I am hoping you can clear up some “Property Tax Bills” I received recently. I assumed all my taxes were calculated in to my Closing Documents. The city of Long Beach seems to be looking for another $4058.95 PLUS $121.84 every quarter. Is this accurate? What do I need to do here as I don’t want to be any later than I already am, but at the same time, I don’t want to pay for something I am already paying for in my PMI payments.
Can you help clarify for me? I would greatly appreciate it. I enclosed copies of the letters. Or let me know if I need to make an appointment as I know you are busy and your time is valuable. Thank you!
Thanks for your question B! I hope you are enjoying your new home. I have good news, in your case, the money to pay the tax bill is indeed collected at closing AND you have an amount every month being collected to take care of this.
First, let me explain the reason why you got these supplemental bills by starting with how taxes are figured here in LA county. This bill and supplemental bills come from the county not the City. The city gets their portion from the total being sent to the county.
The tax year: Los Angeles County’s tax year goes from July 1stthrough June 30thof the following year. The deadline for assessment changes is March 31st.
The tax bill is sent to property owners sometime in October and is due in two half year payments, though you can pay the whole bill if you choose.
The “first half” as it’s called is due November 1stand overdue by December 10th, with a 10% penalty for being late. The “second half” is due February 1stbut overdue with a late penalty on April 10th.
In Los Angeles County property is reassessed upon transfer of ownership of a property (unless you file for an allowed exception for which there is a list – for example no reassessment between parent and child).
The purchase of your home triggered a reassessment from their property’s assessed value to yours. Your assessed value for property tax calculation was based on the sales price. If you bought the property after March 31stthe seller’s assessed value was of record and that is what the tax bill amount will be when the bill is generated. To make up the shortfall, the County Assessor’s office will send a supplemental bill for the difference between the new value (your purchase price) and the old assessed value.
Both the first half and the second half tax bills will have a supplemental bill, and that is why it appears that this bill is quarterly but it is not.
Mike buys a house for $1,000,000 in 2018. He bought it from Mary and Joe who had bought it in 1999 for $240,000. Through the years Mary and Joe’s tax bill went up gradually but not every year (no increase in 2009, 10, 11 or 12). Their tax bill in the beginning was $3,000 per year ($240,000 x 1.25%). When they sold the home to Mike the yearly tax bill showed a total $4,370.43.
Mike’s tax bill should be $1,000,000 x 1.25% = $12,500 or $4,6250 for each half (November 1 and February 1).
This means the county will send him the seller’s billing amount of $4,370.43 and two supplemental bills to cover the $8,129.57 difference between what the seller WAS paying and what he WILL be paying. The following year he will get just the one tax bill plus any increase.
Please note that real property taxation works differently across the country so please check with your local government agency on how yours works. In some areas you get multiple bills from the different entities such as the school district, the water district and the county.
The opposite is true as well. If you bought your new property for less than the prior owners’ assessed value was (for example in a market downturn), then you must pay their higher tax bill. When the county assessor reassesses the property value DOWN from the seller’s assessed value to your new lower assessed value (purchase price), then they will refund the difference between what the seller was obligated to pay and what you now will be paying.
Mike sells his house in 2025 for $700,000 (remember he purchased it for $1,000,000). The new buyer will pay his tax amount of now $13,801 (no supplement since it’s over the amount that will be due) until they get their adjusted tax bill down to $8,750 and a refund for the difference of $5,051. This would be a nasty surprise if you hadn’t been warned. Please note that Mike’s tax bill might not have gone up if property values were dropping. The county sometimes freezes the tax bills in declining markets.
What if I have impounds or an escrow account?
An impound or escrow account is where the property tax bill and/or insurance and PMI (if you owe PMI because you had less than 20% down or did FHA loan and are paying it as a separate payment * see our article on the 4 ways to pay PMI) are all included in the monthly payment to the lender.
You pay 1/12 of the tax bill, insurance, and PMI and the lender sets that money aside in an account to pay all these bills when they come due. The lender will pay the tax bill the insurance renewal and the PMI to the Private Mortgage Insurance Company (there are at this time 8 companies to choose from).
The first year of this can be tricky since the lender will impound based on their calculation of the tax bill, or the actual tax bill causing the amount to change when the property is reassessed. Here in the LA County the calculation is 1.25% of the purchase price and divide by 12 months for the monthly amount needed. The bill may come in lower and they adjust down to that lower amount. However, because of rising home values and variances in local extra assessments the amount can be higher.
Please note that impounds are mandatory no matter how much down payment on VA, FHA LOANS AND CONVENTIONAL LOANS WITH LESS THAN 10% DOWN.
Escrow Analysis: When will they discover the overage or the shortage in funds?
All lenders do a yearly escrow analysis to assess whether they have enough money to pay all bills due. They need the amount due plus a maximum 2 months’ of the amount being collected in reserves. If they go over that 2 months’ reserves they must refund the money to the borrower. In the escrow analysis they show you a month by month accounting of how much was collected from you, what was paid out and determine if there are enough funds or too much.
For some tax districts the tax can go up erratically: one year 6%, one year 10%, one year 2%, etc. Therefore, it’s important to make sure you know your taxing entities’ time frames and reassessment schedule.
Control by the people:Here in CA there was a law passed by the people by ballot measure to limit how much the tax bill can go up per year. This law is called Prop 13 and limits increases to 2% of the prior year’s amount. Lenders and borrowers are able to adjust accordingly, than say in Broward County Florida where it varies every year and can be up to 10%.
What to do if you get this extra tax bill called a supplemental bill? If you get a supplemental bill, send it to the lender that you make the mortgage payment to, and ask if they pay supplemental tax bills. If they don’t then they most likely have too much in the escrow or impound account and will refund it, if they do pay then there is not problem since you gave them the bill. Never delay calling and finding this out as being late on a property tax bill can cost you dearly in late fees.
When calling your lender or bank that you make the payment to, you will want to ask for the servicing department which is the division that accepts, processes and reports all borrowers’ loans. Sometimes they are a third party servicer meaning they do not own the loan and don’t get the interest income but get a fee to process payments for the entity (bank, mortgage company, investor, etc.) who owns the loan.
In your case B, the amount is small and wouldn’t cause much harm but in the case I illustrated above the late fee could be in the $100s.
After you have cycled through another tax year (remember March 31streassessment close date) you will only have a “consolidated tax bill” and that is what will be sent to you. The supplemental tax bill is only in play the first property tax year you own the property, whether it’s an investment property or your own home.
Please note that all this is for REAL (i.e. a condo) property not PERSONAL (i.e. a boat) property taxation.
TIP: If the seller has a higher tax bill amount than you expect to, we suggest a NO escrow account or impound account as it will take not one, but two escrow analyses before you receive a refund. For example, you buy a property in June of 2017 for $500,000 (tax due $6,250) from someone who previously paid $800,000 (tax due $10,000 a $3,750 difference), the property is reassessed March 2018. The lender produced an escrow analysis January 2018 (before the county reassessment) and then not another until January 2019. So they collected $3,750 x 2 = $7,500 before having proof that they have too much in reserve and refund it to you, usually 30 days later March 1st2019. Almost two years after the purchase.
I hope this helps in understanding the idea of the supplemental tax bill applies here in Los Angeles California.
To view the exceptions to real property being reassessed in Los Angeles County, go to….