Property Taxes And How FL Foreclosures Affect Municipal Budgets

Florida foreclosures and how they affect property taxes down in the Sunshine State need to be studied by anybody in charge of handling tax revenues down there, no matter how reduced those revenues end up being. With an increasing number of foreclosures — and more on the horizon — Florida is coming to grips with the problem other states have had for a while and which it’s been able to duck for so long.

After all, once a person walks away from his mortgage he’s also walking away from any future tax obligation (though municipalities and counties, especially, are trying vigorously to capture any tax bills already owed), which can sting many a municipality badly. And with homes sitting unsold on the market for far longer than was once the case, the prospect of replacing that lost revenue seems dim at the moment.

Of course, much of the problem has deeper roots than just the current “boom” (if one wants to call it that) in foreclosures. For years, Florida’s base economic expectation had been built upon a sandy foundation called “speculation.” When it works well — which it had been doing for years — the economy benefits, and the Sunshine State surely benefited from it for quite a while.

However, when the bottom falls out of a market, or when the inevitable bust finally follows the boom (as it has, not only in Florida but in most other states as well), such speculative investment can hurt more than might normally be the case. For example, consider the ocean of people who’d bought into homes they couldn’t afford with the expectation that they’d “trade up” after selling their old home for a handsome profit.

Many of these owners looked at the properties they were buying into and gambled that they’d be able to get out of them with a nice profit before the low interest rate loans or adjustable-rate mortgages they took out to get the property began to adjust upwards. But the bottom of the market fell out from under everybody quickly, meaning these homes are now unable to be sold for at least what they were purchased for.

Now, many a home is sitting in the hands of people who can’t meet the monthly payments that adjusted upwards after an initial low “teaser” period and who’ve also seen their own incomes either reduced or eliminated entirely due to a concurrent shrinkage in the overall economy. It’s somewhat of a vicious cycle, truth be told, and no one single aspect of economic activity is independent of another, especially in real estate sales and property tax collection.

It seems certain that the rate of FL foreclosures will continue to be a cause for concern at least until local and state government can work out ways to help people stay in their homes and avoid foreclosure, usually by taking advantage of certain federal programs. Until that occurs, though, the property tax revenues that funded many schools, police and fire services will be lower. Whether relying on property taxes was smart is a different question, though.

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