Greetings TexAgs -

I recently bought my first home and ran into a tax issue. I am not sure of the next step but would greatly appreciate any insight/advice.

Background:

Bought the house in October which meant the seller owned the house for about 80% of the year. There was an adjustment made at closing on the estimated property tax amount in which the seller credited back around $4,160 to represent his portion of the tax bill.

Using rounded amounts for ease, the tax adjustment calculation was:

$5,200 estimated tax amount * 80% = $4,160 adjustment at closing.

That $5,200 was based on the 2018 property tax amount which included a homestead exemption and over 65 exemption for the seller. It was my understanding that these both would transfer over in the transaction.

The situation:

At some point recently the tax office (this is per the tax office) realized that the seller had a homestead exemption elsewhere in addition to on the home he sold us. The tax office was not clear on if this discovery was due to their own reconciliation or due to the seller moving over the over 65 exemption himself. Nonetheless, both exemptions were taken away from my home for the 2019 property tax calculation which has left us with a bill of around $11,200. This is of course a major increase over the ~$5,200 we were expecting. It also means the seller only covered about 37% of the bill in the closing adjustment.

What I need help with are what the next steps are. I am sure that I am not the first one this has happened to but I have had trouble finding solid info online about this. The tax office and my real estate agent suggested I talk to the title company which I did. They provided me with the below language from our closing contract that we both signed:

Quote:

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8) PROPERTY TAX PRORATIONS. Property taxes for the current year have been prorated between BUYER and SELLER, who each acknowledge understanding that these prorations are based either on tax amounts for the preceding year or on estimates of the appraised value and/or estimated tax rated for the current year. SELLER agrees that any default in prior payment of property taxes, either current or delinquent, will on demand be promptly reimbursed by SELLER to TITLE COMPANY. BUYER and SELLER each agree that, when amounts of the current year's taxes become known and payable (on or about October 1st), they will adjust any matters of re-proration and reimbursement between themselves and that TITLE COMPANY shall have no further liability or obligation with respect to these prorations.

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This language seems to say that not only should I work it out with the seller, but that it is expected that I do when there is a difference.

Next steps:

So with that, should I start by sending a letter myself or should I get a lawyer involved to start with due to the relatively large difference. Note that the seller is actually a lawyer (I am not).

Further, I am unsure which I should be seeking:

• 80% of the new amount with the amount already adjusted netted amount. IE: 80% * 11,2000 - 4,160 = $4,800 OR
• 100% of the new amount: 11,200 - 5,200 = $6,000

My thinking on the second one is that the home was sold with the exemptions in place and that's what we were expecting to get. Receiving the full amount of the difference would make me whole again.

My biggest fear in all this is that my communication attempts are ignored and but I guess that is when going to small claims court becomes necessary.

This is in Harris County for reference. Also note, I am NOT over 65 and this is now my homestead so I will be applying for 2020 homestead exemption shortly.

One final thing on actually paying the taxes - the HCAD website has changed the home ownership to my name as of a few weeks ago, but the Harris County tax website (where the bill is actually paid) still reflects the previous owner. They have assured me that this does not matter and that I should pay anyways, but, I feel weird about making a payment this big under someone else's name essentially. Mainly feel odd due to the 2020 tax deduction that I obviously want to claim. Any advice on this as a separate issue?

Replies or PM's are greatly appreciated.

Long complicated issue. First you are not entitled to any exemption you listed in 2019 and can claim homestead now for this year. You can file homestead 1-1-2020 so do that now. You should have known the age homestead would disappear on the day of sale.

It unclear if the new tax amount is for 19 or 20? Usually the increase is for 20. So at least you have 12 months to adjust. Age homestead can be a huge deduction on taxes especially if it has been in place for a long time. It freezes most of the taxes to the year approved.

Is the new value greater then contract price? If so you can at least protest down to what you paid. Then once homestead is filed they cannot raise the tax more the 10% per year. That limit does not apply your first year though since technically you have no exemptions.

Going after the seller is probably pointless but at least speak with an attorney to see if I'm wrong. Hope I am.

SteveBott said:

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Long complicated issue. First you are not entitled to any exemption you listed in 2019 and can claim homestead now for this year. You can file homestead 1-1-2020 so do that now. You should have known the age homestead would disappear on the day of sale.

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Have application ready to send off. That's actually how this came up as previously (like in late December) the tax website was showing the lesser amount still. While working on homestead application for 2020, I noticed the tax amount had changed to the new number.

As far as the age exemption disappearing, the bellow is from HCAD.

If you buy or sell a home that has an existing over-65 or disability exemption, the rules are different. Whether the over-65 or disability exemption stays in place depends on whether the person who qualified for that exemption transfers it to a different homestead during the same year.

• If the over-65 or disabled person does not establish a homestead exemption on a different homestead, the exemption stays in place for the entire year.
• If the over-65 or disabled person does establish a homestead exemption on a different homestead, then when the tax assessor calculates taxes on the sold home for the year, the assessor will prorate the taxes to reflect the over-65 exemption or disability for only the portion of the year that the over-65 or disabled person owned it. In short, if the seller is over-65 or disabled and establishes an exemption on a different home, taxes for the year will be higher than they would if the seller does not establish another homestead exemption.

The second bullet seems to indicate that at the very least the over 65 exemption should be pro rated by the tax assessor

Quote:

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It unclear if the new tax amount is for 19 or 20? Usually the increase is for 20. So at least you have 12 months to adjust. Age homestead can be a huge deduction on taxes especially if it has been in place for a long time. It freezes most of the taxes to the year approved.

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The "new" tax amount is the 2019 tax bill that is due 1/31/2020. It is my understanding that we will not know the 2020 amount until late in 2020.

Quote:

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Is the new value greater then contract price? If so you can at least protest down to what you paid. Then once homestead is filed they cannot raise the tax more the 10% per year. That limit does not apply your first year though since technically you have no exemptions.

Going after the seller is probably pointless but at least speak with an attorney to see if I'm wrong. Hope I am.

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The assessed value is less than what we paid.

Appreciate your response

Well that's why I asked if the 11k tax was for 19 or 20. If 19 you should definitely look for recourse. It seems the tax office is removing the age homestead for all of 19.

You need a lawyer

Contact the seller per the contract and see what they say. Him being a lawyer should make him want to do what's right.

It didn't work out for me and I'm taking the sellers to small claims court. Court date is in 3 weeks.

https://texags.com/forums/59/topics/3050893/replies/54719373

Whoa mr train. Which RE professionals are responsible for this problem? This issue does not come under anyone's professional responsibility. Are we responsible for the seller either mistakenly, or fraudulently, applying for an age exemption or keeping it on the home past when they should? Or we responsible for the county changing the tax basis after the buyer sells? And sounds like applying retroactive to the entire year?

The correct answer is NO.

I always try to warn my clients of future tax changes including for them to find out if an age or disability exemption is on the house they are buying but its not my duty just a courtesy.

Again how are to do this? All this came after the closing. How are we supposed to know of future actions of parties we are not involved with? Now if dont tell you there is a pre-payment penalty that is on me. Its known information.

I will chime in that a good escrow agent would have anticipated this and brought it up as they are likely going to be the one dealing with sorting it out. I know my "go to" here in Dallas caught a very similar situation. for one of my clients.

For the record the lender's underwriter, escrow department, and the the title company all sign off on prorations......

What prorations do you mean? All parties take existing taxes and use that number for the transaction. It is the only known data

I would think the agent would have been on top of this. I would assume the MLS listing showed the over 65 exemption which he knew wouldn't have carried over.

In calculating the debt to income ratio the lender should have used the higher amount after having seen the tax certificate and knowing the borrower would not be entitled to the over 65 exemption. I would be very surprised if this wasn't an issue while getting clear to close.

Title company absolutely should have been on top of it.

Maybe everyone did know it but no one acted on it. I just pointed out who should have picked up on the issue at each point in the transaction. I was not rendering a legal opinion on the actions of the seller.

There was likely no way to anticipate this situation for anybody but the seller.

I had a similar issue come up when I bought a condo a while back. Fortunately (I guess) the correction made by the appraisal district not only involved the year in which I bought it, but also their tax liability in each of the preceding 4 years also (a correction can be made going back 5 years generally speaking) so basically the Title Company did end up having to handle getting it paid by the seller.

Just to be clear title orders a document called the tax transcript and that is pulled directly from the appraisal district database. Everyone involved uses those numbers since they were certified by the county.

So the database was not updated with new tax amount until after that doc was pulled,

I would disagree. The Realtors, if any, lender and title company knew about the over 65 exemption which he was not entitled to and it's my opinion someone should have pointed out this might create a problem. The homestead is a different issue.

jja79 said:

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I would disagree. The Realtors, if any, lender and title company knew about the over 65 exemption which he was not entitled to and it's my opinion someone should have pointed out this might create a problem. The homestead is a different issue.

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How would they know he was not entitled? (And also who is the "he" you refer to?)

The issue is the county retroactively removed the age exemption in all of 19, if I read this correctly, so you're wrong. Of course title could have warned he would lose it in 2020 and to be prepared.

The person who owns the home on January 1 of the year owes the tax and all exemptions are qualified for on that date. When you buy a house you assume paying this tax for the seller as part of the contract, and you still get the benefit of their qualified exemptions.

If the seller doesn't tell someone he already bought another house prior to January 1 and applied for a new homestead (which doesnt necessarily happen until April and can even be applied for late) then how would they know that he did that?

Realtor and title company should still help correct the situation. I would expect mine to. If you guys wouldnt, remind me not to use you. .

How can we correct it?

What legal standing do they have? Hint: none

This is now post closing and strictly between seller, buyer and their attorneys.

JBLHAG03 said:

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Im sure my agent would contact the sellers agent and title company about collecting the additional money, so i would not have to go to the seller directly, even if it was months later and he had already been paid. I didnt mean "correct," just not leave high and dry cause had already been paid and deal was done.

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Title company won't do anything. It's in the contract that they won't do anything.

The agents may reach out to the seller as a courtesy, but if there is any conflict, they'll bail. They don't (and shouldn't) want to get involved in a lawsuit between the buyer and seller.

jja79 said:

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I would disagree. The Realtors, if any, lender and title company knew about the over 65 exemption which he was not entitled to and it's my opinion someone should have pointed out this might create a problem. The homestead is a different issue.

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How could the realtors, lender, or title company know the sellers were not entitled to the over 65 exemption?

Thanks for all the responses. They have been very helpful.

I've done a bit of research on the specific situation and the general timeline is:

Seller applied for homestead and over 65 at his new property in April, 2019 with residency date listed of 1/1/19

As a result of an HCAD audit realizing there was more than one property with the exemptions, they removed it from my new house in August, 2019 and notified the seller at this time (in letter sent to the property we bought - but he still owned at this point and seems like he should have known it was coming).

We closed in mid-October.

The tax office indicated that the title company should have called in to verify exemptions. Is this accurate? They said that had they called in when we closed, they would have been able to tell them exemptions were removed.

The tax certifications that were presented in our closing documents are dated as of the beginning of September, 2019. Not sure if this is their verification. On the tax cert it says "2019 Exemptions: HMS" which I assume means Homestead. It also has bolded red text that says "Removal of any exemption could result in additional taxes being due."

As far as the title company not having further responsibility regarding tax issues - yep, that's specifically written into the contract. If they did not verify the exemptions though and they should have, seems like a pretty big oversight.

I'm still left with deciding between seeking:

• 80% of the new amount with the amount already adjusted netted amount. IE: 80% * 11,2000 - 4,160 = $4,800 OR
• 100% of the new amount: 11,200 - 5,200 = $6,000

But it seems like the seller definitely is liable for part of this. Whether he should have known/should have told Title I have no idea.

Dr. Venkman said:

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Contact the seller per the contract and see what they say. Him being a lawyer should make him want to do what's right.

It didn't work out for me and I'm taking the sellers to small claims court. Court date is in 3 weeks.

https://texags.com/forums/59/topics/3050893/replies/54719373

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Thanks for this link. Did you use a lawyer to help you prepare for small claims court or in attempting to resolve prior?

The buyer wasn't entitled to it was what I was referring to.

A buyer who purchases a property after January 1 has no effect on what tax (in terms of qualifying for exemptions, appraisal limitations, tax ceilings, etc) is owed for the property for that year. The lein date is January 1, and the situation on that day is the only thing that matters. Only the seller could really know that they were receiving an exemption that they didn't qualify for (because they were the ones that bought another property and filed a new application), and everyone else (including the CAD) was likely just stumbling along and piecing together the info as they were able to.

Agree with BOM about the tax office blowing smoke up your skirt. Title pulls the cert and almost all the time that is accurate. Title will recheck taxes around end of October and early November to confirm taxes for the current year have been finalized and published. But that is just a few week window each year.

Ag13 said:

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Dr. Venkman said:

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Contact the seller per the contract and see what they say. Him being a lawyer should make him want to do what's right.

It didn't work out for me and I'm taking the sellers to small claims court. Court date is in 3 weeks.

https://texags.com/forums/59/topics/3050893/replies/54719373

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Thanks for this link. Did you use a lawyer to help you prepare for small claims court or in attempting to resolve prior?

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No. I contacted the seller about the issue and they stopped responding. I went to the JP for the district they reside and filled suit. There was a form I filled out. Basically their address, what the lawsuit was for, the amount, and $100 fee to serve them.