Real estate tax monitoring is an essential task for any lender, to ensure borrowers are paying taxes on time. Because this portfolio monitoring requires substantial time and effort, lenders sometimes struggle to stay on top of it, either because they lack the necessary internal resources or have outsourced real estate tax services to a subpar lender.
When lenders fail to properly monitor their portfolio, several negative consequences follow. We’ll examine five potential problems that can occur when real estate tax services are not up to par.
Massive interest and fees
When real estate taxes are delinquent, the tax agency begins to charge late fees, interest and/or penalties. If a lender is unaware of delinquent taxes, the tax bill can skyrocket due to these additional fees—and the borrower must eventually pay that massive bill.
Foreclosure or tax sale
When a tax bill is delinquent for an extended time, the lender (and borrower) are at risk of losing the property in a foreclosure or tax sale. Tax sale procedures and timelines vary by state and county, but some tax offices begin the tax sale process in less than a year. When a property is up for a tax sale, the lender or borrower must pay the entire tax bill (which likely multiplied) plus additional costs, in a short timeframe, to save the property.
Taxes sold to tax buyer
Another scenario that can occur when real estate taxes are delinquent for too long is the taxes getting sold to a third-party tax buyer. In that situation, the tax buyer then holds the primary lien on the property. The lender or borrower must buy back the taxes (at whatever fee the third party sets) in order to save the property.
This scenario is particularly risky, because when a tax agency sells taxes to a third party, they then mark those taxes as “paid” with no designation if the taxes were purchased by someone else. If the lender (or their tax servicer) just sees “paid” on tax website, they may not even realize another party now holds the primary lien position.
Disservice to the borrower
Naturally, all these negative scenarios lead to borrower dissatisfaction. Though the borrower is responsible for paying their taxes on time, many rely on their lending institution to alert them or pay taxes from their escrow account. When long-term delinquencies lead to massive fees and tax sales, borrowers tend to lose trust in their bank or credit union.
Bigger commercial risks
Some lenders don’t monitor their commercial portfolio as closely as their residential one, which can result in huge losses. When commercial borrowers don’t pay their taxes, the stakes are higher, as properties cost more and the higher tax bills equate to larger fees. Lenders should prioritize monitoring their commercial portfolio to avoid significant loss.
Want to learn more about the risks of poor tax monitoring and what sets Info-Pro apart in providing real estate tax services? Check out this ebook, Before Working with Info-Pro: Delinquencies and Lost Properties.