As bad as taxes are, the absolute worst are the sneaky taxes; the hidden ones that you do not even know you are paying. An honest, upfront tax at least lets you know you are parting with something of value, ideally in a vague connection to something you receive of value.
Thousands of homeowners across North Carolina are getting a little lesson on hidden taxes in their mailboxes right about now. In fact, the tax is so hidden they may not even understand what is going on, but state lawmakers and local tax collectors in Mecklenburg County and elsewhere have conspired to grab a little more cash in an underhanded way. This stunt requires a good bit of explanation.
Like most homeowners, I’m not really one. A mortgage company kindly lets us live in their house in exchange for a hefty monthly payment. As part of the deal, they even let you pay the property taxes on the house and allow you to pay a little each month rather than one big whopping bill each year. This escrowing of property taxes is also accompanied by some level of fudging which usually makes you over pay a little to make sure there is enough to cover the property tax bill.
Not the most perfect system, but it works well enough for most folks and as long as the escrowing entity does not abuse the system as an interest-free loan, homeowners do get the satisfaction of knowing their local property taxes are well in hand. Part of that planning for property taxes usually involves slight annual upward adjustments in assumptions about the upcoming property tax bill to reflect an increase in real estate valuations. So far, so good.
Imagine then the surprise when your latest monthly mortgage coupon book for 2005 arrives and reveals not an escrow jump of a few dollars a month, but almost $100. I figured our loan servicer had gone mad or moved to Florida. (Don’t ask me why, but loan servicers located in Florida are horrid.) This was all baffling. But a couple days later a letter arrived to clear everything up and promptly send me into orbit.
The letter explained that the company had received notification from the North Carolina Tax Collector’s Association that an unspecified change in state law now allows local property tax collectors to request payment of property taxes from loan servicers and mortgage companies by November 15th of each year. This little switch has profound bottom-line impact, as the letter explains:
Previously, your mortgage payment included the appropriate escrow collection to pay your taxes each December, which allowed time for your tax collector to receive the payment by the due date in January. We have now have adjusted your monthly escrow collection so that there are sufficient funds in your escrow account to pay your taxes in October.
So, in other words, the state of North Carolina has just instituted the 10-month year for property owners in the state. In what in recent years has become a long-line of sneaky tricks designed to cover budgetary shortfalls in Raleigh and the counties with accounting frauds and one-time money, this move ranks as a classic. From now on property owners will pay for 12-months of public services every 10-months, and that assumes they make it out of 2005 without their mortgage escrow accounts falling into the red.
This is simple theft. The legislators who supported this change, the tax collectors who pushed for it, and the local officials ready to spend the ill-gotten money should be ashamed of themselves. If government really faces such cash-flow problems that it needs tax revenue 60 days sooner, then let us have a discussion about the fiscal choices government officials have made, in the open like adults.
Playing games with clocks and calendars, and setting up mortgage companies as the bad guys is cheap and cowardly. Oh, and it won’t work again, either.