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WHOSE LIABLE? — 6 Comments

  1. Who's liable? After reposession, effectively the bank own the lot until the place is sold to pay off the debt. At this time presumably they should pay the tax unless there is an exemption in place.

    The bank could also be said own a proportion of the property for all the time that there is a mortgage or loan made against it. So, I like the thought that they should pay the percentage of the tax proportional to the amount that they own, with the person buying the house paying the rest. As the load is gradually paid down, the ratio of the tax paid by the two parties changes.

    • Sounds fair and equitable to me.

      It begs the question though, should you be leable during the period that you are paying bank interest only? At point of loan, the bank could tell you how much compound interest you will pay during the term of the loan and they usually take this first before you begin to run down the actual amount that you borrowed.

      • Compound interest doesn't accumulate all at once. You must eat into the capital part of the loan right from the start, otherwise you're into loan-shart territory where the debt never falls. The cost of the interest may well be the larger part of the payment, but that doesn't mean that you are not reducing the capital debt at all.

        However, if you're paying an interest-only loan, the bank owns the whole property until the final payment. During the term, you are generally making two payments. One is interest to the bank, the other is to some sort of investment mechanism, which may or may not be to the same bank. At the end you use the accumulated investment to pay back the capital (plus whatever extra is required because the investment has fallen behind in these days of sod-all interest rates).

        So, it would only be fair that the bank pays all the taxes associated with their ownership until the final (full) payment is made. I bet there's something in the small print of the contract with the bank saying that you're liable for all taxes and charges on the property, though….

        • Mick,

          I agree about compound interest but from what I’ve heard, the bank does the theoritical calculation on day one and says, you borrowed €200K and at the end of the loan you will have paid back €750K (for example). They take the difference between the two and that, to to them, is what you are paying first. The original €200K is then dug into. This is not reflected in your statements but it is the frame of mind of the banker as it goes along.

          But you’re right as well, there is bound to be a get-out clase in the small print so my point is about morally right, not legally right.

           

          • So how do they account in advance for interest rates changing throughout the duration of a mortgage? What if you pay off early (for example by remortgage) or if you take a new loan when buying a larger house? Much easier to it as you go along….

            In the UK there are some mortgages that are updated annually, so if you make an over-payment it is only applied to the calculation then. The bank hold the money in escrow (and it earns no interest) until that time. Others have clauses that can force a recalculation, such as a change in the base rate, or an overpayment above a particular threshold. There are also those calculated as you go along, presumably effectively every month as the payments are made.

            I'm still not a fan of property taxes, though. The only thing I've noticed is that every time the politicians muck about with them, I end further out of pocket! Since when were taxes (and who pays them) about morals? It's all about reaming as much cash from the populus as possible – morality might be used as an excuse, but that's only ever a smokescreen.

          • You are again right – I was thinking of fixed rates when I speculated. 

            The moral dimension is akin to our relationship with the Courts and our Laws. We think in terms of justice being about right and wrong when in fact, the legal system is all about the legal system and has little to do with right and wrong. I know it’s complicated but……

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