First off, this blog is not intended to provide legal advice of any kind. This is just an overview of probate issues we encounter while doing property tax loans in Texas. We strongly encourage anyone going through probate and/or dealing with estate issues to hire a qualified probate/estate attorney.
WHAT IS PROBATE?
Probate is merely a legal process guided by Texas state law to help settle an estate – in short, to extinguish valid debts and distribute assets according to the provisions of the will. The process involves a court review of a decedent’s Will to determine its validity as well as the qualifications of the Executor to perform their function. Once deemed valid, the court will empower the Executor to settle the estate and authorize the issuing of “letters testamentary” – a legal document the Executor will use to verify their authority to act on behalf of the estate.
As a result of being appointed as Executor of an estate, the Executor has a “fiduciary responsibility” to act in best interest of the Will and the estate. These duties should not be taken lightly and it would be in the best interest of the Executor to seek a qualified probate attorney – which can typically be paid out of the proceeds from the estate in most cases.
COMMON ISSUES FOR THOSE SEEKING A PROPERTY TAX LOAN FOR AN INHERITED PROPERTY
We often receive inquiries from individuals seeking a property tax loan for property with back taxes they believe they have inherited – most often from the death of a family member. When this happens there are usually three situations we have to deal with.
Situation 1: The family member left behind a Last Will & Testament that clearly states the inquiring individual as the owner of the property. This is usually straight forward though sometimes the individual has not properly probated the will and will need guidance to get their affairs in order so we can provide them with a property tax loan.
Situation 2: Will does not clearly state the individual as the sole owner of the property. This usually occurs when there are several siblings who own the property and only one of them is living in the property and wants to take out the property tax loan. We can usually work around this situation as well, but keep in mind that all rightful owners of a property must authorize a property tax loan and this situation can present a problem if some of the owners refuse to cooperate.
Situation 3: The deceased did not have a Will – or died intestate. This situation happens way too often and it is the hardest problem to solve, but not impossible. Usually an Affidavit of Heirship is used to determine the rightful heirs of the estate in this situation. We have helped numerous clients obtain a property tax loan who were in this situation.
If you find yourself as the owner of a Texas property through inheritance and the property has back taxes, a property tax loan could be a good solution for you. We are happy to discuss your particular situation with you and make recommendations; however, there are numerous probate procedures available in the State of Texas, as such we always advise the guidance from a qualified attorney in determining which course is best for your situation. Please contact us if you would like to discuss your particular situation.
SB 762 relating to the transfer of an ad valorem tax lien passed during the 82nd Legislature regular session. The act was signed by the Governor July 17th, 2011 and took effect September 1, 2011. The bill clarifies and cleans up some of the ambiguity contained in HB 2138, which provided for the creation and regulation of property tax lenders and passed during the 80th Legislature session.
We’ve highlighted two key provisions below that will benefit consumers by shortening funding times and clarifying allowable post closing charges.
Property Tax Lending - Changes in Right to Cancel Rules
The bill clarifies that the 3 day right to cancel of a property tax loan only applies to residential property that is used by the property owner for personal, family, or household purposes. This change allows a property tax lender to immediately fund, after closing, all property tax loans for commercial properties, non-owner occupied residential properties (not used for personal, family, or household purposes), and investment properties.
Property Tax Lending – New Post Closing Fees Rules
The bill also specifies which post closing fees a property tax lender may charge. There are currently limitations on interest and closing fees in Texas Tax Code, Section 32.06, as well as Texas Administrative Code, Title 7, Section 89.601. By contrast, this bill applies to fees that a property tax lender may charge after closing.
The post-closing fees authorized under the bill are listed below:
- a fee for filing the release of the tax lien,
- a fee for providing a payoff statement to a bank,
- a fee for providing balance information,
- attorney’s fees for legally required actions to perform a foreclosure, or to respond to a taxing authority’s foreclosure suit under Chapter 33,
- post-petition fees if the homeowner files for bankruptcy,
- a fee for title examination,
- a non-sufficient-funds fee,
- a fee for collateral protection insurance,
- a prepayment penalty for properties not owned and used by the property owner for personal, family, or household purposes,
- recording expenses for loan modification,
- a fee for extra copies of loan documents requested by the homeowner (apart from two copies that the homeowner is entitled to).
These fees are the only allowable fees which a property tax lender may charge after closing a loan. Additionally, the fees must be reasonable in nature where defined in the administrative code.
We found an interesting article in The Wall Street Journal (clink this link to full article), dated August 20, 2011. A few of the salient points are summarized below. While we previously covered lowering property taxes specific to Texas property owners (click this link to see that blog), we found this article did a good job of laying out the opportunity for significant savings and the main areas where savings can be found. Here are two key takeaways:
HOME VALUES HAVE DECREASED YET PROPERTY TAX REVENUE HAS INCREASED
According to the article, “Property taxes across the U.S. have increased by nearly 20% from 2005 to 2009…” and the article continues “Over the same period, home prices in major urban centers fared badly, decreasing 31%...”
This is a very significant discrepancy. Keep in mind this article is taking the entire U.S. into account and Texas counties such as Harris, Dallas, Collin, Denton, Travis, Bexar, Tarrant, Williamson, etc. are fairing much better in retaining their home value, but the values have still declined.
The cause is property taxes don’t move in lockstep with home values. Some county assessors don’t review every property every year and the value reductions may not be incorporated into your current appraisal. It’s likely your current property taxes reflect your home’s value when the housing market was healthier. Since, you can’t do anything about the tax rate as this is set for budgeting and is applied to the appraised value of all similar properties in the county; your appraisal value is your only opportunity to reduce your taxes.
THE KEY TO A SUCCESSFUL COUNTY APPRAISAL APPEAL
From the article: “One key to a successful appeal: fact-checking the assessor’s work. About half of all successful appeals come from homeowners pointing out an error in the assessor’s description of their home.” Several methods are employed to assign a value to your home including house-by-house appraisals, computer models, or even aerial photos. This type of cursory review can leave out details that may lower your appraisal. Using these methods, a home in disrepair can carry the same value as an updated and renovated one in the same neighborhood. In addition to condition of property, factors such as square footage and # of baths carry significant weight. Correcting these discrepancies can result in a more representative value of your property and a lower property tax bill.
This seems true and to see more specifics on contesting your home’s value in Texas, see the blog link we posted above.
One of the key takeaways from the article is this: “Local officials say they expect appeals from property owners if it’s warranted, so don’t be shy.” This is especially true in Texas where the appeals window is opened every May when new proposed values are sent out to Texas property owners. So don’t be shy – arm yourself with the knowledge on how to have a successful appeal and then be forceful, yet tactful, in lowering your property’s assessed value.