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Understanding Tax Certificates: Insights for the Homeowner

Tax obligations, exemptions, and liabilities.

Feb 8, 2024

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The taxing system can be complicated and differ depending on which State and jurisdiction you are in. This is the same for property taxes. Revealing critical tax information, a Tax Certificate is an important document for an investor or homebuyer and not be to confused with a Tax Lien Certificate.  
 
To enhance your understanding of tax certificates, here are some relevant terms and insights to consider. 


What is a tax certificate?

A tax certificate is a detailed report that outlines the various taxing authorities for a specific property. This comprehensive report includes information on the assessed property value, any taxes imposed on the property, any tax liens placed on the property, and any applicable exemptions. 

 

Understanding the Difference Between Abatements and Exemptions  
You may have heard of the terms "abatement" and "exemption" in relation to real estate taxes. Essentially, a tax abatement is a reduction in the assessed value of your property, which results in a lower tax bill. A tax exemption, on the other hand, is a credit applied to your taxes if you qualify for one or more of the available personal exemptions. 

Each state has its own set of regulations and requirements for eligibility. That's why visiting your local tax assessor's website or office is crucial. You may be pleasantly surprised by the amount of savings you could uncover.


Why does a homebuyer need a tax certificate?

Ordering a tax certificate is an essential step when it comes to real estate closings. Here are the top reasons why you should consider ordering one: 

  1. Determine the taxes you need to pay for the property. 

  2. Verify the taxing districts that the property falls under. 

  3. Identify any municipal utility providers that are paid through property taxes.

  4. Discover any outstanding debt owed to a municipality that may not be recorded as a lien yet. 

  5. Uncover any potential tax liens on the property, which could impact your ownership. 

New property owners should obtain information from relevant authorities about prospective property taxes or outstanding dues, especially if the seller is responsible for paying the taxes at or before closing. Property taxes in some regions may reflect applied exemptions. 


Do I need a tax certificate?

A Tax Certificate Search can be conducted in any state within the US. While this search provides valuable information in any state, there are some states where it is particularly beneficial. 

To determine if you need a tax certificate search, ask yourself the following questions: 

  1. Does my state, county, and/or local municipality bill utilities through my property taxes? 

  2. Does my state enforce code violations through tax liens? 

If you answered "yes" to either of these questions, a tax certificate search will provide you with critical information about any municipal debt that may affect your property purchase. This information is not always available in public records and is crucial for homebuyers, investors, and real estate professionals. 

However, if you live and work in a state where the answer is "no" to the above questions, you should have a municipal lien search performed instead. 


Do I require a tax certificate? 

While cash deals and title insurance exemptions do not require tax certifications, the buyer assumes potential liability if any tax debt tied to the property is discovered after closing. Even with title insurance, a tax lien due to municipal debt that arises after closing may not be covered if listed in the policy exceptions. 

To safeguard property interests, buyers must seek the assistance of a real estate lawyer in their area and ensure that all necessary items are thoroughly researched before closing. It's essential to review the closing contract and disclosure to identify any items that may be unclear and seek clarification from the real estate lawyer, agent, or title agent. 


Connexions integration with PropLogix:

This integration bridges the latest technology and quality processes which helps our clients make informed decisions, mitigate risks, and ensure smooth transactions by simplifying the complex process of verifying property taxes.  

Streamlined tax certificate ordering eliminates manual ordering, saving time while reducing the risk of errors and compliance issues. Greater confidence in due diligence and underwriting processes as a result of high accuracy and quality standards, backed by the expertise in Lean Six Sigma methodologies at PropLogix.  

 

Investing in a property is an excellent way to create long-term wealth, but without conducting the appropriate due diligence before closing, that investment can quickly become a financial burden. Lenders, appraisal management companies, and homebuyers all benefit from accurate property tax information and education. Leveraging Connexions’ integration with PropLogix’s tools and knowledge into their processes, mortgage and appraisal professionals can navigate the complexities of property taxes with confidence, facilitating successful real estate transactions. 

 

This article is for informational purposes only and is not financial or legal advice nor a substitute for legal counsel. 

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