Lawmakers in Annapolis are eyeing legislation sought by Realtors to lower Maryland's high real estate closing costs. But the effort faces stiff opposition from bankers and local officials, who stand to lose millions of dollars.
A bill is pending before the House of Delegates that would require all Maryland property owners to pay their real estate taxes in semiannual installments, ending the current practice of collecting the taxes annually. A similar bill is before a Senate committee.
House Speaker Casper R. Taylor Jr. touted the legislation yesterday as "a solution to Maryland's very high closing costs" and the equivalent of a tax refund for hundreds of thousands of homeowners. "We are in a minority of states that still require you, when you come to settlement, to cough up an entire year's worth of property taxes up front," Taylor said. "That's a great impediment to the business climate and to a competitive homeownership market."
Property taxes account for up to 20 percent of closing costs in some Maryland counties, and up to 40 percent in Baltimore City, Realtors say. With a switch to semiannual tax payments, the buyer of a $150,000 house could save $630, proponents say.
"You don't pay your car payments a year in advance," noted Marc Witman, president of the Greater Baltimore Board of Realtors.
"It's outrageous that this state collects property taxes a year in advance."
Homeowners also would get a one-time refund, because many of them are paying up to 14 months' worth of real estate taxes into escrow accounts, to be held by banks and other financial institutions until their tax bills come due.
The legislation would allow lenders to keep in escrow only eight months of real estate taxes at a time. The balance -- about $500 million, by some estimates -- would be returned to 900,000 families who have mortgages.
"It would be a real shot in the arm for the Maryland economy," said Del. Peter Franchot, a Montgomery County Democrat who is the House bill's chief sponsor.
The tax payment change is opposed by county and municipal officials, who will lose the interest income from receiving annual payments. Baltimore City claims that it could lose $3.7 million a year in interest from not getting the full year's payments up front. Opponents note that semiannual tax payments have been optional since 1995, under a law the General Assembly adopted with Realtors' support. Yet no more than 3 percent of property owners have chosen to switch from annual payments.
"The people have given this a resounding `no' vote," said David Bliden, executive director of the Maryland Association of Counties.
Realtors say there is little incentive now for homebuyers to make semi-annual tax payments. A purchaser must reimburse the seller for taxes already paid in advance -- thereby undercutting any savings on closing costs.
Local governments could recoup some of their lost income by charging fees for handling semiannual payments.
Supporters say the savings to homebuyers and homeowners -- more than $600, on average -- would outweigh the fees, which would total no more than $1 to $2 a month.
But spokesmen for the state's banking industry noted that some homeowners will be unhappy paying fees for semiannual payments, and they predicted that banks also would levy service charges to cover their costs of processing escrow payments twice a year instead of annually.
"Maybe you think you're going to lower the closing cost for some citizens, but others are going to pay a fee they have not had to pay before, and it's going to increase the cost of lending," said D. Robert Enten, a lobbyist for the Maryland Bankers Association.
"There's no free lunch out there," he said. "This cost is going to get picked up."
Pub Date: 3/23/99