As forbearance programs and other federal protections enacted during the COVID-19 pandemic near an end, mortgage lenders face a “tidal wave” of foreclosures. The Consumer Financial Protection Bureau warned lenders that they must help stop “avoidable foreclosures” as forbearance programs run out, or else face penalties.
While much of the focus is on “avoidable foreclosures,” other factors can contribute to mortgage delinquencies and foreclosures. This is especially true for agricultural lenders who have a mixed portfolio of traditional, rural home, and farm credit loans. One factor that may have fallen through the cracks during the COVID-19 crisis is monitoring and paying real estate taxes.
Tax monitoring challenges for agricultural lenders
There are three main struggles farm credit lenders face that they share with other mortgage lenders regarding real estate taxes. These struggles can lead to delinquencies and foreclosures if mismanaged.
1. Manual processing of real estate taxes is time-consuming and challenging to manage.
As with any real estate loan and related taxes, several factors may impact the tax reporting accuracy of farm credit loans. These could be the typical mistakes that hurt real estate tax monitoring, such as inaccurate names, payment address changes, and due date confusion, or farm-specific information such as land-use change.
To avoid misreporting data, every single parcel search must be validated—and not just occasionally. Doing this manually can be a major time drain for staff (who already have plenty to manage).
2. Gathering tax bills requires a lot of staff time, and lenders often don’t receive these bills until just before the due date.
Payment amounts vary due to a variety of factors, including due date changes, valuation adjustments to owners’ business, changing tax status, and more. Special assessments may get added without the payment amount getting updated and paid on time.
It is vital to have this information accurately updated in time for payment from escrow accounts. Of course, the costs can mount up not only in fees and accruing interest to the borrower but also in salary for the number of people and resources needed for the lender to keep abreast of it all.
3. Managing these tasks requires pulling in people from other departments to help during the busy season, leaving those departments short-handed.
Any successful organization is a direct result of its people. Working as a team and jumping in when needed is a sign of that. However, this is a risky way to handle important business for often short-staffed lenders.
Managing multiple accounts can lead to inaccurate information and missed real estate tax payments. At the same time, pulling someone away from their job may lead to more inaccuracies and costs as they are spread too thin, and their main work may suffer.
Mitigating the risk of tax delinquencies for farm credit loans
As crucial contributors to the economy, agricultural borrowers must retain their homes and businesses with help from their lenders. It’s crucial that lenders that specialize in farm credit loans help clients stay on top of real estate tax monitoring while also reducing the strain and costs on their staff and other business units.
That’s why farm credit lenders rely on outsourcing these critical tasks to a third-party vendor specializing in property tax monitoring and delinquencies, such as Info-Pro. Outsourcing relieves the issues outlined above so you can be confident your loans aren’t delinquent while focusing on helping your clients.
To learn more about tax monitoring and mitigating the risk of delinquencies of farm credit loans, download our eBook, “Farming for Accurate Agriculture Real Estate Tax Data.”