(Source: Dawn Hewitt Herald-Times, Bloomington, Ind. (MCT) — John Arnold faced a moral dilemma: In 2009, he finally paid off his mortgage, but when he got his property tax bill in May 2011, which pays for the previous year’s taxes, he saw that he was still being credited for a mortgage deduction.
In other words, he was getting a lower property tax bill than he now deserved. He figured his former mortgage company was delinquent in notifying the Monroe County Recorder’s Office that his debt was paid off, or perhaps the county was delinquent in updating its records.
But when he got his tax bill earlier this year, he again got a tax break for the mortgage he no longer held.
“If you’re getting a mortgage deduction and your house is paid off, something’s wrong,” he said. “I had no clue how to get it straightened out.”
If Arnold did nothing, he’d be paying an unfairly lower property tax bill for who knows how long. Some might call that stealing from government coffers, even though it wasn’t Arnold’s fault, and he certainly hadn’t intended such a side effect of paying off his mortgage.
The ongoing situation made him uncomfortable, and he wanted to do the right thing.
Arnold, who happens to be treasurer of the Monroe County GOP, also happens to be good friends with Cathy Smith, the county’s treasurer, a Democrat. So he went to her. After all, one of Smith’s duties as county treasurer is to mail out the property tax bills.
As things turned out, the source of Arnold’s unfair deduction came from a simple error in labeling a file, he said, and it didn’t take long to straighten everything out.
Occasional tracking problems
The auditor’s office keeps track of all mortgages in the county for property tax billing purposes, and each spring, checks with the recorder’s office for mortgages that get paid off.
“Things like (Arnold’s case) do get missed,” said Susie Johnson, a customer service representative in the auditor’s office. “You can imagine, we have a lot of mortgage deductions.” There are tens of thousands of them in the Monroe County, and the auditor’s staff check paper records against the recorder’s office’s online database. It can take a month or longer to complete.
A mortgage is really a lien against a property, filed with the county recorder’s office. When a mortgage is paid off, the bank is supposed to notify the recorder’s office to release the lien.
With low interest rates spurring refinancing, and as mortgages are bought and sold between companies, sometimes the lenders don’t follow through, and the recorder’s office doesn’t always get the information it needs to release a mortgage lien. In such cases, the annual check by the auditor’s office doesn’t detect the change, and the mortgage deduction remains a credit on the tax bill.
“If any one step fails, then the mortgage deduction stays on,” Smith said.
“I’ve seen a few where the mortgage hasn’t gotten released and it should have, and it was just an oversight of the part of the bank,” Johnson said.
“In John’s case, the auditor had no documents showing it (the mortgage) been released,” Smith said.
The mortgage deduction reduces the assessed value of a house by $3,000. So the amount a homeowner benefits by the deduction is $3,000 times the tax rate for the property, which varies throughout 11 tax districts in Monroe County.
On average, the mortgage deduction might reduce a homeowner’s property taxes by about $50 a year. Arnold’s admission means his tax bill will be about $50 a year higher. But that’s OK with him.
“It’s the right thing to do. It’s the ethical thing to do,” he said.
Johnson said the auditor’s office has the right to impose a fine on those who get mortgage deduction on their property taxes, but don’t have a mortgage — if they file fraudulently for the tax break. That’s not the case with Arnold, so he doesn’t face a penalty.
Irony: No deduction when one is deserved
By Dawn Hewitt
As I was writing this story, I went to www.paymonroe.com, the Monroe County treasurer’s new Web portal for viewing and paying tax bills, to figure out how much my own mortgage deduction was saving me. I’ve had a mortgage since 1992, so I expected to see $3,000 on the mortgage deduction line, then would be able to multiply that by the local tax rate.
Lo and behold, there was a zero on that line — the exact opposite problem of the gentleman I was writing about.
The next day, I visited the Monroe County auditor’s office. They determined that I had been getting the deduction until my 2006 tax bill, paid in 2007, and then the deduction was dropped for reasons that are unclear — except that 2007 was the year the office updated its software, said Susie Johnson, a customer service rep in the auditor’s office.
The last time I refinanced was in 2003, and at that time, I re-filed for the mortgage deduction. At least, I think I did.
Because the problem was not my fault, the auditor’s office agreed to pay me what I was due, plus interest, but only for the past three years and only if I could produce the filing receipt — which I can’t seem to find.
If I had been paying closer attention to my property tax bills since 2007, I might have noticed that I wasn’t getting a deduction I deserved that would lower my bill by about $42 per year. Five years, 40 bucks, that’s $200 I overpaid in property taxes!
If you refinance your home or pay off your mortgage, make sure the change is filed with the Monroe County auditor’s office. And when you get your property tax bill each year, look carefully at all the listed deductions and exemptions. Make sure you’re getting the tax breaks you deserve — and none you don’t.
Monroe County property owners can have a look at their own detailed property tax bills at www.paymonroe.com.
If there’s a problem, contact the auditor’s office at 349-2510.
©2012 the Herald-Times (Bloomington, Ind.)
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