The Quick Facts on Encumbrances Taxes

When it comes to real estate, taxes relate to the annual state fee on real property based upon its value. The tax can be imposed by a local or state government (in some cases federal).

The real estate tax charged on the value of property is known as a property tax, and often referred to as an ad valorem tax. This tax is based on the value of the property in the jurisdiction where it lies. A tax assessed can be disputed if it relates to similar homes in the city or county, with a disregard for any additional improvements or amenities that the property has.

Background

There are different types of taxes when it comes to real estate but the most common is property taxes. Property taxes are listed as being the main source of income for the majority of municipalities, therefore it is crucial that they are paid for and not left as debt. An encumbrance exists on a property, when an owner has failed to pay their property taxes, and possibly accumulated a tax debt.

If the tax debt grows to be too large, or left unpaid for a long period of time, the municipality can petition a court to declare the home as a foreclosure and attempt to sell it. The profit made from the sale of the home whether privately, or through a public auction, would be used to settle the debt of unpaid taxes.

Ad Valorem

The term ad valorem is Latin for “according to value.” The term is used to describe certain types of taxes, specifically property taxes. The reason for this is because a property taxed is established and based upon the value of the property, such as a home. The home would be appraised by someone hired through the tax assessor to determine it’s worth.

The value can be established with such varying factors as the “fair market value”, or the cost it would take to replace the home. Once the home has been appraised, the tax assessor would impose a tax on the property on that value. This ad valorem tax would have to be paid off every year on the property, and it becomes a lien on the property on the first day of the calendar year.

Lien

A lien refers to a claim over a debt that has been left unpaid as it has been recorded. Liens can include unpaid taxes, mortgages, or services. Liens will be attached to a property until they have been settled or expired. Various states have a duration period over which these liens can exist before they are expired, if they have not been paid for in the amount of time.

Until a lien has been paid off, it will remain on the title of a property preventing it from being clear or free. A tax lien would relate to a debt collected over unpaid taxes. A mechanic’s lien refers to a debt over services provided or work completed on a property.

Ad Valorem Tax

Ad valorem tax refers to a levy that is based upon the assessed value of real estate property, or even personal property. This tax is placed on a property every year by the tax collector and can be paid during the ‘tax calendar year’. An ad valorem tax on real estate property is based on the value of the property’s worth, as assessed by an appraiser.

The term itself is Latin for “according to/ at value”. Real property taxes include not only the building of a property, but also the land, structures, and any other fixtures or improvements, disregarding tools, machine equipment, etc… that are existing on the property. An example would be a mechanic’s auto body, the building would be taxable and the land, but not the lift inside the garage, or any other equipment used for the commercial property.

The appraisal of a real estate property can be based on a few different factors. These deal with surveying the value/price of similar property, in terms of a home, within the same town or county. This can help make a judgment in relation to the size of the home and its amenities. The house will also be valued along with any additions or improvements that may increase its value, as well as a fair price for the property given the market status at the time. The term used to determine this is “fair market value” which refers to the price a prospective buyer would be willing to pay for the property, as well as the price that an owner would accept (if there were to be a sale. Lastly, the home can be appraised also based on the cost it would take to rebuild or replace the home entirely in case of a loss.

Ad valorem taxes are usually assessed on the first day of the calendar year (January 1), every year. Once the value is determined by an appraiser, a dollar value is given to the property with is later assessed for taxes. The tax collector/appraiser will also establish an ad valorem millage rate, which is sometimes referred to as a tax rate.

This is the rate of tax per thousand dollars of taxable value. Municipalities sometimes depend on their basis of income on ad valorem property taxes.The property tax can also include other personal property of an owner, and can be set on such accessories as jewelry or larger objects like automobiles. In most places, these will not include household goods, or certain types of personal property.

Once a property has been appraised and taxed, it could be subject to future inspections over time to determine if the value has changed over that property. This can be due to the use of the property at its current state, its current market value in relation to any depreciation or improvements done on the property, as well as the income of the property (if it is a commercial business).

What You Should Know About Property Taxes

Encumbrances against a property can
include taxes, in the form of unsatisfied levies. A personal property tax that
remains unpaid by the owner of a property, becomes an encumbrance, and can be
held as a lien against that particular property. It will remain as a lien on
the property until it is paid off in full, whether or not the property changes
owners. If a new owner decides to purchase a property, the unpaid tax will not
prevent the existing owner from selling the property to the new owner, for it
would transfer with the sale. The existing owner of a property must notify, by
law, the new owner of all encumbrances including such unpaid taxes, to the new
owner prior to the sale of property.

Property taxes are considered to be a lien on property at the very beginning of
the ‘tax year’. This is because property tax should essentially be paid prior
to any other existing debts. The actual date when the taxes are to be paid may
not be the first date of course, and when paid on that date, would not be
considered past due. Property taxes are set on the land and home by the
town/city where it is located, as well as the county-both jurisdictions may tax
accordingly. The property taxes are said to be a type of ad valorem taxes which relates to “at value”. The
reason for this is because these taxes are based on the value of the property.
The property tax is set in relation to the land value and that of the improvement
(or building) value as well. The value of a home is given in regards to the
sale price of a home that is comparable to the one being assessed in the same
area, as well as the following: a fitting price for the home, what it would
cost to rebuild the home if it was lost, and also any improvements on the
property. The value of the property can also vary depending on the current real
estate market, and where it stands. In a high market, the house would receive
top value in relation to all of these pertaining qualities. This could result
in a higher property tax over that home. However, in a low market, the value of
that property can be well below its true worth, and if appraised at that time
for a tax assessment, could acquire a lower property tax.

In some areas, property taxes can be imposed on the personal property of
individuals. These can include furniture, cars, and jewelry in the United
States. This is why it’s important for people to find out ahead of time what
types of things are taxable under property taxes in the jurisdiction where they
live. To properly avoid making purchases that could be taxed at a high rate
that, one should be fully aware of their local jurisdiction’s specifics on
property taxes.