“I just paid my taxes! Why do I still owe more when I am selling my home?” I have received this same question a few times lately, and thought it might be good to explain how property taxes work in Missoula, Montana. Taxes are paid in arrears in Montana, and this causes some confusion, to say the least.
So, how do they work?
Taxes are due in May and November. When they are paid in May, the taxpayer is really paying for the 2nd ½ of the prior year (so, from July – Dec). When the taxes are paid in November, they are paying for the 1st half of the current year (Jan – June).
So, let’s say that someone sold their home, closing in November. This is the source of all sorts of confusion, because the seller often thinks that since they just paid taxes, they are current. However, since the November tax bill pays for the 1st half of the current year, they will still owe taxes from July 1 through the closing date at the time of settlement.
Many people set their mortgages up to pay their taxes out of an escrow account, so that they have a small portion of each payment going into the escrow account to pay taxes when they become due. For these people, the May and November due dates for taxes don’t really come into play, because their mortgage company just pays them when they are due. However, when they go to sell their home, they will still have to bring the taxes current at closing. Generally, the closing company will have the sellers pay the taxes through the date of closing, and then the sellers will get a refund from their escrow accounts a few weeks after closing (coming directly from their mortgage company).
Let’s just say a seller has their mortgage setup with an escrow account to pay the taxes. They decide to sell their home, and close in June. They will need to pay from Jan through the closing date in June at the time of settlement, because the last time the mortgage company paid taxes was in May (and that was for the 2nd ½ of the previous year). Then, their mortgage company will refund the amount in the escrow account to the sellers, usually within a couple weeks.
It’s pretty obvious why there are so many questions about this!! If there is anything we can help with, don’t hesitate to contact us.