It is late afternoon and you have had a full day with clients and examiners when you notice a certified letter on your desk. You review the letter and you are blindsided by the fact that your borrower has not paid their real estate taxes for over a year and now a third party has a lien on your property. This situation is unfortunately all too familiar for community lenders. Tax Liens are sold to investors in over 29 states. Local governments use property tax revenue to fuel the functions of public schools, police and park departments, libraries, and other vital local offices.
Tax Tracking and Liens
According to the National Tax Lien Association, each year an estimated $14 billion in property taxes go unpaid leaving local governments with few options such as; drastic cost-cutting, closures, and layoffs – OR, selling the tax lien to a private investment firm. For local governments, selling unpaid property tax debt seems like a good idea. The selling of a delinquent property tax bill as an investment creates a Tax Lien Certificate. An investor will pay the local government the amount owed in property taxes plus the interest due to the county, thus creating a bridge loan. This allows the local government a source of revenue, that it did not have before. In return, the county allows the investor to step into their lien position and charge the property owner additional interest. The investor then holds the first lien position and this position will trump the priority of a first lien mortgage in every participating state. Each state’s tax lien statute is different, but after the investor has possession of the lien the property owner must pay back the property tax debt with interest. If the borrower is unable to pay the investor, they now have the opportunity to foreclose and take possession of the property at a fraction of its value. Why were you notified? A Take Notice is required to be sent to all interested parties of a property that has a tax lien facing foreclosure. As a mortgage holder, first-lien or otherwise, you have received this notice as a last effort to collect the debt owed. By the time you have received this notice, the taxes have been delinquent for years, with a significant amount of interest accrued.
There is a simple solution that will eliminate the need for your institution to spend countless hours managing your property taxes, and in some cases still take a loss. As a lender, you have a fiduciary responsibility to manage the risks of your mortgage lien, and property taxes are a critical piece. You cannot expect to know the local government's processes for handling their real estate taxes. Our Property Tax Intelligence service can help you with this challenge. Isn’t time to have this process handled by an expert?