JACKSONVILLE, Fla. – A growing number of Florida homeowners say their mortgage payments jumped by hundreds, even more than a thousand dollars, within their first year of owning a new construction home, and many believe they were never warned it could happen.
Their complaints are now at the center of a class-action lawsuit accusing D.R. Horton and its lending arm, DHI Mortgage, of misleading buyers by providing property tax estimates that were far lower than the true cost.
Mario Caracas, who bought a D.R. Horton home in Northeast Florida, said he initially assumed his experience was a rare mistake until he began hearing from neighbors.
“We really thought it was just a few people,” Caracas said. “But it turns out that it’s like the old adage: when there’s smoke, there’s fire. There’s all of a sudden hundreds of people in your own neighborhood. And how many other neighborhoods does D.R. Horton have?”
PREVIOUS COVERAGE: Florida homebuyers file lawsuit against D.R. Horton, claiming misleading mortgage practices led to costly surprises | They signed the papers to their dream homes. Then learned their taxes were triple what the builder told them
How the ‘tax trap’ happens
The issue stems from how taxes are estimated on new construction. Builders and lenders often provide buyers with tax projections before the county has fully assessed the home.
Those estimates can be based only on the land value, not the value of the newly built house.
Attorneys with the National Consumer Law Center allege that in many D.R. Horton communities, this practice was intentional, designed to qualify buyers who might not otherwise be able to afford the true monthly payment.
Andrew Cady, a loan officer with U Mortgage, said the low numbers are obvious red flags.
“I get loan estimates in, and we’re seeing property taxes listed at $38, $42 a month, which is just ridiculous,” Cady said.
For buyers, Cady explains that means the tax number on your loan estimate may be only a fraction of the real cost.
Once the home is assessed, usually after the first year, mortgage servicers recalculate escrow accounts to cover the full tax bill and any shortage created by the underestimate.
Cady says those shortages can create shocking increases.
“When that property tax bill comes out, the property tax collector goes to your mortgage lender and says, ‘Hey, I need you to pay this $6,000 property tax,’” he said. “The lender looks and says, ‘We’ve only got $600 in the escrow account because that’s what was set up.’ You would think that your monthly bill would go up by $600 a month, but it doesn’t. Your bill is going to go up $1,200 a month because you have to collect $600 a month for the next year’s tax bill, and you also have to collect $600 a month for the shortfall.”
Are buyers being protected?
Cady says part of the problem is that Florida law does not require builders to provide accurate future tax estimates.
And when buyers work with a builder-owned lender, he says, there may be few checks and balances.
“If the builder owns the lender, the real estate agent you’re meeting on site, and the title company you’re closing with — who really has the consumer’s back?” Cady said. “If I was getting a divorce, it would be like me hiring my wife’s divorce attorney to represent me.”
What buyers can do
Consumer experts say the best protection is independent research.
Before buying, check the tax bill for similar completed homes in the same neighborhood, not the estimate provided by the builder or lender.
Cady also suggests seeking the help of an independent realtor or lender to look over your paperwork before closing.
In Duval County, buyers can use the Duval County Property Appraiser’s Tax Estimator to calculate a more realistic projection.
It takes only a few minutes, but it could prevent a major financial shock after closing.
In a statement to News4JAX, Duval County Property Appraiser Joyce Morgan writes, “In Florida, ad valorem property taxes are based on the fair market value of the property as of January 1 each year. For new construction, the initial assessment may reflect only the value of the vacant land if the improvements were not substantially complete by that date. The following year, however, the taxes will be based on the value of the improved property. A good way to estimate your ad valorem taxes is to use the sale price - provided it was a market transaction that reflects fair value. For properties in Duval County, residents can use the Duval County Property Appraiser’s Tax Estimator to calculate an estimate based on their taxable value and taxing district."