In our last blog, we looked at the various consequences that can occur when data isn’t accurate in a financial institution’s loan portfolio. Real estate tax inaccuracies can occur for many reasons, such as a borrower name change, misreported tax amounts or due dates, payment changes for various reasons, and more.
These type of real estate tax inaccuracies often cause a borrower’s account to become delinquent and begin accruing interest fees. Often, the lender and/or borrower isn’t even aware of the error, so fees can add up the longer an account is delinquent. This results in unhappy borrowers, customer service issues and interest payments that someone must make.
In this blog, we’ll look at why and how those real estate tax inaccuracies occur, and how lenders can avoid them.
One way that real estate tax inaccuracies can occur is when something slips through the cracks at the financial institution. Banks and credit unions who handle their own real estate tax monitoring, delinquency tracking and escrow payments can become overwhelmed with these momentous tasks.
Though employees (or often a whole department) are dedicated to handling these responsibilities, it’s easy for an error to slip through. Perhaps a borrower had a name change and didn’t alert the lender. Or the lender has trouble obtaining the correct information (at the right time) from the tax agency. Whatever the reason, simple errors can result in big consequences.
This problem is magnified with commercial properties. Owners tend to change more often on these parcels, which can cause an error if not updated correctly. And because commercial loans are for millions of dollars, interest from late payments can add up to staggering amounts.
Not Working With the Right Tax Servicer
Because property tax monitoring, delinquency tracking and escrow processing are such huge (and critical) tasks, many banks and credit unions choose to outsource real estate tax services to a third-party vendor.
When outsourcing, the financial institution puts its trust in the tax servicer, and relies on them to handle everything related to property taxes, including keeping their data up-to-date and not letting anything slip through the cracks.
Unfortunately, some property tax servicing companies provide a substandard level of service. For instance, they may not have systems in place to ensure they are reporting on and paying the correct parcel (i.e., to identify data changes and avoid paying the wrong parcel). Similarly, they may only do one delinquent check (rather than one or more rechecks a few months later), which can lead to mistakes and missed delinquencies.
Finally, many tax servicers make the lender or borrower pay interest fees when caused by the vendor. Because the servicer isn’t assuming the risk of potential fees, they may take less care in ensuring accuracy and proper payments, and avoiding delinquencies.
While inaccuracies and delinquencies are unfortunately common, they can be prevented with diligence and proper systems in place. To learn more about the consequences of real estate tax delinquencies and how to prevent them, take a look at this ebook on the topic.