It is property tax season again in California, with the first installment due on Nov 1st and late on Dec 10th.
We explain property taxes well during our buyer-education process, but the biggest issue is often Supplemental Taxes because the bills can be large and catch buyers off-guard.
Below is the information we share on our website—every buyer should understand this to avoid unpleasant surprises.
Understanding Supplemental Property Taxes
Supplemental property taxes often create significant confusion for new homebuyers.
When someone purchases a property in California, the County Assessor is required to immediately re-assess the property for tax purposes—usually based on the new purchase price.
However, this re-assessment process can often take over six months.
Why the Problem Occurs
At the time of purchase, lenders and escrow companies usually base property tax payments on the current owner’s (seller’s) property tax bill.
The problem arises because the seller’s property tax bill usually reflects the price they paid for the property, which is often much lower than the buyer’s purchase price.
As a result, buyers often believe the property tax payment estimate at closing reflects their actual future property tax liability. This is usually not the case.
What to Expect After Purchase
Buyers should expect a Supplemental Tax Bill from the County Assessor three to nine months after purchase, depending on the county.
This supplemental bill can be a sizable amount if the seller’s property taxes were relatively low.
Importantly, buyers are responsible for paying the supplemental taxes even if they have an “Escrow” or “Impound” account.
Key Tip for Buyers
Buyers should contact their loan servicer as soon as they receive a Supplemental Bill to ensure proper handling and payment.
Supplemental Taxes and Refinancing
Supplemental Tax Bills can also cause confusion when new buyers refinance into a new loan six to twelve months after a purchase.
Sometimes a borrower’s housing payment will appear to increase even if they are refinancing into a lower rate.
This happens because lenders base the new housing payment on the updated property tax liability, while borrowers often base their expectations on the seller’s original (and lower) property tax liability.
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