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Troubled by Taxes

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Posted On: 03/04/2009

Q: My husband and I finally were able to buy our first home about five years ago. We work very hard to pay the mortgage. He has had the same job for 20 years, and for the past two years has also had a job at night and on weekends. I work full time and take care of kids.

We have always paid our mortgage on time - however, we can't pay our taxes. Where can we turn for help? It seems there are programs out there to help people pay their mortgage but not property taxes.

A: You make a very good point. While much attention has been focused on the mortgage meltdown, borrowers must also pay their property taxes.

You say you're paying the mortgage but not your property taxes, a situation that raises two problems. First, by not paying property taxes the local government can foreclose. Second, by not paying property taxes you're violating the terms of your mortgage, which means the lender also has a right to foreclose.

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But, by any chance did you buy with less than 20 percent down? If yes, then the odds are overwhelming that your property taxes and insurance are automatically collected and paid by your lender. Check your monthly statement for details. Also, you should get an annual statement from your lender showing the interest and taxes paid for the year. This is important information because it can be used to reduce your tax costs - and it shows that the property tax has been paid. See a tax professional for details.

Bottom Line: You're unlikely to have a problem.

However, if taxes are a problem then call the local property tax office to ask if they have any programs available to help you. Program options vary widely; in some jurisdictions you may have access to a lot of help, in others there's no assistance. Typical programs look like this when available:

Income Circuit Breaker (Cap) - Your property tax is reduced so that to not more than a given percentage of your income.

Deferral - Available to those 65 and older, such programs allow homeowners to pay little or no property taxes until the property is sold or the owners move or pass away. The unpaid taxes are then a lien against the property.

Homestead Benefit - Programs that allow owner-occupants to pay less than investors. This program usually requires that you file forms with the state or local government.

Veterans - Reductions are often available to veterans and their surviving spouses.

Q: I'm considering the purchase of a foreclosure property here in Michigan to fix up and sell ("flip") with a friend. He's 77-years-old and has a lot of construction skills. We're going to get a joint deed (Joint Tenancy With Full Rights of Survivorship). I just wondered what would happen if one of us became mentally disabled long-term. Would the other one on the deed have the right to sell the home in such a situation without the disabled party's consent? My friend is resisting this, saying it's an unnecessary expense. What do you think?

A:There are 77-year-olds who are sharp and able, and some who are not. Since you raise the issue of mental disability, what's the current "capacity" of your friend to enter into an agreement? Is there an independent doctor who has examined your friend and can testify that he's fully able to protect his interests?

Is your friend putting up cash in addition to construction skills? Why is it advantageous for your 77-year-old friend to enter into an agreement where all equity from the investment will go to you in the event of his passing? Does he not have any friends or relatives? Any charitable interests? By any chance, are you significantly younger than your friend? Will you pay your elderly friend a meaningful sum now, today, if he agrees to a survivorship clause?

The idea of fixing up and flipping houses may have made sense in a rising market, but is your local market rising -- or is it flooded with foreclosed homes that hold down area home values? What is the case in your community? In 2008, Michigan had the sixth-highest foreclosure rate nationwide according to RealtyTrac.com

Unless your friend has the advice of an attorney or legal clinic of his choosing before signing anything, a transaction such as you propose will eternally be open to challenge should he become disabled or pass away. Someone buying the property from you will want to assure that they're getting good, marketable and insurable title -- and not title with a possible cloud.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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