Real estate tax monitoring for commercial loans is an important service that is underutilized. While it is quite common for financial institutions to outsource real estate tax monitoring for residential loan portfolios, the likeliness of a commercial portfolio going untracked is much higher. In fact, it is estimated that less than 50% of commercial loans are tracked.
Why is this, you ask? For starters, many real estate tax monitoring vendors charge high fees for tracking commercial portfolios. This causes lenders to take their chances and allow these accounts to go delinquent. In the eyes of many lenders, the better option is to allow commercial loans to go delinquent for a few months or so, knowing they will be able to get caught up in a matter of time. However, if you can find a lender who charges the same fee to track residential loans as commercial portfolios, it will be in your best interest to have these accounts monitored.
So, how does tax monitoring differ for real estate and commercial loan portfolios? In today’s blog we are going to go over a few of the major differences, as well as some similarities. In learning more about commercial loan portfolio tax monitoring and how this is different from residential loan tax monitoring, you will have a clearer picture of why both of these services should be outsourced.
As briefly mentioned, lenders are far less likely to outsource real estate tax monitoring for commercial loan portfolios because of the expected fees. However, if you can find a vendor that offers a life of the loan fee that is comparable to residential tax monitoring fees (yes, they exist!) you will be in good shape. While it is true that many vendors charge unreasonable fees for commercial loan portfolio tax monitoring, there are vendors that offer competitive pricing for this service. By outsourcing tax monitoring for commercial loans, you can improve your institution’s internal processes, save money, and mitigate any risk of becoming delinquent.
Risk Levels Much Higher
Risk levels are much, much higher with commercial portfolios because the loans are heavier, so the losses can be substantially more. Because commercial loan amounts are typically far greater than other loans, the tax levies are also higher. By outsourcing real estate tax monitoring for commercial loans to a knowledgeable and experienced third party vendor, you can mitigate the risks associated with these loans becoming delinquent.
With these two points in mind, residential and commercial loan portfolio tax monitoring are handled similarly in many respects. It is important to work with a vendor who offers customization, file accuracy, and excellent customer service, to name a few.
In recent years financial institutions have been getting in trouble for lending out money that was actually delinquent from taxes not getting paid. This is a major problem and one that can be curbed by outsourcing this service. When looking at the differences between residential and commercial loan portfolios, it is important to recognize the inherent risks associated with the latter. While commercial loan portfolio tax monitoring is an untapped market today, we expect this to change as more lenders make the decision to work with vendors who offer fair fees and the ability to mitigate risks to these portfolios.
If you want to learn more about the commercial loan tax monitoring and how your institution can avoid unnecessary risk, take a look at this ebook on the topic.