Proposal would help state keep banks from getting homeowner tax breaks
A reader wrote in the other day because she discovered that her former neighbor's house, foreclosed on several years ago, is still listed in public records as if he owns it and lives there. She wondered whether the foreclosing bank has been reaping property tax breaks all this time because the home is on the books as owner-occupied.
This is not an unusual problem. State officials say mortgage servicers are taking months, sometimes years, to take title to foreclosed property, leaving it in a sort of limbo that makes it difficult for neighbors and officials to determine who's actually responsible for the property.
But I don't think anyone knows just how many times this has happened -- or how much money local jurisdictions have lost as a result of Homestead Property Tax Credits doled out after the homeowner who qualified became a former homeowner. The state Department of Assessments and Taxation relies on title transfers to strip the credits from properties.
State Sen. Richard F. Colburn, an Eastern Shore Republican, tried last year to require deed recordation within 60 days after a foreclosure is ratified by the court, but the bill died in committee.
Now legislation before the Senate judicial proceedings committee would give the assessments agency another way to figure out which homes aren't homestead-eligible because they've been foreclosed on.
Robert E. Young, director of the assessments agency, said the department-requested SB 123 would require that foreclosing firms forward a copy of the court ratification order within 30 days so his staff can change their records -- and any tax breaks.
"If a bank forecloses on something ... and they don't transfer it until somebody ... buys it two years later, that bank has been improperly receiving a homestead credit that the former owner who was foreclosed was entitled to receive," Young said. The proposed requirement would supply "a trigger to catch those kinds of accounts."
He thinks it's a simple rule. "We're not saying you've got to file a special form or anything, just give us a copy."
If mortgage servicers handling foreclosures don't do so, they'd be on the hook to pay back any homestead credits plus interest and penalties once transfer finally occurs and the jig is up.
Young doesn't know how many banks have benefited from homestead credits they shouldn't have received. Because there's better tracking of mortgages before foreclosure than at the point of no return, it's not even clear how many homes in the state have been repossessed in recent years.
"No one really has a good handle on the number," Young said.
On a related note: A state foreclosure task force recommended a foreclosure registry to give local officials, neighbors and homeowners' associations a point of contact for every foreclosed home. More here.