Friday, April 27, 2007

Article about rising taxes forcing foreclosures

This is an interesting article that discusses rising taxes forcing foreclosures. I think the majority of these issues are associated with second homes, investment properties and the like. Rising taxes on primary residences are only slightly affected as any homesteaded property is protected. However, there are instances when a buyer purchases a home which is being taxed at the former owner's rate and the following year they are no longer eligible for the protection and it can have a tremendous impact. This scenario is an example:

The Jones' have a house that they have lived in for ten years. The house is appraised for $300,000 and they sell the house to the Smith's for $400,000. Because the Jones family have been protected, they were paying taxes on $200,000. They sell in February. For the remainder of that first year, the Smith's pay on the Jones' protected value of $200,000 or $4,000 annually. Each month, they pay their mortgage principal and interest plus their tax and insurance. They have calculated their monthly payment to be:

$1000 - Principle and Interest
$ 292 - Property Taxes
$ 150 - Insurance
--------
$1442 - Total monthly payment

At the end of the year, they receive their notice that their property has increased in value to $400,000 (their purchase price). Because they no longer qualify for the tax savings under the protection that the Jones' enjoyed they now pay on the full price (minus $25,000 for homestead). Their new payment will be:

$1000 - Principle and Interest
$ 625 - Property Taxes
$ 150 - Insurance
--------
$1775 - Total Monthly Payment

The difference in property taxes is more than double. The effect on a working family can be catastrophic. If a family earns $30,000 per year before income taxes (well above our average), this represents a $4,000 per year increase in expenses. The "Save our Homes" amendment effectively pushes them out.

This article discusses those effects.

Front page news - newsjournalonline.com

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