Florida Property Tax Increased After Buying from D.R. Horton?

Purchasing a new home is an exciting time for many Florida residents. It is even more exciting when you are in a position to purchase a newly constructed home with no prior occupants. There is, however, a potential tax trap lurking in that newly built home. Put simply, the tax bill you thought you would owe at closing is far below what you end up paying once you get the keys and move into your new construction home.

Improved vs. Unimproved Land

We often hear this complaint from homeowners who have recently purchased homes from large builders like D.R. Horton, Inc. The Texas-based Horton is a Fortune 500 company and the largest builder of new homes in the United States. So not surprisingly, many people looking for a new construction home end up buying one from Horton.

What these buyers fail to appreciate is that after a full year of owning their new construction home, they are likely to receive a property tax bill that is significantly higher than what they were told at closing or when taking out their mortgage. In many cases, we have seen clients report a 500-percent hike in their property tax bill after their first year of new home ownership.

So why does this happen? The simple answer is that property taxes are based on annual reassessments of the appraised value of both the home and the underlying land. Generally speaking, unimproved land is assessed at a lower value than improved land. Land is “unimproved” if there are no structures, such as a house. Conversely, the improved property includes one or more structures.

When a builder like D.R. Horton is in the process of constructing new homes, the property itself is often still classified as unimproved until the house is completed. Even when a builder like D.R. Horton is selling a just-completed home to a buyer, the county may still record the property as unimproved. This means that the buyer–and often their mortgage lender–sees an initial tax assessment that is far below the actual market value of the improved property.

Escrow Shortages

All of this can lead to a common problem known as an escrow shortage. When a borrower takes out a mortgage to purchase a home, they are required to make monthly payments. The mortgage payment consists of two portions. The first is the payment to service the loan itself (i.e., the principal and the interest). The second portion goes to paying various expenses related to the property, such as homeowner’s insurance. This second portion is also typically meant to cover the estimated property taxes on the home.

The mortgage lender or its servicing company usually sends out an annual “escrow analysis” informing the borrower whether or not they need to increase their payments to account for any potential escrow shortage. There are many potential reasons for an escrow shortage, such as a sudden spike in insurance premiums. But one of the most common issues for borrowers who purchase new construction homes from builders like D.R. Horton is the first-year hike in property tax bills due to the reclassification of their home from unimproved to improved property.

Consider a hypothetical couple who purchases a new construction home for $200,000. The tax rate for their county is around 3.5 percent of assessed value. This works out to an annual property tax bill of around $7,000. But when the couple applies for a mortgage, the couple’s escrow analysis still relies on the assessment of the value of the unimproved property, which was only $50,000. As a result, the lender calculates the couple’s monthly escrow payment on this lower assessment.

Of course, once the home is sold, the county reassesses the value of the now-improved property at the sales price of $200,000. The mortgage lender then recalculates the escrow. The couple is then surprised with a significant hike to their monthly mortgage payments within the first year.

Do You Have a Legal Remedy?

New home builders like D.R. Horton are generally not responsible for these significant first-year increases in property tax assessments. Once the builder has sold the house, any tax bills are the new owner’s problem. But if the buyer used a mortgage to acquire the property, they may have a cause of action against their mortgage lender for failing to warn them about a potential escrow shortage due to the unexpected hike in property taxes.

Section 501.137 of the Florida Statutes governs the use of escrow accounts in home purchases. The statute provides that when an escrow account used to pay property taxes is “deficient”–i.e., there is a shortage–the lender must notify the property owner within 15 days of the lender receiving the property tax bill from the county. The lender also must issue an annual statement of the escrow account to the homeowner at the end of each annual accounting period.

Ultimately, the homeowner is always legally responsible for paying the taxes on their property. However, it may be possible to take legal action against a mortgage lender who fails to inform the homeowner of a lack of sufficient escrow funds to pay a property tax bill that was significantly higher than the lender initially estimated. As discussed above, this issue is far more likely to arise in the first year following the purchase of a new construction home from a large national builder like D.R. Horton.

Contact Our Florida Foreclosure Defense Lawyers Today

If you have purchased a new construction home from D.R. Horton, or any other home builder, and your Florida property tax has greatly increased, contact the Florida foreclosure defense lawyers at Loan Lawyers today for your free consultation. We may be able to help you on a contingency fee basis, which means no fees or costs unless we obtain a recovery for you. Call our Fort Lauderdale foreclosure defense lawyer now at 1-888-FIGHT-13 to schedule your free consultation.