Property Taxes - How Are They Paid By People Who Experienced Income Reduction?
/While renters in Beacon are experiencing little protection from increases on where they live, causing some Beaconites to leave Beacon or live with anxiety of rent increases, people with qualifying mortgages backed by the Department of Housing and Urban Development, Department of Veterans Affairs, and Department of Agriculture who have escrow accounts with the mortgage company holding their account may be catching a break when their property tax to the City of Beacon, school and library come due.
The CARES ACT legislated that if a qualifying homeowner has experienced lower income due to the pandemic, they can put their mortgage into forbearance, thereby pausing payments and not incurring additional interest or penalties. The paused payments get added back into the total owned of the home, which are added to the total debt the homeowner owes. This forbearance was started by the Trump administration, and was continued by the Biden administration, who recently extended that deadline through June 2021.
Forbearance Is Set - What Does It Mean For Property Taxes?
While relief is experienced for a homeowner who lost income due to the pandemic, what happens to the property, school and library taxes that are due directly to the City of Beacon?
Some residents pay these payments directly from their own accounts, versus having the institution servicing their mortgage divide a portion of their payment into an escrow account, so that when property taxes come due, the money is there and company servicing the mortgage, like Quicken Loans or Rhinebeck Bank, makes the payment on behalf of the homeowner.
One year ago in March 2020, at the start of the pandemic, A Little Beacon Blog asked the City of Beacon how property tax was being handled. At the time, Mayor Kyriacou, who is a landlord in Beacon and owns several properties, advised us to ask state officials about it.
This year, A Little Beacon Blog inquired again, and received this response from Beacon’s City Administrator, Chris White: “The City delayed foreclosing on any properties in 2020. Normally, the City would have sent last chance agreements in March of 2020 to properties with 2018 taxes still open. In compliance with the State's COVID-19 Emergency Eviction and Foreclosure Act, the City mailed hardship declaration forms to anyone with open taxes from 2018 giving them until May 1, 2021 to pay or enter into an installment agreement. We have also not taken action on back taxes for 2019 or 2020 so there has been some flexibility.”
New York City’s City Council passed legislation in 2020 on late payment penalty interest to 0% for a period of time. As for Beacon, Chris explained: “The interest on taxes is 1% a month but is not compounded. We allow partial payments and offer installment agreements of up to 24 months for past due taxes as long as property owners remain current on any upcoming taxes (including school) while in an agreement.”
A Benefit To Escrow Accounts: Advance Payments Have Been Made For Some Mortgages
When a homeowner has an escrow account with the company handling their mortgage, that company sets aside a portion of the monthly mortgage payment and places it into an escrow account for property taxes to the City of Beacon and to the school and library. Same can be done with homeowners insurance. It’s one less bill to worry about, and makes setting aside money automatic.
If an escrow account is not used, however, then the homeowner needs to make the payment themselves. Even before the pandemic, some residents who had not disciplined themselves to save the money found it difficult to scrape the money together. With the pandemic and economic shut-down, collecting that money could be more difficult.
Property Tax Escrow Account 101
When we reached out to Dave Curry, VP Commercial Lender for Rhinebeck Bank, to inquire as to if Rhinebeck Bank was also advancing property tax payments for residential mortgages, he went beyond the question to provide some education about escrow accounts as they pertain to residential mortgages:
“Yes, we escrow taxes into the monthly payment. For Rhinebeck Bank, we do this on both the residential and commercial side. This a typical requirement as financial institutions want to be sure the taxes are being paid on an annual basis and that the borrower is in a position to do so. Some Banks will not escrow taxes if it was requested by the borrower, however, the bank is putting the trust in the borrower to be able to manage their finances enough to pay those big bills when they come! Unfortunately, most people are not disciplined enough with their finances.”
Dave continued: “Escrowing Insurance is a different story. Normally Banks do not require the escrow of insurance. So how this works is that your monthly mortgage payment is normally broken down 3 ways: Principle, Interest and Escrow. The escrow portion goes into a separate escrow account and when the Bank receives the tax bill, they cut a check from this account. Additionally, there is an escrow analysis done on an annual basis, which determines if your monthly escrow portion is enough to satisfy the annual taxes. Sometimes there is a shortage and you will have an increased monthly payment, and sometimes there is an overage where you will be cut a check from the Bank. That is pretty much the scope of it, but very common for mortgages.”
The escrow analysis is conducted for if the taxes in the city increase or the city reviews their appraisal amounts on each home, as Beacon did a few years ago after not having done it for years, which resulted in a substantial increase for property owners. The amount set aside from the monthly mortgage payment needs then to also increase in order to set aside enough property tax money.
People who are done paying their mortgages may not be in the habit of making the monthly required payment anymore, thus needing to be disciplined enough to set aside the money for tax collection time. If they have the money, during the pandemic where some have experienced job loss.
