| Author |
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Octofoil
| | Posted on Friday, March 23, 2001 - 7:58 pm: |     |
Jerry,
Thanks for the input. Good question about the obligation being as painful or possibly even more painful than the tax relief. It might well be the case that anyone eligible to participate in a tax phase-in program would eventually be forced to sell anyway. Even if so, the program might provide them with more time to examine and prepare their options and thus be valuable to them in that way.
Have you as yet consulted the town attorney on the "town subject to mortgage company and bank" rules? I think the odds are against that, but then I'm not a lawyer. It might be the case that a special purpose vehicle or SPV might be an appropriate and efficient means of making low-interest loans to specifically targeted and qualifed borrowers.
As to having a bank do a home equity loan secured by the property: doesn't that defeat the purpose for sure? I think one of the objectives is to be able to stretch out the obligation and/or defer the beginning of the amortization period. Otherwise, you're just replacing one obligation with another. I don't know of any bank that will defer the start of amortization for 3 - 5 years. We used to have GPM's (Graduated Payment Mortgages), but I don't think that works here either.
You're an important link in the chain. Thanks for thinking about it and responding. |
Gerardryan
| | Posted on Friday, March 23, 2001 - 10:50 pm: | |
Octo, a few points:
First, on the numbers. Let's make up a loan program that provides a "draw" to pay your "reval relief" once a year for 5 years. Further, let's assume that every time you make a draw, your monthly payment is recalculated such that, if you took no further draws, you'd pay the loan off in five years. A $6000 tax increase (like mine) is $500 per month. If I phased this in $1000 at a time, and assume 9% interest, I calculate that it's actually a nice, smooth phase in: first year is $187 a month, second is $276, third $339, fourth $397, fifth $453... you get the picture. This sort of arrangement is a lot like what I've seen on home equity lines of credit... so I don't think it's impossible, and it seems to smooth out the sudden spike of an extra $500 a month. (it doesn't net out badly at higher rates, either: if you're disciplined you could do your own reval relief with a gold card :-)
I've not consulted the attorney on this specific program but I'm sure there'd be heavy scrutiny: this is, after all, New Jersey...
Having a bank administer such a program has advantages: they already have infrastructure for closings, searches, filings, billing, collections... etc. And it would be tax deductable, I'd think.
If the town were to take this on they'd have to duplicate that infrastructure.
A relief program like this *is* a loan, and so would have to be secured by something: a lein on the property would be the right way.
This sounds more interesting the more we talk about it.... |
Octofoil
| | Posted on Friday, March 23, 2001 - 11:37 pm: | |
Ok, good so far. But what about the township side of the account? If I understand you correctly, in your example, the tax increase is phased in at $1,000 each year, meaning that the township is down $5,000 the first year, $4,000 the second year, etc. Where is the shortfall made up? If that were the only participant in the program and it were spread over approx. 6,800 other taxpayers, the impact would be pretty small. But if there were 100 other participants (just to pick a number), the numbers begin to pick up.
At what point does the increase borne by the remaining taxpayers become material and produce protests? Is it $1 or $100 or $1,000? We know what the alternatives are, but how viable are they? |
Gerardryan
| | Posted on Friday, March 23, 2001 - 11:43 pm: | |
no, no: the township's not involved on this: I pay my $6000 increase $1000 from me and $5000 from the bank. no shortfall. it's a personal choice and the burden of that choice is borne by the individual. |
Nakaille
| | Posted on Friday, March 23, 2001 - 11:48 pm: | |
Octofoil: the Senior property tax relief program is not a proposal. It is a reality and has been in place for a number of years. Go to the NJ Treasury Dept's taxation site: http://www.state.nj.us/treasury/taxation/
and you will find info and forms for downloading (you'll need Adobe Acrobat Reader but you can download that free also if you don't already have it.) The library also has info on this program and forms.
Jerry and Octo: I, for one, really appreciate the kind of brainstorming you guys are doing on the subject right now.
Bacata |
Octofoil
| | Posted on Friday, March 23, 2001 - 11:51 pm: | |
Ok, got it. You are drawing down the entire $6,000 at time zero, not drawing it down in increments as I first thought.
Gotta go pick up kids right now; will pick up thread again tomorrow! |
Gerardryan
| | Posted on Saturday, March 24, 2001 - 12:02 am: | |
no i am taking one draw a year for 5 years, decreasing amounts every year. send me an email to revalinfo07040@aol.com and i will send you the little (20 line) spreadsheet i did on this |
Octofoil
| | Posted on Saturday, March 24, 2001 - 10:36 am: | |
Bacata: Thanks for the link. I know about the long-existing programs. It isn't clear from the site info whether or not the modifications proposed to the program in Jan/Feb were passed and are included in the programs described at the link. IIRC, the modifications included (among other things) an increase in the income limit, to a level somewhat more consistent with SS means testing. Are you aware of whether or not the programs listed at the site reflect those proposed changes? Or shall I keep digging? Thanks for the input!
Jerry: Am in the office right now; will e-mail from home box later today. |
Joancrystal
| | Posted on Sunday, March 25, 2001 - 11:27 am: | |
I don't favor the kind of loan program being proposed here -- especially the parts involving (1)charging the difference to a credit card and (2)defering the tax payment to the next owner if the property owner choses to sell during the phase-in period.
The first is not a phase-in program. It is a loan, carrying a prohibitive amount of interest which could eventually result in the home owner declaring bankruptcy. I agree with Eliz: Refinancing with the bank which holds your mortgage (especially if interest rates go down sufficiently to cover the added points and related expenses associated with refinancing) or paying down the principal on your mortgage up front to reduce monthly mortgage/property tax payments to your bank is a preferable approach for those who have the savings to support this option.
The second is downright dangerous to the homeowner and to the town. Would you by a home if you learnd that you were assuming the burden of a loan taken out by the prior owner because the prior owner could not or would not pay the full real property taxes on that property?
If I owe $15,000 a year in real property taxes (post CVI rate), up from $10,000 a year (pre CVI rate) and I choose to defer payments as proposed above,(assuming a five year phase in) at the end of four years, I would owe the loan funding authority $10,000 in addition to my annual tax bill plus any agreed to interest. Now at the end of that four year period I decide to sell my house, just before this huge balloon payment is due. Remember. under the above proposal the new home owner is responsible for satisfying the debt.
Would you buy that house? If you did, you certainly would not be willing to pay fair market value for it. Would you also wonder about the condition of a house (despite what the home inspection found) whose owners couldn't even afford to pay the property taxes? What would you deduct from the offering price for that? Either the homeowner would be stuck with a house he couldn't sell and a balloon tax payment he couldn't meet or he would be forced to sell the property for far less than would be needed to finance the purchase of a replacement home.
LOSE/LOSE.
The township would lose too because realtors would begin steering customers away from Maplewood (who wants to assume that kind of tax burden?) and real property values would begin dropping in the more expensive parts of town, eventually bringing the tax rate back to pre-CVI rates but with more and more people being forced into the phase-in program ... |
Dytunck
| | Posted on Sunday, March 25, 2001 - 12:04 pm: | |
We don't need any of these ideas. Our Township Committee went to great troubles to engage the services of Senator Ron Rice. Senator Rice has crafted legislation that will allow our elected officials to phase in the changes that the revaluation caused. In the long history of New Jersey and its tax issues, there had never been a law that would allow this type of phase-in, so Senator Rice had to draft it. The Maplewood revaluation of 2000 turns out to be quite historic indeed.
Point one: If the TC went to all this trouble, then they should make sure the legislation is written as intended- i.e. phase in "changes", not "increases". Get to work to make that happen. Otherwise, don't bother, and make sure to tell the citizens of Maplewood that this is a dead issue.
Point two: If it is wordsmithed to the TC's liking, and if it is passed as written, the TC should have a stance on whether they would vote on the very bill being created and rushed through the system.
I asked the TC, "If the Rice bill were to be passed into law as written, would this body utilize the new law?"
The answers were varied. I heard:
"Well, it could change"
"It hasn't passed yet."
"We would have to run the numbers."
"The wording has already changed."
"There are two words that alter the intent of the bill."
I asked if it were to pass AS WRITTEN. That means, assume it passes. Assume it passes as you wanted it written. Then you have to run the numbers? That's bull. Here's a suggestion: RUN THE NUMBERS NOW!!! Why not run the numbers BEFORE you ask a Senator to draft a bill on an emergency basis?
And whose job is it to run the numbers? The CFO? The Finance Chair? The TC? The committeeperson with the best excel skills?
I believe from what I have seen and heard, that the whole Rice bill thing is yet another example of short-sightedness and poor execution by this Township Committee. This was a purely self-serving political move, not an act of representing the needs of the people of Maplewood. If I am wrong about this, then prove me wrong by passing and enacting the bill as written.
Dytunck |
Nohero
| | Posted on Sunday, March 25, 2001 - 2:45 pm: | |
I still think a phase-in needs to include some sort of mechanism which (a) ensures that the township's tax revenues are not excessively reduced, and (b) does not look to those due a tax decrease to make up for the fact that some are having their increase phased-in. That's why I thought that some sort of short-term borrowing by the town, secured by the obligation of the homeowners to pay back their phase-in over time, might be worthwhile to consider. As for some of the points noted above:
- As Mr. Ryan noted, state law prescribes the permissible reasons for borrowing; the phase-in law could add "funding a phase-in" as a permissible reason.
- Having the township do the financing might result in a better interest rate, than if individuals borrowed the money.
- The township already manages the recording and collecting of tax obligations, which are liens on property; the "phase-in loan" would really just be a deferred tax payment, which could be collected just as the regular taxes are.
- As for whether the obligation should pass with the house, so that a subsequent buyer might be liable for it - well, people buy houses all the time that have mortgages, back taxes, and other liens on them. Those liens are usually paid at closing, before the seller receives the balance of the purchase price. So, I don't think there would be that great an impact on selling price. |
Joancrystal
| | Posted on Sunday, March 25, 2001 - 3:32 pm: | |
Nohero:
That's not the way the proposed legislation was worded the last time someone posted the link. Any phased in increases would be offset by phased in decreases. That is what has people like Bacata so upset.
Let's say that my taxes are going up by $5,000 and your taxes and your neighbor's taxes are each going down by $2,500. Under the Rice proposal as presently worded, I migh have to pay only $1,000 of the propose increase in the 1st year of phase in but that would mean that you and your neighbor would only see a $500 reduction each. The remaining $4,000 would go to offset my taxes.
This plan would help people facing large sudden increases to phase their tax obligations in over time and might reduce the number of people moving from Maplewood for financial reasons but it would be at the expense of those otherwise due tax relief.
Both groups feel they have better things to do with that money than pay real property taxes (Sorry TC members but that is obviously how they feel.)
Therefore, a reduction in what the Township collects is not at issue. The source of the "additional" funding is very clear from the proposal.
The next question is, suppose you don't agree with the phase in proposal as currently worded? You can't support that bill. Then, what, if anything, would you put in its place?
A loan program is not a phase-in. It's an entirely separate mechanism for providing funds to people who want to keep their homes. |
Njjoseph
| | Posted on Monday, March 26, 2001 - 9:20 am: | |
Joan, regarding your 11:27 A.M. posting on March 25: I don't recall seeing that the loan would become the responsibility of the new homeowner if the house were sold. Did I miss it? Of course, a loan is to be paid by the signers on the loan, and cannot be passed on. Hopefully, there will be enough equity in the house at time of sale to pay the mortgage and the loan, otherwise, the seller would have to pay out-of-pocket.
BTW, I have liked the loan idea when I suggested it here a month ago, and still favor it. It's the only equitable way for all to pay their fair share given the current tax law. |
Nohero
| | Posted on Monday, March 26, 2001 - 9:39 am: | |
Joancrystal - I think you and I are in agreement about what is and is not in the legislation. Where I think we disagree is about whether or not people should have a tax decrease deferred in order to cushion the "sticker shock" for people who will experience an increase. Sure, we all "have better things to do with that money than pay real property taxes", as you put it. But, right now, that's how the system works in this state. We pay property taxes based upon the value of our property. People with more valuable property pay more in taxes, period.
I just have a problem with a "solution" which requires that we charge people more in taxes, than would be called for given the value of their home in this community. |
Gerardryan
| | Posted on Monday, March 26, 2001 - 6:43 pm: | |
Octo et. al: sorry to say that I miscalc'd something in my quick back-of-the-envelope analysis of a 'reval relief loan'. this is why i am not a banker. it's not as attractive as my first calculation showed; at best it is near-term relief at the expense of slightly larger payments later. Not attractive unless your only problem is the very near term.
Joancrystal's right: this discussion is a different idea than what might be available from any revaluation relief act. It is, as she says, a completely separate mechanism to find funds to make up a short-term gap. I used "gold card" as a placeholder for "some high interest rate"; I'm not advocating financing things like this on your Visa card (though people have funded some amazing things with visa card cash advances...). |
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