Between 2010 and 2020, Florida’s population grew nearly 15 percent, according to the United States Census. People flock to the Sunshine State for many reasons. One of them is taxes. Florida’s lack of a state income tax and reputation for relatively low property taxes is especially attractive for people looking to buy a home in the state.
Unfortunately, many of these new Florida home buyers get a rude awakening when one day they learn their mortgage payment has shot up due to property taxes. In many cases, the property tax bill is far higher than what the buyer was told when they closed on their home. Indeed, these homeowners are often the victim of a sort of “bait and switch” that exists due to a unique quirk in Florida’s property tax laws.
Florida’s Constitutional “Cap” Protects Existing Homeowners at the Expense of New Buyers
If you currently have a mortgage, you probably know that part of your payment each month goes into an escrow account. Your lender then uses this escrow account to pay your home’s insurance and property tax bills on your behalf. Your property tax bill, in turn, is based on the assessed value of your property. Only that assessment is not necessarily based on the actual market value at the time.
Back in the 1990s, Florida voters approved an amendment to the state Constitution that limits the annual valuation increases on homestead properties. A homestead is a taxpayer’s primary permanent residence, as opposed to a second home or a rental property. The constitutional amendment limits any increase in the assessed value of a homestead property to 3 percent or the percentage change in the U.S. Department of Labor’s Consumer Price Index, whichever is lower. In practice, this usually means the assessed value of a homestead will not increase more than 3 percent each year.
This is great for homeowners who buy a primary residence and hold on to it for a long time. Over time, the constitutional 3-percent cap keeps their property tax bills artificially low. And when the property is sold, the buyer continues to enjoy the lower valuation for at least their first year of ownership. However, once the county reassessed the property under the new owner, the old cap no longer applies. The property taxes are recalculated based on what they would have been all along had the 3-percent cap not been in effect. Thus, many new home buyers are shocked to find that the taxes on their homes are about to double or triple–or in some cases increase by an even higher factor.
A similar problem affects buyers who purchase newly constructed homes, i.e., homes purchased directly from the original builder. While these homes had no previous owner protected by the 3-percent homestead exemption cap, the issue here is that before the completion of home construction, the property was classified as “unimproved” by the county tax assessor. As you can probably guess, an unimproved property is valued at a far lower value for tax purposes than an improved property with a brand-new home.
In other words, when someone takes out a mortgage to buy a new construction home, the lender often estimates the property tax–and thus the monthly escrow payment–based on the assessment of the unimproved land. Then after the first year after the home’s completion, the county reassessed the property at a substantially higher improved value. Once again, the new homeowner gets hit over the head with a sudden increase in property taxes.
How Can The Increase in Property Taxes Be A Snowball
Suddenly facing a property tax bill that is 2 or 3 times higher than was expected at closing often creates a snowball effect when it comes to a homeowner’s mortgage obligations. The mortgage lender is supposed to estimate a borrower’s escrow payments each year. If the lender relies on the lower assessment made for the previous owner or builder, however, that means the borrower is making estimated tax payments each month based on an artificially low value. So when the new tax bill comes in at the higher assessment, there is not enough in the escrow portion of the mortgage payment to actually pay the full amount of the tax bill.
In most cases, the company servicing the mortgage will go ahead and pay the higher property tax bill. But this causes the borrower’s mortgage escrow account to go into the red. This is known as an escrow shortage. The servicer has to jack up the borrower’s monthly mortgage payments to cover the escrow shortage. In addition, the borrower usually has to set aside additional funds to cover another potential large property tax bill increase the following year.
Do Mortgage Lenders Have a Legal Obligation to Warn You About Your Property Taxes in Florida?
You might be wondering why mortgage lenders do not warn lenders about this potential tax trap. The reality is that Realtors and mortgage lenders often hide or obscure this information because they do not want to discourage a potential buyer from purchasing the home. After all, they make their money by selling houses and making mortgage loans. The last thing they want to do is scare off a potential customer.
Indeed, this problem is so well known that there were at least two bills introduced during the 2024 session of the Florida legislature targeting these kinds of “surprise” tax bills. One bill introduced in the Florida Senate proposed requiring online real estate platforms to include a “property tax estimator” showing how much a new owner’s property tax bill would increase once the previous owner’s 3-percent homestead cap no longer applied. As of this writing, this bill and a similar one introduced in the Florida House failed to make it out of committee. But it demonstrates how this problem has started to gain public attention.
Contact Our Florida Foreclosure Defense Lawyers Today
A surprise increase in your property tax bill is more than an inconvenience. This situation has forced thousands of Florida homeowners into foreclosure as the additional escrow payments have made their mortgage payments unaffordable. If this has happened to you, call the Florida foreclosure defense lawyers at Loan Lawyers now for your free consultation. We may be able to help you on a contingency fee basis, which means no legal 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.
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