“A recent report on WalletHub estimated that more than $14 billion in property taxes go unpaid each year.”
One of the most important tasks for any mortgage servicer is monitoring real estate taxes, and ensuring that the taxes are paid timely. This monitoring and follow-up require substantial time and effort, and servicers struggle to be on the top of the game. In our analysis, we have found that these challenges occur because of two primary reasons; (1) Lack of trained and experienced internal resources, when the work is performed in-house, or (2) Poor performance when tax services are outsourced to a subpar vendor.
The reasons and repercussions of poor management are many. Below we have 3 highlighted some critical ones.
Paying a large amount of interests and fees –
Instead of tracking tax delinquencies, the servicing resource may wait for the tax agency to send tax sale notices. The tax agency starts charging late fees/ interest once property taxes have been delinquent for a period of time. If the lender misses out on these delinquent taxes for the property, the tax bill can hit the roof because of additional fees/charges and penalties.
Risk of property going to a foreclosure or tax sale –
If the property has been delinquent for quite some time, both lender and borrower or borrowers are at risk of losing the property to foreclosure or tax sale. The tax sale processes & timelines differ by state and counties. Typically, the tax agencies initiate the process within a year. At the end of the process, the complete tax bill, including additional penalties/ interests, must be paid to save the property.
Tax liens sold to a third-party tax buyer –
If the property taxes are delinquent for a long time, possibly years, then it may be sold to a third-party tax buyer. In such a scenario the tax buyer holds the primary lien, hence it is essential for servicers/ borrowers to buy back the taxes to save the property.
THE CONSEQUENCES:
Inappropriate service to the borrower –
Due to the above-mentioned situations, borrowers get frustrated, as many of them rely on their lending agency for tax updates. Due to the long-standing delinquencies and inaccurate tracking by servicers, borrowers end up paying a huge amount of fees/ interest along with penalties. This makes them lose trust in their bank/ credit union or lending agency.
Larger risks for commercial portfolios –
Some servicing entities may monitor residential portfolios more diligently than commercial properties. Unfortunately, the stakes are even higher when commercial borrowers don’t pay taxes. The property cost is more & the higher tax bills link to larger fees and interest. Therefore, it is a must for any lender to prioritize commercial portfolios to avoid larger losses.
THE SOLUTION:
What must mortgage servicers do to stay up to date on tax payments to mitigate risk & avoid loss? The answer lies in using smart technology to increase oversight and reduce misses. A technology enabled platform that can be easily integrated with servicing systems and can perform frequent revalidation of delinquent taxes, is the best solution. This helps servicers stay updated with the most recent information to resolve delinquent taxes and definitely helps mitigates any risk of losing property to tax lien or sale.
Coforge’s RETS is a single-instance Real Estate Tax Service platform built to mitigate crucial servicing challenges like the ones mentioned above. The platform’s ability to perform frequent revalidation of delinquent taxes is being used by many mortgage servicers, including 2 of the Top 5 U.S. Commercial and Multi-family Servicers. On the RETS platform, the servicer user can review delinquent taxes reported and identify a subset of loans with delinquent taxes. RETS can then revalidate, on a monthly basis, if the delinquent taxes still exist or are cured. This service can be utilized for troubled or distressed loans that are headed towards foreclosure to obtain the most up to date amount that is due, to resolve the delinquent taxes and to mitigate any risk from losing a property to tax lien or sale.
RETS promises an exceptional client experience. It is backed by a team with 100+ years of tax servicing proficiency, which has built a collaborative solution specific to client business needs, that can be customized irrespective of portfolio size and that ensures cost savings with a flexible fee structure based on loan type.
Click here to know more about RETS or Schedule a callback for details on how RETS can keep you ahead of the competition.