Will Taking a Reverse Mortgage Trigger a Property Assessment?

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One concern potential borrowers may have is the impact of taking a reverse mortgage on their property taxes. In most circumstances, the likelihood of a property assessment as a result of taking a reverse mortgage is low. Here’s how property assessments work and when your home may be subject to one.

What Is a Property Tax Assessment? 

A property tax assessment is a process in which the property is reevaluated for tax purposes. The goal of the assessment is to make certain the taxes reflect the current value of the property instead of the value determined in the past. A property tax assessment can happen for various reasons, including changes in the real estate market, property renovations, statutory requirements, or changes in ownership.

In and of itself,  property assessment will not occur as a consequence of the reverse mortgage. However, if there is a specific event that occurs regarding the home in addition to the reverse mortgage, like an ownership change or substantial renovations the county officials may decide to move forward with a property assessment. When the assessment occurs, the local government agency (usually a tax assessor) will reevaluate the property and adjust accordingly. 

Here are some helpful terms that may appear in a property tax assessment: 

  • Appraised Value. A qualified inspector will assess the property’s market value based on the home’s physical characteristics and comparison to similarly situated homes in the same area. 
  • Assessed Value. The local tax assessor will use the assessed value to determine taxes. It is typically different from the appraised value. Generally, a new assessment will be triggered by a change in ownership or an addition to the home. 
  • Taxable Value. This value is the assessed value minus any exemptions, multiplying this value times the millage rate. The taxable value can change yearly because the millage rate can be lower or higher. 

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Circumstances When a Reverse Mortgage May Trigger a Property Tax Assessment 

Most reverse mortgage borrowers will not face a property tax assessment, and generally, the local county office will make the call if a property assessment should occur. This only occurs if a borrower uses the loan to add an addition to the home or engages in a major home renovation and needs to request a permit from the county. It is good to be aware of certain circumstances in the reverse mortgage process that may trigger a property tax assessment: 

  • Renovations to the Property. If a borrower decides to update the property with a major renovation and needs a permit from the county, there is a chance that a property assessment may occur. It isn’t the reverse mortgage that triggers the assessment but the application for a permit and the perceived increase in the home’s value, which may cause local government officials to push for an evaluation.  
  • Default on the Loan. If the borrower fails to pay property taxes or insurance or doesn’t maintain the home, the loan is in default. In this instance, the lender may initiate the foreclosure process. The lender must determine the property’s current value, which requires an assessment. 
  • Change In Ownership. The lender will likely conduct a property assessment to determine the current market value to facilitate the home sale. The loan will become due if the last borrower sells the home, passes away or moves into a different residence. If the property sale garners a higher price than the assessed value, it may trigger a property assessment. 

Challenging a Property Tax Assessment

Sometimes borrowers may not agree with their property tax assessment. As a homeowner, you can appeal your tax assessment. Each county has different rules and procedures, and you can contact the local tax authority on how to appeal your property assessment.