J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization

In Texas, a person over 65 can "defer" or put off paying their property taxes. No, you're not totally "exempt" from paying them. You do get an "over-65 exemption" which reduces the taxes that you owe. And if your house is paid for, you can defer paying the property taxes as long as you are kickin' and continue to live in the house.

But if you move, sell the house or pass away, the property taxes come due. And they earn interest at 8% all the time that they are deferred. So if you are planning on leaving the house to someone "free and clear," that is not going to happen, there will be a big tax bill. And if you live "too long," say 20 years or so, guess what, the house may just have to be sold to pay the taxes. There won't be anything left.

An article in the Houston Chronicle this last Sunday entitled "Deferral of Taxes being denied" reminded me of a problem that some of my clients have. They are over 65, but they still have a mortgage on their home, and they are trying to defer paying their property taxes. I'm sympathetic with the folks in the article. And I understand the problem; but if I was the mortgage company, I wouldn't let people defer their taxes either.

Why not? Because the tax authorities have "first dibs" on the house. In other words, those unpaid taxes can sell the house first, mortgage company or no. And like I said, after 20 years or so, there is nothing left of the house equity anyway; it's used up. If the homeowner passes, or just moves away, the mortgage company is out of luck (unless you happen to have a very wealthy homeowner, who could be sued and the mortgage money recovered).

Some people want it disclosed in the closing documents, that you cannot defer taxes if you buy the house and have a mortgage. I think that is fair, but there are already clauses that say that you can't impair the collateral, not pay taxes, etc. But making it more explicit, I don't have a problem with that.

Best answer: don't have any debt when you retire. That's what people used to do, pay off the mortgage before they would retire. And it is still the best way to go. What if you are "covered up" in property taxes and can't pay them? If you can work out a deal with the property tax authority, fine. But once you get delinquent, they often want at least 1/3 down, followed by monthly payments. If you can't do a payment plan, and can't figure anything else, you can file a Chapter 13 bankruptcy, and pay the delinquent taxes out over 5 years.

Please don't use those tax services that buy the tax debt and then charge you 18%-20%. That is crazy expensive. At least through a Chapter 13 plan, it is 12% interest (the tax rate for delinquent taxes under state law). If you have a mortgage, they will pay the taxes and then bill you. If that happens and you cannot afford to pay the mortgage company back as quick as they want, we can then file a Chapter 13 to repay the mortgage company tax advance over 5 years. And if the mortgage company has paid the delinquent taxes, they don't accumulate 18% or even 12% interest; they are at 0% interest.

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