Real estate taxes are one of the most important aspects of owning a house, but unfortunately it is common for borrowers to become delinquent. Borrowers are required by law to pay their property taxes every year by a specific date or dates determined by each municipality. When they fall behind, there are numerous consequences, for both the borrower and the lender. For first-time homeowners, in particular, the process of paying (and understanding) real estate taxes can be confusing. This is where the right real estate tax monitoring vendor comes in.
In order for lenders to ensure their borrowers are paying their taxes on time - and the right amount - they should consider outsourcing real estate tax monitoring to a third party vendor. The right vendor will have the tools and resources to monitor each loan, ensuring accuracy and timely payment. There are numerous factors that can impact a borrower’s real estate tax payment, and if something changes without the lending institution or borrower being notified, a lot can go wrong.
Compliance is another important element to keep in mind when talking about real estate taxes. There are strict regulations in place by the federal government that must be adhered to in order to avoid penalties.
With this in mind, the remainder of this ebook will cover topics related to the consequences of inaccurate real estate data, which can lead to delinquencies, inaccurate reporting, and compliance issues—and how to prevent these problems.
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How Inaccurate Reporting Can Lead to Delinquencies
There are many things that can go awry when an institution monitors their tax accounts internally. As you know, accuracy is critical to avoid delinquencies and other consequences. When looking at inaccurate reporting, there are certain types of data that are most often misrepresented, including the following examples.
- Special assessments may get added without the payment amount getting updated
- It is quite common for the last quarter water bill to get missed, which could get added onto the last escrow payment with the borrower’s knowledge
- The lending institution could potentially make payments on the wrong amount (due to inaccurate information like the examples above), resulting in delinquencies or even a tax sale or foreclosure
- After the first date that the borrower is delinquent, they begin accruing interest (it may be as small as $10-$15 or a few hundred dollars for commercial loans)
- Info can be inaccurately reported based on owner name (with a name change due to marriage or divorce)
- Many tax services make assumptions about owner names, which can lead to inaccuracies
- Payment address may change
- Due dates may be confused or misreported
These are just a few examples of what the most common inaccuracies are in regards to real estate taxes. In order to avoid misreporting data, it is imperative that every single parcel search is validated, and not just every once in awhile.
Keeping every account accurate and validated is a big undertaking, and lenders may occasionally miss something or have an account slip between the cracks. Unfortunately, many tax service providers do not provide this validation either, which can lead to time consuming and expensive issues.
Many big vendors do not care about the interest that comes with delinquencies because they know they will get paid, one way or another. This is why it is so important to outsource this service to a vendor that will take the time to check for any discrepancies and ensure they are resolved immediately.
Last chapter we began to discuss escrow payments and inaccurate reporting, a topic which we will build upon here. When vendors or tax servicers report inaccuracies or do not take the time to research all the details surrounding a parcel or loan, it can spell trouble for all parties.
When a borrower is even just one day late with their payment, it can cost them. Delinquency fees range from 18-22% on average, which could mean about 1.5% in additional interest each month. If you do the math, this begins to add up. Due dates are always changing, and if this change goes unnoticed by the lending institution, it could create a domino effect, leading to more fees.
It is important for banks and credit unions to be on the same page as municipalities, as they are the ones who govern when payments are due and often have a hand in the amount owed. However, this is an overwhelming task that is often best delegated to a vendor who specializes in property tax monitoring and delinquencies.
Inaccuracies are more common with commercial properties because of the flip flopping of owners. Because commercial loans are often for millions, the interest charges from late payments can add up to staggering amounts. Furthermore, when the wrong payment amount is entered by a tax servicer, it could auto trigger an escrow analysis, causing even more compliance issues for the borrower and lender.
Eventually inaccurate tax data can result in tax sales and foreclosure, which is why it is so important to work with a vendor who will provide on-demand reporting and emphasizes customer service and accuracy. Inaccurate data will not only cause higher payments, delinquencies, and the possibility of losing the property, but it can create stress on the homeowner or business owner and result in back taxes they did not know they were responsible for.
Throughout the last couple chapters we have looked at some of the most pressing issues associated with inaccurate data reporting. When a lending institution is working with a large tax services vendor, they do not always receive the attention and high level of customer service they deserve.
While this may seem like no big deal, it can result in serious problems for the borrower. This is why it is crucial that you look for a vendor who will work along with you to ensure no steps are missed and all data is accurate.
In many cases a delinquent escrow payment is no fault of the homeowner. It is often the responsibility of the lending institution to ensure the borrower is aware of any changes in payment or due date. By making the decision to outsource real estate tax monitoring to a vendor who understands how important accuracy is and will go above and beyond to ensure correct information, you will be doing your customers a great service.
Many larger tax services vendors are not concerned with interest fees, but banks and credit unions know that unnecessary interest fees affect the customer, and can hurt the relationship between borrower and lending institution. A wrong payment of just cents could cause a borrower to go delinquent, leading to fees and an increased risk of loss.
When looking for a property tax tracking vendor, don't go with a one-size-fits-all option. Find one who will not only provide you with on-demand reporting that can be accessed 24/7, but that will go the extra mile, dig deeper, and ensure all data is reported correctly on every single parcel.
Outsourcing real estate tax monitoring to a reliable third party vendor will not only save you money and free up resources, but it will help you avoid delinquencies. Many lending institutions are faced with borrower delinquencies on a regular basis. Because interest fees are charged the moment an escrow payment is late, the borrower may be at risk of continuing to make inaccurate payments, resulting in high fees and the possibility of foreclosure.
As a bank or credit union, it is your responsibility to provide your borrowers with the highest level of customer service possible. There are numerous serious consequences of inaccurate real estate tax data, resulting in compliance problems and other issues for both the lending institution and borrower.
To avoid these issues, do your research and outsource tax monitoring to a vendor who is committed to ensuring data accuracy and will offer a high level of customer service. To learn more about Info-Pro and how we handle real estate tax monitoring, please do not hesitate to contact us today.
Timely information is vital for lender services. Industry and government regulations change often, and the only way residential, commercial, and agricultural lenders can offer highest efficiencies is to stay up-to-date. Info-Pro Lender Services provides real estate tax tracking, escrow processing, flood determination services, and property insurance services to lenders. This helps lenders focus on risk mitigation and information management, all while improving efficiency and increasing profitability.