Everything is Bigger in Texas – Including Tax Refunds

Q&A with Aaron Anderson, Director of Business Development, American Property Guard, a LERETA Company

Senate Bill 2, signed into law by Texas Governor Greg Abbott in August 2023, introduced the largest property tax rebate in Texas history, leveraging an $18 billion state budget surplus. While this legislation provides significant relief for homeowners, its implementation has created unique challenges for the title and tax industry, particularly in real estate closings and tax certificate processes. Below, Aaron Anderson, Director of Business Development at American Property Guard (APG), a LERETA company, answers key questions about the bill’s impact.

Q1: What Is Senate Bill 2?

Senate Bill 2 is a landmark property tax relief package signed into law in August 2023, utilizing Texas’ historic budget surplus to deliver substantial tax cuts. Key components include:

• A $100,000 homestead exemption for school district taxes (up from $40,000).
• A 10.7-cent reduction per $100 of property value in school district tax rates through “compression,” where the state offsets local school revenues.
• A temporary 20% cap (2024–2026) on appraisal value increases for non-homesteaded properties valued at $5 million or less, known as the “circuit breaker.”
• Additional relief for seniors and disabled homeowners, with exemptions up to $200,000 in some cases.

The bill required voter approval via a constitutional amendment, which passed overwhelmingly on November 7, 2023. This approval process created a “hurry-up-and-wait” scenario for real estate closings, as the industry had to prepare for potential outcomes before the vote.

Q2: How Does Senate Bill 2 Affect 2023 Taxes and Risk Ratings?

The tax cuts applied retroactively to the 2023 tax year, creating unique challenges:

• Provisional Tax Bills: Article 6 of Senate Bill 2 mandated that tax assessors issue October 2023 property tax bills as “provisional,” reflecting the higher homestead exemption ($100,000) and lower tax rates as if voters had already approved the amendment. If voters had rejected the amendment, supplemental bills would have been issued to recover the difference.
• Payment Deadlines and Discounts: Texas property taxes are due by January 31, 2024. However, 124 of the state’s 1,305 tax-collecting agencies offer early payment discounts for taxes paid in October, adding complexity for assessors preparing provisional bills with reduced amounts.
• No New Risk Ratings: Senate Bill 2 does not introduce new risk ratings but focuses on tax relief through exemptions, rate compression, and appraisal caps. The term “risk ratings” may be a misnomer in this context, as it likely refers to FEMA’s Risk Rating 2.0 for flood insurance, which is unrelated to this legislation.

The provisional billing approach required careful coordination to ensure accuracy and compliance, especially for closings occurring before the November 7 vote.

Q3: What Role Does APG Play, and How Did It Handle the Uncertainty Before the Vote?

American Property Guard (APG), a LERETA company, plays a critical role in providing accurate tax certificates and supporting real estate closings:

• Tax Certificate Services: APG supplies title and settlement agents with tax certificates detailing current tax amounts, payment status, and applicable exemptions (e.g., homestead, over-65, or any of the 75+ exemptions available in Texas). These certificates are sourced from live data directly from tax agencies, with APG guaranteeing accuracy. If delinquent taxes are missed, APG covers the uncollected amounts at closing.
• Pre-Vote Preparations: Before the November 7 vote, APG proactively collected feedback from tax assessors to keep clients informed in real time. To address the uncertainty of the vote’s outcome, APG included a footnote on tax certificates issued prior to November 7, clarifying the provisional tax information and noting the potential for additional taxes if the amendment failed. This ensured transparency and allowed clients to prepare for scenarios like setting up additional escrow funds at closing for a “what-if” outcome.
• Post-Closing Support: LERETA, APG’s parent company, provides life-of-loan tax tracking, managing property tax bills and payments on behalf of servicers to ensure ongoing compliance with the new tax structure.

Implications for Real Estate Closings and Tax Certificates

Senate Bill 2’s implementation had several effects on real estate closings and tax certificates:

• Closing Delays and Escrow Adjustments: The provisional tax bills created uncertainty for closings between October and November 7, 2023. Title companies and servicers had to account for the possibility of supplemental tax bills, often requiring additional escrow funds to cover potential tax increases if the amendment failed. APG’s proactive communication and footnoted certificates mitigated risks by ensuring clients were informed.
• Increased Complexity for Tax Certificates: The need to reflect provisional tax amounts, incorporate new exemptions, and account for early payment discounts (offered by 124 agencies) added complexity to tax certificate preparation. APG’s direct access to live tax agency data ensured accuracy despite these challenges.
• Homeowner Savings: For closings after November 7, 2023, the approved tax cuts provided immediate relief. The average Texas homeowner saved approximately $1,200–$1,450 annually on school property taxes, with seniors and disabled homeowners seeing savings exceeding $1,400 due to enhanced exemptions. These savings influenced escrow calculations and closing disclosures.

LERETA’s Value in Navigating Senate Bill 2

LERETA and APG’s expertise ensured seamless adaptation to Senate Bill 2’s requirements:

• Accuracy and Guarantees: APG’s guaranteed tax certificates protected title companies from financial liability due to missed delinquent taxes, a critical safeguard during the provisional billing period.
• Proactive Communication: Real-time updates from assessors allowed LERETA and APG to guide clients through the uncertainty, minimizing disruptions to closings.
• Comprehensive Support: LERETA’s post-closing tax tracking ensured ongoing compliance with the new tax rates and exemptions, reducing the burden on servicers.

Key Takeaways

Senate Bill 2 delivered historic property tax relief for Texas homeowners and businesses, but its retroactive application and voter approval process created temporary challenges for real estate closings and tax certificate issuance in 2023. APG and LERETA mitigated these challenges by:

• Providing accurate, guaranteed tax certificates with clear footnotes during the pre-vote period.
• Communicating proactively with clients to address provisional billing uncertainties.
• Supporting post-closing tax management to ensure compliance with the new tax structure.

For more information on how LERETA and APG can support your tax servicing needs, contact sales@LERETA.com.