Orange County Homeowners And ‘The Real Test’
Jonathan Lansner has his eye on Orange County property taxes. “In January, I told you that a decade has passed since this many of us missed paying a December installment of property taxes. Last week, John Moorlach’s staff was kind enough to whip up an interim report for me. The fresh data show that the early trend wasn’t any statistical fluke, as we continue to be annoyingly late on our property taxes.”
“Through the start of April, 24,701 first-installment bills were still late, 16 percent more than the same time a year ago. The tax collector only sent out 2 percent more bills this year. Those late bills were for $38million in total taxes, up 37 percent from a year ago. That handily exceeds the 11 percent expansion in overall property taxes due to soaring home prices.”
“‘I wasn’t surprised. So many people are stretching (to buy a home). It seems intuitive that some people are having a tougher time,’ Moorlach says. He calls payment results for this upcoming bill ‘the real test.’”
“Other markers of homeowner financial woes are creeping up, too. In the first two months of the year, mortgage makers served 700 Orange County borrowers with formal default notices, the first step toward foreclosure. That’s up 31 percent vs. 2005. In the same period, 39 county homeowners lost their homes to the lender through foreclosure. That’s more than double 2005.”
“So far, the financially challenged group is a manageable lot. If this crowd expands dramatically, their tight wallets will hurt more than the tax collector and lenders. If these folks decide to sell their homes to avert financial disaster, that added supply will challenge the housing market.”
I recall reading on this blog about one couple who thought the lender was taking the property tax out of their mortgage payment. It was quite a shock when they realized they would have to come up with the property taxes on top of the mortgage.
I used to work for Countrywide Home Loans-
Whenever property tax payments were missed-Countrywide would immediately pay it.
Countrywide would than start an escrow account-they would require the borrower to pay back the entire amount over so many payments.
Further, they would assume that the buyer would not be able to pay the next installment-so they would increase the payment to cover the next installment.
Example=Amount delinquent-$3,000
Next installment amt-$3,000
$6,000 divided by 12=500
$500 a month would be the minimum amount that the borrowers payment would increast to cover the delinquest taxes and upcoming onw.
Yes, this is typical. The lender/servicer can take any steps necessary to when taxes/liens take priority over its loan. The lender will pay the taxes and set up an impound/escrow account for the annual taxes, with the monthly payment added to your mortgage payment. They do this as an accomodation/courtesy, because you are supposed to pay the entire amount immediately. You are required to pay this or you are in default, and the lender/servicer can foreclose.
Second to the shock people have when I show them a payment on a potential loan, is the estimated property tax payments on the new home they are buying. I expect this problem of late tax payments to increase, especially if it becomes more difficult to get the funds to pay taxes from a cash-out refinance (when prices stop increasing.)
No darn fooling around when it comes to taxes. I believe monday the 10th is when taxes are past due here in the golden state. Better grab those ankles and hope for the best. The local govt’s are raking in the dough and spending like drunken sailors. I’m sure they are budgeting as the bubble will continue. And when it doesn’t they will raise taxes elsewhere. Got to remember PITI when buying.
Please don’t offend drunken sailors - LOL
My understanding is that very little of the property tax money goes to the LOCAL government (in CA). Most of it goes to the state government.
I wouldn’t want to have to pay those bills. One of the great advantages of renting
Hi Txchick57 . What the tax rate on property in your neck of the woods ?
2.5% maybe, something like that. I dunno for sure but it’s high, at least everyone bitches about it.
My mother moved to southern Delaware last year. She bought a 3 bedroom house for $210,000 cash. Her property taxes are $700.00 a year. Now that’s what I call a reasonable cost of living. She’s close to Ocean city MD, the winter is fairly mild and Washington D.C. and Baltimore aren’t to far. Since, we all seem disgusted with the cost of living in the bubble areas. I’m suggesting Ben start a thread to discuss good places to live with low costs of living.
Whatever the market level is for rent, it would be “X” dollars lower if real estate taxes were X dollars lower, assuming a stable and commercially viable market in which rents were yielding a profit. Indirectly, the renters pay the taxes. In a market in which speculators are renting at below cost by some factor “F”, then the market level would be F*X lower.
This reminds me of the days when I was in business for myself with one fulltime employee, who one day happened when we were chatting about politics to say that she was only paying half her Social Security taxes, and that I was paying the other half. Since she was a very valuable asset and I didn’t want her to leave, I always calculated her pay based on how high I could let her employment cost go without losing money, and of course that 6+% for Social Security was in the calculation along with the other indirect costs — and what she saw in her pay was the difference. Without the 6+% FICA, I’d have paid her 6+% more.
Without the 6+% FICA, I’d have paid her 6+% more.
No! You would have kept the 6% because you were an EEEEVIL business.
No tax cost on a business has ever been passed onto an employee or customer!
Let me repeat. Renters pay property taxes, we just don’t tell you unless we have a reason. When a special tax assesment passed in San Bernardino I immediately raised rents 110% of the increase and told them exactly why. Taught them a lesson they’ll never forget.
This renter doesn’t. Trust me. Any attempt to saddle me with that and I’m outta there. I have lots of options and even more coming down the pike. I reject any rent increase.
San Francisco is rent controlled. Rent has increased an average of 1.8% per year for the last ten years. That includes a special energy assessment after the blackouts of 2001.
Ditto, TXchick. We’re only making the neg am payment for our landlords and if they try to jack with the rent, I’ll move to one of the two available behind me and help them avoid foreclosure instead.
You betcha. I know what my landlord’s mortgage payment is and property tax bill (which he pays yearly). I don’t even cover his mortgage. If I did, I’d move.
Taught them that their landlord is a vedy bad person.
I wondered what that “lesson” was!
I’m guessing we’re talking blue collar type tenants here.
Any renter that thinks they don’t pay property taxes is fine by me. You just keep renting and thinking that. You are the second happiest person here over the fact that you are a renter. I just wish there were more of you.
The lesson is/was: TANSTAAFL. At 110% it was a cheap lesson at that.
And I wish there were more deluded fools like you telling yourselves that renters are making you rich by paying off your properties for you. I’d have even more choices than I already do. That one really cracks me up.
This renter does not pay a dime of property tax. This renter also buys high dollar things online and out of state to avoid state sales taxes. Dem’s the facts, whether you masters of your own universe like it or not.
“I wish there were more deluded fools like you telling yourselves that renters are making you rich by paying off your properties for you.
“Deluded fool?” Reconsider now or expect consequences. You the hell are you to start throwing out crap like this and bringing down the conversation to you level?
Time out people.
I’m sure that right now in this country there are renters who are taking their landlords to the cleaners and there are landlords who got in early and their renters are completely covering their costs.
I suspect that Robert is smart enough and got in early enough that he is in the latter category while TXchick57 is in the former category.
True, here in NY where we are renting, even though we are paying far less to rent than to own, I am quite sure we are covering our landlord’s costs completely as they have owned for 8 years or so.
I suspect that Robert is smart enough and got in early enough that he is in the latter category while TXchick57 is in the former category.
Right on both counts. Until I sold this week I was renting at a sales price equivalent 273 GRM. That’s why I sold. Two months rent was covering yearly costs. The new owner is getting less than 50% of costs back even after depreciation and tax breaks.
The proceeds from the sale need only earn 4.8% to return what rent was providing. Not bad for someone accused of being a “deluded fool.” And that’s the difference. I just showed I wasn’t deluded AND I knew enough to hold my tongue about other peoples’ situation.
However, I suspect that you will agree that just because a landlord’s costs go up, it doesn’t guarantee that he will be able to pass that along to his renters. Looking at the Craig’s list rental ads here is SF you see an interesting bifurcation. A set of properties that is at market level and another set which are advertised at about twice that. I suspect that a number of newbie landlords are going to receive a hard lesson that the rent they can charge is set by the rental market and not by what they need to charge to cover their costs.
I know our landlords aren’t passing on increased costs to us. Property taxes, fuel, electricity (heat and electric are included in our rent) have risen every year, yet our rent hasn’t increased in the 6 years we have been here. But I’m still convinced they are making money off of us– just not as much as they were when we first moved in. Obviously if they could increase our rent they wouldn’t hesitate to do so, but most of the people who could afford to pay our rent and are good prospective tenants own at this point. I think our landlords are happy to have us, despite their slimmer profit margin.
Robert Cote: “I just wish there were more of you.”
Bobby, you took the conversation down to that level first, so don’t freak when someone else responds in kind. High blood pressure’s a bitch.
“Bobby, you took the conversation down to that level first, so don’t freak when someone else responds in kind. High blood pressure’s a bitch.”
No, I know a bitch when I read one but then again I’m also delusional. Actually, there’s another test that people fail all the time; unable to respond civily or constructively they resort to juvenile attempts at establishing pecking orders. For instance, trying to call someone named Robert, “Bobby.” You probably didn’t even realize it would be so obvious but there’s absolutely no reason in this situation to try an call me Bobby except as a lame attempt at put down. For shame.
I’m holding onto a rental even on negative cashflow basis because the property will be paid off in 11 years. I’m also holding it because I don’t want to bother selling it and I am friends with the person living there.
The rent doesn’t quote cover the mortgage interest, HOA fees, property tax, and maintenance. The tax break I get covers the rest. Obviously the interest is dropping (rapidly… 15 year loan) and I’ll start showing a profit within 3 years (though cashflow won’t change — I’ll simply be paying more principal and less interest).
In the meantime it’s a decent investment for me (long-term), a tax dodge, a good place for my friend to live, and keeps me up on the rental situation.
This doesn’t have to be war. They’ve been there for two years. Find a landlord (or tenant) who isn’t stupid/greedy and you’ll do fine. Don’t push either direction.
Also, in the short term you may not pay property taxes. In the long term you will. Property taxes make property more expensive… if you choose to own you’ll pay them… if you choose to rent eventually this will shake out and you’ll be paying someone who’s paying them.
Yes, I have to admit property taxes suck. April 10th was the deadline in CA for the 2nd installment…wonder how many of my neighbors were late…
A lot of older people are scared sh@tless to sell and lose their old proposition 13 tax basis. I guess it would make sense to sell and leave the state. If you sell and now have a higher tax bill on a new house a lot of older, fixed income folks are screwed.
Not as screwed as the people they sell to who pay 10x the old taxes.
The local govt’s are raking in the dough and spending like drunken sailors
What in insult!!!
Drunken sailors spend their own money unlike the politicians.
Got this from the RE agent that helped us find our current SFH rental. She is a long-time RE agent based in Huntington Beach.
Hello Friends & Past Clients
I am so excited about my new Affiliate, This is a broadcast email to all my friends & Past Clients.
First of all, I hope all is well with you and your families. Foreclosure activity in California has recently been increasing. I wanted to let you know of a recent expansion of my Real Estate Business. I am now providing Foreclosure, Bank REO, Distressed Property Data & Investment Services as well as Lender’s Local REO Agent Marketing Support.
What this all means basically is that I am now providing Buyer & Seller services that cater to the Pre-Foreclosure, Foreclosure & the Bank REO industry.
If you or anyone you know may be looking to buy the best property for your money, whether as a primary residence, 2nd home or investment property I am now the agent to work with in Orange County! Contact me for a Private Consultation today!
If you would like to receive my weekly Foreclosure Property Alert & Newsletter, let me know. Below is a sample of my newsletter and a few properties that are real properties in Pre-Foreclosure at this very moment.
This is your California-Foreclosure.com Investment Newsletter & Property Auction Alert!
The Southern California 4 counties of LA, Orange, Riverside & San Bernardino records a weekly record of 864 properties in default and another 306 properties are scheduled for Trustee Sale for the week ending 3/31/06.
In her email she goes on to list a bunch of pre-foreclosure properties in OC. The bidding on some of these is starting at 30% of “appraised value”, and (almost unbelievably) the auction house is offering 100% financing. Jeeeeezzzuuuuss. Is this one potential source for an echo boom? You let people buy foreclosed properties using the same crazy financing schemes that resulted in the foreclosure in the first place? When will it ever end?
Sorry about the formatting above - I still haven’t figured out how to use ‘block comment’ yet. The realtor’s email ends at the 2nd to last paragraph.
trying to close bold tag…
sorry, one more try:
These people are amazing. Trying to milk the cow one way if they can’t do it the old way.
I wouldn’t use their services to wash my windows.
Yep, in OC Gary Watts was bragging that no foreclosures will ever hit the street again.
It simply means the bagholder position was switched.
This will delay the reversion to the mean but it won’t prevent it.
A few months back real-whores were saying no way to foreclsoures. This is just another step on the way DOWN. The avalanche of mortgage resets will make this first wave of foreclosures seem like a greating buying opportunity, unfortunately it will only be the first wave of a massive tsunami.
From the OC Register…about affordable housing…kind of interesting
http://tinyurl.com/n4v7b
Yep, I saw that.
So much for the OCR’s principled Liberterian stand. They should write an editorial.
Lots of government agencies are working to address affordable housing. It will be wasted $ and effort as the market will fix the situation well before government agencies do.
The OCR should write an editorial on that.
People in California are insane. They are willing to pay $630k plus for a house where their property taxes alone is $600 per month. The job market is not that great here. It took me 3 months to find a job in the OC back in 2005, and there was supposedly a shortage in my procession. In addition, I got the same pay I was making from my previous employer. It’s a FACT, people are living beyond their means. We pay more for rent, food, gas, then most of the country. Then if you decide to buy a house, you can forget about having a good quality of life. Unless, of course, you make a lot of money. But that’s not the real OC. Most folks here work for a living, and the average salary runs around $30k for the low-skilled worker and $60k to $90k for the high skilled worker. Even if you made $100k per year, you can’t really afford $630k without a huge downpayment. This housing bubble is such a joke that I don’t really care anymore. People in the OC are simply greedy and stupid.
OC is home to the temporarily smug and self satisfied. You can add delusional.
However as this debt binge unwinds they will go back to where ever home was and leave me in a less crowded OC.
It never ceases to amaze me how creative RE people try to be to capture another piece of the pie when the market changes. It just goes to show me that greed and stupidity are mutually tied to each other. When this is ALL over the mess is going to stain this industry for decades. Unemployment in this industry will approach 90%.
Someone said the median in OC is around $600k. What would the annual proerty taxes on that be?
1.25% x $600,000 = $7500 annual property tax.
It was considerate of the CA legislature to set the rate at 1.25%. This makes it very easy to calculate the monthly property tax nut on a home purchase. Just take three “0’s” off the purchase price. So the taxes on a $600,000 home would run (a little over) $600 per month. This calculation has the same effect as dumping a cold bucket of water on my head whenever a home piques my interest.
don’t forget special assessments, school bond payments, mello roos, etc.. this could get you to 1.5% or higher.
Good point crispy.
Typically in CA about 1.5% (supposed to be 1% per prop 13 but usually boosted by various local charges that get approved by “mail-in” votes and other devious methods. So I’d assume $9K/year.
per prop 13, it’s 1% of purchase price, ….but of course they’ve found ways to tack on other fees, etc. A good working number would be 1.25~1.5%/year. Escalation is limited to 2% /year.
ps–Ben, thanks for all your great work! It’s really what got my butt moving to get a house in Phoenix sold (back when there were ONLY 25-28k units on market).
Oh, I almost forgot to mention I went down to Seal Beach yesterday since the wifey is gone for the weekend and it was such a nice day. We might purchase a home there in another year or two so every once in awhile I like to go to some listings there to monitor prices, activity, etc.
The first one I checked out (outside viewing only) was on MarVista Ave…a 3 bed/2 bath, 1300 sq. ft. home on a 5000 sq. ft lot for 925k. Clean, but needed some cosmetic updates. And it was kind of close to PCH. Been on the market for over two months. Overpriced. I bet the asking price will drop by 25k in the next month.
Another one on 16th Street (ocean side of PCH) that I didn’t look at but did a drive-by was dropped to 850k from 920k asking. Old bungalow that needs some work but the lot was big so it will probably sell near that price.
The third one was on Driftwood Ave. Nice location higher on the hill but this house was a wreck. Same sq. footage as the prior house but needed tons of updating…had the original shadowy 70’s mirrors on the walls, cheap cabinetry in the kitchen, and the yard was a wreck. I noticed the realtor had “value range pricing” on the printout that she said she just started doing (hint, hint, reduction…asking was originally 998k now 935k and DOM 60)…told her it was still overpriced because it needed at least 50k in work done. Funny thing too is she told me that the sellers considered “fixing up” the bathroom to help it sell faster. I told her why in the hell would they fix up one place in the dump and leave everything else old? I said she should just lower the price big time and sell as a fixer. She told me to make an offer as the seller was motivated. I guess I would be motivated to unload that dump too. I told her about the slowing market (she agreed) and that I want to wait to see what happens…these realtors looked pretty desperate. Oh, before I left I asked if the seller would throw in the really shitty, rusty chandelier in the hallway for free if I offered full asking price. She actually laughed. Probably kissing my ass. I’m not that funny.
Sorry for the long post. Anyway, from my observations I think this year will be very telling. Seeing big price reductions. Seems like a buyer/seller standoff is occurring and the buyers are winning.
Damn that was a long post! I just re-read it. Too much coffee this morning…
base property tax rates are 1% in calif. and in most established older areas the rate is 1% to 1.2%. in newer masterplanned communites (many areas of south orange county like Ladera Ranch, Rancho Santa Margarita, Coto De Caza and others) there is a Mello Roos fee which pays for infrastructure improvements. this can boost the effective tax rate to beteen 2% and 3% for a number of years.
but more on topic, don’t lenders require that tax and insurance paymnets be impounded(paid monthly) for loan to values over 80% anymore???
Yeah, you get screwed in the master-planned communities because even if you are lucky enough to not pay Mello Roos, you still have to pay the higher taxes for upgraded infrastructure around the ‘hood (landscaping, lighting, etc.) And like others have said, they also have special “assessments” for school funding and other items so before you know it you are paying 1.5-2%. Tons of fun.
Back in 1997 when I bought my first place in OC we looked at places in Irvine that had 3 layers of HOA dues on a townhome.
The total monthly HOA was $550.
We split out of there. Bought a condo with HOA at $220. It was mis-managed and went to $500. We sold for a tidy profit.
HOA’s are just another version of property taxes.
But you can’t write off the HOA’s…
asu, good for you for selling. I have a friend at work who bought in Goodyear, and he didn’t put his for sale until about 2 months ago. He’s asking 340,000. His payment kicked in, now he’s paying 1000. a month, plus his house here in so cal. Ouch. I warned him. He says he wants to sell, and then buy in North Carolina. Another great money maker…..
Patricia, if you take a look at the amt of inventory for the Goodyear area, it’s like…52 WEEKS! Don’t know at what $ he bought, but the trend there is VERY ugly. If he’ll listen, you may want to suggest that he suck it up, price well under market, & try to get out while there are still some buyers out there. Gotta expect that volume drops to 0 starting in mid May (househunting when it’s 115? ya, ain’t gonna happen). By the time human weather returns, the marks (er homeshoppers) may have figured out that things have changed.
I grew up in the valley (left in 85) and had to start making regular trips back last year. Gotta be blind not to see the overbuilding everywhere in the valley. It’s gonna turn into a really BAD DAY AT BLACK ROCK.
Incidentally, I calc the inventory by using ziprealty for the Goodyear zip 85338 / Resales for a week. Found this website:
http://www.homesalenews.com sends out a newsletter with the detailed new & used sales info. Haven’t gotten any sales pitch from em either.
For reference, per Zip–932 (excludes land only’s) for sale. March 16-22 closings– 18. Ouch! And it’s not even baaad yet.
will try to close that tag…
test
test
Has anyone had a look at foreclosure.com lately? Foreclosures and pre-forclosures are way up in so. cal. since I started tracking the numbers 9 months ago.
California: foreclosures up 1114%, preforeclosures up 56%
OC: foreclosures +3050%, preforeclosures +62%
LA: foreclosures +1223%, preforeclosures +57%
SB: foreclosures +633%, preforeclosures +53%
SD: foreclosures +5350%, preforeclosures +105%
This (late/unpaid property taxes) should have been expected when buyers are so delusional that they’re willing to buy a home where the prop tax, HOAs and Mello-Roos can be well over $1,000 per month on an ugly tract house. As opposed to the theory around here that Prop 13 made the bubble worse (reducing supply), it should have worked even more the other way (reducing demand). Only an idiot would buy at such high prices that the tax cost is pushed to astronomical heights. Smart buyers will only buy when propery prices are low enough that the taxes aren’t so burdensome.
Prop 13 has nothing to do with this bubble. It just protects long-term residents from having their housing payments whipsawed around because of irrational idiots speculating with free money.
At this point, only an idiot would stay in California that was considering to buy in a market where the required taxes would be well north of $1000 per month. Most of these people are going to be paying through the A$$ since they forgot to do some simple math problems. Ciao to the “Peoples Sewer of California with his Hollywood Highness the Governator known as Dear Leader”.
I guess that makes me a prospective idiot!