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If you own a home in Florida, today marks the deadline to pay property taxes after the state earlier extended the original March 31 due date with two weeks amid the coronavirus pandemic.
Despite calls to push property tax payments further into the future, April 15 is the final day for property owners in the Sunshine State to pay the levies that in most counties there hover around 1% of the value of real estate assets.
While property taxes are collected locally, statewide decrees to postpone payments, suspend late fees or prolong the application period for property tax relief are in place in states such as New Hampshire, Idaho and Iowa. In Washington, where the first large coronavirus outbreak emerged in the U.S., some of the hardest hit counties have shifted payment deadlines. In New York, meanwhile, several bills are making their way through the state’s Assembly and Senate to allow property tax deferrals or suspensions.
Why you are unlikely to see your property taxes deferred the way income taxes are
“Unlike income taxes, there are very few extensions of property tax filing thus far,” said Jared Walczak, director of state tax policy with the Tax Foundation. “Some localities are not doing so, or may not be in a position to do so.
“Property taxes are the single largest source of tax collections for localities across the country. And most local governments do not have significant reserves to allow them to close out a tax year or provide services if collections are extended for some lengthy period.”
In fiscal 2016, for example, property taxes contributed 72% of local tax collections across the country, according to the Tax Foundation. In 2019, according to ATTOM Data, the average property tax bill for a single-family home grew by 2% to about $3,500.
In a time when cities and counties are grappling with depressed revenues from income and sales taxes due to the virus, property taxes are a vital source of funds, which – underpinned by steady real estate values – supports school districts and various services.
“Property taxes are an extraordinarily stable form of revenue right now, which does give an advantage to localities since they rely heavily on them,” says Walczak. “That’s important because they have fewer tools at their disposal to address shortfalls than do states or let alone the federal government, which can deficit spend.”
Last week, nonetheless, the Federal Reserve established a Municipal Liquidity Facility with the purpose of purchasing $500 billion of short-term notes directly from states, counties with at a minimum of two million residents, as well as cities with a populace of at least one million. The measure to inject liquidity should allay some of the COVID-19-induced economic stressors on local governments and, thus, potentially offer authorities some leeway with property tax collections.
Mortgage lenders’ obligations to advance property taxes
The majority of American homeowners, who hold mortgages backed by the federal government, pay their property taxes through their lenders, who roll portions of the levy into each monthly mortgage outlay. Once the annual bill comes due, servicers pay local tax collectors from borrowers’ tax escrow accounts.
With the passage of the CARES Act, however, homeowners can request up to six months of home loan forbearance, with the possibility to add another half a year of suspended payments.
Because property taxes are included in mortgage payments, this peculiarity effectively shift property-tax obligations to lenders when borrowers cease repaying their loans for months on end due to the coronavirus.
“Servicers are likely to continue making payments, of course, to protect their security interest in the property,” says David Simon, visiting assistant professor at the University of Kansas School of Law. “If the servicer does advance money to pay property taxes, it is allowed to recoup that money from the borrower.”
Aside from property taxes, loan servicers are also covering insurance premiums during forbearance, an arrangement in which they are advancing loan principal and interest payments to investors.
Nonpayment may have serious consequences
Homeowners who pay property taxes on their own – as is the case for those who are mortgage-free – should contact their local tax agencies if they are financially struggling due to COVID-19, says Walczak.
Nonpayment may not only result in penalties but could also lead to a tax lien foreclosure, which governments utilize to recoup unpaid tax obligations from residents.
“Some localities do negotiate tax payments when individuals are short, or have payment plans that people can enter into,” Walczak says. “It’s very much in someone’s best interest to reach out to their local government now.”