Bulletin: DC2009002

Dear Associates:    

Stewart Title Guaranty Company (STG) continues to experience claims relating to real estate taxes in Washington, D.C. Based upon this, we would like to reiterate STG's underwriting procedures for real estate taxes.

Overview

Real estate taxes in the District of Columbia are paid over a fiscal year beginning October 1 and ending on the following September 30.  Taxes are due in two semi-annual payments.  First half taxes (for the period Oct 1 - March 31) are due on March 31.  Second half taxes (for the period April 1 - September 30) are due September 15.

All property in the District of Columbia is classified in one of 3 classes.  Class 1 property is comprised of all residential property (including multi-family) and is currently taxed at the rate of $0.85 per $100 of assessed value.  Class 2 property is essentially all other property and is taxed at the rate of $1.65 per $100 of assessed value for the first $3,000,000 of value and $1.85 per $100 of assessed value above $3,000,000.  Class 3 property is vacant property and is taxed at the rate of $10 per $100 of assessed value. 

Please note that the tax rate for vacant property is a punitive rate.  If dealing with a vacant property where taxes have not been paid, the amount of unpaid taxes (including interest and penalties) will rise rapidly.

Please also note that there are several other taxes, fees and assessments that are treated with the same priority as real estate taxes.  These include Clean City Liens, Business Improvement District Taxes, and Nuisance Liens.  These must all be paid and resolved prior to closing any transactions.

There are several ways in which the tax assessment may be reduced.

Homestead Deduction - This benefit reduces the real property's assessed value by $67,500 prior to computing the yearly tax liability.  To qualify, the property must be owner occupied and must be the primary residence.  An application must be filed with the Office of Tax and Revenue in order to obtain this benefit. 

Senior Citizen - When a property owner turns 65 years of age or older, or when he or she is disabled, he or she may file an application immediately for disabled or senior citizen property tax relief. This benefit reduces a qualified property owner's property tax by 50 percent.  The property must be owner occupied and the principal residence of the taxpayer and the adjusted gross income of everyone living in the property must be less than $100,000.

Properties will continue to receive the Homestead benefit and/or Disabled or Senior Citizen tax relief as long as there is no change in eligibility, such as property ownership or owner-occupancy status. Owners of properties receiving these tax benefits are responsible for notifying the Office of Tax and Revenue when eligibility ceases. Written notice, including the square and lot of the property, or a completed Homestead cancellation form, must be sent within 30 days of a change in ownership or owner-occupancy status.  If you know that the property you are dealing with has improperly received any of these benefits, please contact your Stewart underwriter for guidance.

Tax Sales

The District of Columbia aggressively pursues collection of unpaid real estate taxes.   Generally, any property with unpaid taxes as of the end of the fiscal year will be sold the following summer at the annual tax sale.  If you discover that a property you are working on has gone to tax sale at any time, please contact your Stewart underwriter for guidance.  The procedure to redeem a property from a tax sale can be complex and should not be attempted without the specific approval of your Stewart underwriter.  Please also note that the reference on the Office of Tax and Revenue web site to "Expired" tax sale does not mean that the property has been redeemed.  Full due diligence must be completed on all properties that have gone to tax sale.

Confirmation of Real Estate Taxes

There are two ways in which to confirm the status of real estate taxes.  First, the Office of Tax and Revenue maintains a web site which purports to show the current status of real estate taxes.  You may find this information at http://otr.cfo.dc.gov/otr/cwp/view,a,1330,q,594345.asp .  This site should be checked for all transactions.  Please print out the page that shows the current status of the real estate taxes and include this in your underwriting file. 

Please note, however, that DC does not guaranty that its web site is complete or accurate.  The only way to truly confirm the status of real estate taxes is to obtain a Tax Certificate from the Office of Tax and Revenue.  A Tax Certificate which shows no unpaid taxes will act as an estoppel and can be used to defend against any claim that real estate taxes are unpaid.  Because of this, a Tax Certificate should be obtained for all District of Columbia transactions.  A written request along with a $15 check made payable to the DC Treasurer should be submitted to the District of Columbia Tax Certificate Unit, 941 N. Capitol Street, N.E., Suite 400, Washington, D.C.  20002.  The time period needed for the issuance of a Tax Certificate will vary depending on staffing and work loads so the request should be submitted as soon as possible. 

Commitments and Policies

All Title Commitments issued in connection with the sale or refinance of all real estate in the District of Columbia must contain a requirement substantively similar to the following: 

Receipt of a Tax Certificate from the District of Columbia showing no past due real estate taxes or governmental liens. 

All Title Commitments and Policies (both owner and lender), other than the Short Form Loan Policy, must contain an exception substantively similar to the following

Taxes are paid through  [March 31/September 30, 200 ].  Taxes subsequent to [March 31/September 30, 200 ] are a lien not yet due and payable.  Exception is taken to any and all supplemental taxes and governmental charges posted after the date of this [Commitment/Policy] including homestead audit fees, public space rental fees, business improvement district taxes, clean city fees and nuisance taxes.

If you have questions relating to this bulletin, please contact your local underwriting personnel or Stewart Legal Services.

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