Cook County Taxes & Your Mortgage

COOK COUNTY PROPERTY TAXES & YOUR MORTGAGE Cook County property taxes can be confusing, especially for first-time buyers.

They affect your mortgage payment, how much you qualify for, your escrow account, and the credit you receive from the seller at closing.

TAXES ARE PAID ONE YEAR BEHIND.

COOK COUNTY BILLS TAXES IN TWO INSTALLMENTS

Illinois property taxes are paid in arrears.

That means the tax bills paid during the current year cover the prior tax year.

Because of this delay, the buyer eventually receives tax bills that include time when the seller still owned the property.

The seller therefore gives the buyer a property tax credit at closing for the seller’s share of taxes that have accrued but not yet been paid.

This is called a property-tax proration.

Cook County divides the annual property tax bill into first and second installments.

The first installment is not a final calculation of the current year’s taxes. It equals 55% of the previous year’s total tax bill.

For example, if the previous year’s total bill was $10,000, the first installment is $5,500.

The second installment completes the calculation after the county applies the new assessed value, tax rates, exemptions, and other adjustments.

Exemptions are reflected on the second installment rather than the first.

WHY THE SECOND INSTALLMENT CREATES CONFUSION Cook County’s second installment has repeatedly arrived later than its traditional schedule.

Since the newest second installment has not been issued, no one yet knows the exact final annual tax bill.

The buyer, seller, attorneys, lender, and title company therefore work from the most recent complete tax bill and make a reasonable estimate of the upcoming bill.

HOW ATTORNEYS CALCULATE THE TAX PRORATION The real estate contract states how the property taxes will be prorated.

The buyer’s and seller’s attorneys review: The latest complete annual tax bill The closing date The seller’s current exemptions

Recent reassessment information Pending or completed tax appeals Expected tax increases

The proration percentage in the contract

The information provided here is for informational purposes. When interest rates and loan program information are included, it is for illustration purposes only and not a solicitation or quote for services. This is not an advertisement or loan estimate. Current interest rates, loan programs and qualification criteria can change at any time. If you have questions or need assistance, we can be reached using the contact information above. Union Home Mortgage Corp. does not provide tax, legal, credit repair, or accounting services. The information provided is generally true but may not apply to you or your situation. For tax or legal advice please consult an appropriate professional in one of these fields.

Cook County Property Taxes & Your Mortgage

HOW ATTORNEYS CALCULATE THE TAX PRORATION Because the latest final bill is often unavailable, the contract commonly increases, or grosses up, the most recent known tax bill to account for a possible increase.

Common proration amounts are: 105% of the latest tax bill 110% of the latest tax bill Another percentage negotiated by the attorneys The attorneys take the grossed-up annual figure, calculate the daily tax amount, and multiply it by the number of days the seller owned the property during the unpaid-tax period.

That amount appears as a seller credit on the buyer's closing statement.

A SIMPLE EXAMPLE

THE PRORATION IS AN ESTIMATE.

Assume the latest complete annual tax bill is $10,000.

The buyer and seller do not know the exact final bill when it has not yet been issued.

The contract requires taxes to be prorated at 110%.

Grossing up the latest bill by 105% or 110% creates a cushion for an expected increase, but it does not guarantee an exact result.

The attorneys use an estimated annual bill of: $10,000 × 110% = $11,000 They divide $11,000 by 365 days to calculate an estimated daily tax amount: $11,000 ÷ 365 = approximately $30.14 per day If the seller is responsible for 200 days of unpaid taxes, the estimated seller credit is:

The final bill can still be higher or lower than the amount used at closing.

Some contracts provide for a later reproration once the actual bill is issued. Many transactions treat the closing proration as final—the contract and attorney review control.

200 × $30.14 = approximately $6,028 The buyer receives that credit at closing because the buyer will later receive and pay the actual tax bill.

EXEMPTIONS CAN CHANGE THE TAX BILL. The seller can have exemptions that reduce the taxes, including: Homeowner Exemption Senior Exemption Senior Freeze A buyer should not assume every exemption on the seller’s bill will continue.

If the seller has a Senior Freeze and the buyer does not qualify, the buyer’s future taxes can increase substantially.

An eligible buyer can apply for the Homeowner Exemption, but the exemption does not always appear immediately on the first bill received after closing.

The information provided here is for informational purposes. When interest rates and loan program information are included, it is for illustration purposes only and not a solicitation or quote for services. This is not an advertisement or loan estimate. Current interest rates, loan programs and qualification criteria can change at any time. If you have questions or need assistance, we can be reached using the contact information above. Union Home Mortgage Corp. does not provide tax, legal, credit repair, or accounting services. The information provided is generally true but may not apply to you or your situation. For tax or legal advice please consult an appropriate professional in one of these fields.

Cook County Property Taxes & Your Mortgage

PROPERTY-TAX APPEALS

HOW TAXES AFFECT YOUR MORTGAGE PAYMENT

Cook County owners can appeal their assessed value through the Cook County Assessor and the Board of Review.

When your lender escrows property taxes, part of each monthly mortgage payment goes into an escrow account.

An appeal challenges the assessed value, not the tax rate.

The mortgage servicer uses the escrow funds to pay the tax bills.

Condo buildings often retain one property-tax attorney to coordinate appeals for multiple units.

The HOA board or management company distributes the information, and individual owners authorize the attorney to appeal their unit.

A successful appeal can lower the assessed value.

Buyers should not build their budget around appeal savings until the reduction is approved and reflected on the tax bill.

If the actual tax bill exceeds the amount collected, the escrow account incurs a shortage.

The servicer then increases the monthly payment, collects the shortage separately, or does both.

BOTTOM LINE For a Cook County purchase, do not copy the tax amount directly from the listing.

Review: The latest complete annual tax bill The 55% first installment Whether the newest second installment is available The seller’s exemptions The 105%, 110%, or other contractual proration Recent reassessment and appeal activity The realistic tax amount used for mortgage qualification The seller’s closing credit helps pay the seller’s estimated share. It does not guarantee the amount of the buyer’s future tax bill.

JIM BOSTON

Loan Officer | NMLS 443246

C: (847) 571-3150 | jboston@uhm.com 1018 W Madison | Suite #6 | Chicago, IL 60607

The information provided here is for informational purposes. When interest rates and loan program information are included, it is for illustration purposes only and not a solicitation or quote for services. This is not an advertisement or loan estimate. Current interest rates, loan programs and qualification criteria can change at any time. If you have questions or need assistance, we can be reached using the contact information above. Union Home Mortgage Corp. does not provide tax, legal, credit repair, or accounting services. The information provided is generally true but may not apply to you or your situation. For tax or legal advice please consult an appropriate professional in one of these fields.