax collector and set up a payment plan for the back taxes you owe.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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