Skip To Content

Randy can answer your reverse mortgage loan questions.

Improving Lives and Fulfilling Dreams

Property Tax Deferral Programs

Property Tax Deferral Programs: What Are They and How Can They Impact a Reverse Mortgage? January 12, 2007

Although growth in property values may be slowing in some parts of the country, the issue of property taxes is still of major concern for elderly homeowners living on fixed incomes.

Levied by counties and municipalities (and by a few states), property taxes are the single biggest revenue generator for local governments. Other taxes, such as income and sales, go directly to federal and state governments.

Local governments are faced with the challenge of collecting property taxes to finance public services and programs, without overburdening lower-income households. Even so, states, like New Jersey, are becoming so expensive to own a home that seniors are forced to sell and rent, or find housing in less expensive areas of the country.

"Seniors are literally being taxed out of their homes in some parts of the country," said Sam Batkins, a spokesperson for the National Taxpayers Union, based in Alexandria, Va.

In response, states have enacted tax credit and rebate programs to help provide relief. Another 24 states and the District of Columbia have created property tax deferral programs that allow homeowners to postpone payment of a portion, or all, property taxes until they die or the home is sold, according to AARP.

States offering tax deferrals include Arizona, California, Colorado, Florida, Georgia, Illinois, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming.

How Does a Tax Deferral Program Work? Depending on the state, tax deferral programs are limited by age (generally 62 or older) and income. Generally, the state or county places a lien on the property, so that when the home is eventually sold, any back taxes owed to the government are taken from the sales proceeds.

If a homeowner applies for a reverse mortgage AFTER entering into a tax deferral program, then the existing tax lien must be paid off. If the borrower is unable to pay off the tax lien, then the individual cannot get a reverse mortgage.

In most cases, the county or state wants to be in a first lien position, which the Department of Housing and Urban Development does not allow under the FHA Home Equity Conversion Mortgage program. The same is true for the Fannie Mae Home Keeper and Financial Freedom Cash Account programs.

Only Oregon and Massachusetts will subordinate a tax deferral lien to a reverse mortgage, according to Steve Irwin, First Vice President, Servicing Operation and Forward Planning, at Financial Freedom, San Francisco, Calif. If a reverse mortgage borrower lives in Oregon and Massachusetts, the individual can still defer his or her property taxes. Otherwise, eligibility is lost.

Paying Property Taxes Which leads into a very important closing point. A reverse mortgage borrower must be able to pay his or her property taxes, otherwise the loan can be called due and payable under FHA rules. While it’s the primary responsibility of a HUD-approved counselor to explain these rules, NRMLA urges our members to reinforce the message when explaining the program to clients.

Reprinted with Permission from the National Reverse Mortgage Lenders Association.

Return To Top