For banks and credit unions, monitoring their entire loan portfolio and ensuring data stays up to date is no small feat. A borrower name or payment address may change without the institution’s knowledge, and that small change can end up wreaking havoc when it’s time to pay property taxes.
In this blog we’ll take a look at some of the common ways real estate tax inaccuracies occur, and the potential consequences of not correcting those inaccuracies.
Many Potential Inaccuracies
When it comes to property taxes, there are many inaccuracies that can occur. These real estate tax inaccuracies could be due to a parcel change that isn’t updated in the lender’s records, a mix-up in the property tax assessment and collection process, or an error on the part of the lender or borrower. Here are a few examples of common inaccuracies that occur:
- The borrower has a name change due to marriage or divorce, and the name change is not reported to the lender or tax agency.
- The payment address may change, causing confusion.
- A special assessment may be added without the payment amount being updated (leading to paying the wrong amount).
- Property tax due dates may be confused or misreported.
- A common borrower error is missing their last quarter tax payment, which may cause that amount to be added to the tax bill without the borrower’s knowledge.
Small Errors Cause Big Problems
The consequences of real estate tax inaccuracies like the ones above can be significant. For instance, if the wrong parcel is paid by the lender (due to a data mix-up), the borrower’s account becomes delinquent and begins accruing interest. The borrower will not know this, and the lender may not realize it, resulting in interest fees that continue to add up.
Similarly, if the wrong payment amount is paid, or is paid past the due date, the borrower becomes delinquent and accrues interest (again, often without the knowledge of lender or borrower).
Borrowers depend on their financial institution to either make their tax payment, or provide accurate information to pay themselves. When these inaccuracies occur, it becomes a customer service issue. The borrower will be upset about the mix-up, particularly if it was not their fault, and lose trust in the institution. The lender must remedy the situation, and may choose to pay the extra fees.
Beyond delinquencies and unnecessary interest fees, inaccurate data can cause problems during an audit. As financial institutions know, it is critical that loan portfolio data is kept clean and current, to avoid compliance issues that may arise.
All in all, real estate tax inaccuracies can cause huge problems for borrowers and lenders alike. It is imperative that lenders get out in front of these issues by keeping their data clean and up-to-date.