Texas seniors being denied tax deferrals

One of the Lone Star State's interesting tax laws allows senior citizens to defer their residential property tax payments.

This is not the homestead exemption for older homeowners. It is additional tax relief, a postponement of all property tax payments until the age-65-or-older owner sells the residence, moves out of it or dies.

When one of those events occurs, the real estate taxes are due, with interest, after 180 days. If the former owner has passed away, the estate usually pays the tax bill, or the new owner comes up with the money.

Delaying higher tax bills: This law, Texas Property Tax Code Sec. 33.06, has been in effect since 1979. It was created to help retirees who were living on fixed incomes and having difficulty paying ever-increasing property tax bills.

Now instead of worrying that they'll lose their houses to the tax collector, eligible older homeowners can file for a deferral affidavit.

This usually works out quite nicely for the elderly homeowner, unless he or she has a mortgage. In that case, some lenders are refusing to allow the owner to put off paying taxes and forcing them to pay them as part of their monthly payments. (Texas allows homeowners in some cases to pay their taxes directly instead of having them included as part of the mortgage.)

These lenders say that loan contracts allow them to deny deferrals to protect their right to homes in case borrowers default, according to a recent story in the Houston Chronicle.

In a statement provided the paper, a spokesperson for Wells Fargo (issuer of a loan cited in the story) said, "Many mortgage companies — including Wells Fargo — are moving to requiring that homeowners make monthly escrow payments to cover property tax and insurance obligations. Some private investors require that these payments are made, and the government definitely requires them in modification programs like the Administration's Home Affordable Modification Program."

Basically, lenders want the tax bills paid to protect their first lien rights and equity in the home, Larry Temple, general counsel for the Texas Mortgage Bankers Association, told the Chronicle.

While Wells Fargo's position is understandable, its tax payment demand could cause just the problem it says it's seeking to avoid.

The bank sent the homeowner's tax payments on her behalf and then hiked her monthly mortgage payment amount to cover the costs. In this case, the additional $850 means that the elderly owner now can't pay her mortgage.

Seeking senior tax relief: If you're an older Texan and think you could benefit from the property tax deferral program, make sure you check with your lender if you still have a mortgage. If it's OK with your lender or you own your home outright, then file the deferral form.

But remember, this only postpones your tax liability. It doesn’t cancel it. And interest on the deferred taxes will accrue.

When you or your surviving spouse no longer own your home or move out, all taxes and interest will come due 181 days later. Make sure your financial adviser, estate planner and family know this so there's no nasty surprise awaiting them at an already difficult time.

And all you older residents of the other 49 states and D.C., check with you local tax office. Virtually all jurisdictions have at least one real property tax relief program for seniors and disabled residents.

They can take a number of different forms. Some states cap the size of tax increases for older homeowners. Others provide added homestead exemption amounts for part of the home's value. And some offer tax credits based on age and income.

Related posts:

• Taxes and the older filer
• Will you outlive your nest egg?
• Year-end money moves: Retirement