If you're moving from Philadelphia to one of the outlying suburbs you’ll need to become familiar with the different real estate related taxes, when they’re due and who collects them.
In Philadelphia there’s not much to it. Real estate tax bills are due in January and are based on the calendar year (January 1, to December 31) and they’re collected by the Philadelphia Department of Revenue.
In the burbs it’s a little different. You can receive up to three separate tax bills for township, county and school. The township and county bills are based on a calendar year, while the school's tax bill is based upon a fiscal year, July 1 to June 30 of the following year.
In most municipalities outside of Philadelphia, tax collectors are elected within their township or borough to collect the local real estate taxes, but may also be retained by the county and school district to collect those taxes as well. Often times if a tax collector is responsible for collecting both the local (township or borough) and county taxes, they will issue one bill that breaks out the separate amounts due for each, making it easier for you and/or your lender to write only one check.
Although local taxes and county taxes are based upon a calendar year, in many instances the bills are not issued until late winter or early spring. Even though the bills are due and payable as soon as they are issued, most municipalities will offer a 2% discount off the total amount due if you pay within 30 to 45 days. If not, you pay the full amount and if you pay late you’ll be hit with a 10% penalty.
School taxes work pretty much the same way. The bills are issued in July and most school districts offer a 2% discount if the bills are paid by the end of August. The school tax bill is the larger of the tax bills that you’ll receive so if you pay that bill late, the 10% penalty can be significant.
If you’re refinancing your current mortgage around the time that one of your tax bills is due, be prepared for your new lender to require it to be paid at or before closing. Even if you have an escrow account with your current lender, if they haven’t already paid the bill your new lender will want it paid.
Don’t panic, once your existing mortgage is paid off from settlement your lender will return all of the money that has accumulated in your escrow account within thirty days of the payoff date.
If you don’t have an escrow account and pay the taxes on your own, your new lender will typically require any taxes due within sixty days of settlement be paid or escrowed at closing. This is not about your lender being difficult or unreasonable. They have guidelines that they must follow and here are three things to keep in mind.
- Paying taxes that are due within 60 days of settlement is a Fannie Mae/ Freddie Mac requirement.
- If the taxes don’t get paid for some reason, it could jeopardize the lender’s lien position.
- Taxes are technically due when the tax collector issues the bill, regardless of the discount period.
If you’re refinancing real estate around the time that a tax bill is due, understanding the system and knowing what to expect can save you a good bit of anxiety. For those people who escrow their taxes, cash flow can be an issue if you’re refinancing and your new lender is requiring that a tax bill be paid at closing because your existing lender hasn’t paid them yet. Even those who do not escrow can sometimes get a bit edgy when they’re confronted with this scenario.
If this situation will create an issue for you, plan accordingly by delaying closing for your new loan until you can confirm with your tax collector that your current lender has paid the tax bill, or until you’re prepared to provide evidence that you paid it on your own.