Ensuring proper transactions related to the payment of real estate taxes is critical. For this to happen, all parties (lenders, tax service vendors and tax collectors) must work together to ensure information is accurate, mitigate payment issues and establish an overall smooth tax cycle process. Unfortunately, when this sequence is disturbed and communication breaks down, the consequences can be far reaching. This can include incorrect payments, upset homeowners and tax collectors as well as the potential for costly fees.
To avoid these, there are several areas in the tax payment process that lenders should review to minimize portfolio discrepancies and maximize the opportunities for clear communication.
BILL REQUESTS
One common area of miscommunication that can be easily rectified is in the notification of satisfied loans. When lenders advise tax service vendors of a satisfied loan status, they can avoid duplicate bill requests, and consequently, duplicate bill payments. It is common for tax service vendors to receive emails and phone calls from homeowners regarding tax bills.
The homeowners who did not receive a bill from the tax office indicate there is no longer a mortgage on the property; it has been paid. Most often, the lender has not notified the tax vendor of the loan satisfaction.
One way to address this discrepancy is for lenders to run regular audits, which can prevent tax service vendors from requesting tax bills for satisfied mortgages.
Duplicate bill requests are frustrating and inefficient for everyone involved, especially municipalities. In Clackamas County, Oregon, when there are multiple bill requests for the same tax bill, it causes a significant backlog in the collector’s office as the bills are updated one by one each time a new bill request is made.
In contrast, Pinal County, Arizona, is one of the few counties that actually communicates with tax service vendors about parcels not canceled as their bills come in with comments on them. This level of communication helps eliminate duplicate bill requests. Quite a few counties in California send out error reports that identify parcels with duplicate requests. When bills are requested by a tax service, they are flagged and the homeowner receives a post card mailer (rather than a normal tax bill) with a comment that the taxes were requested by a lender or vendor.
LOANS WITH MULTIPLE SECURITIES
Lenders sometimes require collateral properties to secure a loan, primarily with investment properties. It is essential that these collateral properties are correctly identified as escrow or non-escrow to eliminate possible duplicate payments.
While the loan may be set up to pay taxes through an escrow account, in most cases the taxes for the collateral property are handled directly by the borrower. Many times this collateral property is added after the initial loan origination. If the lender does not communicate the proper setup for the tax billing on the collateral property, there is a risk that the taxes will be procured by the tax service even though the borrower has in fact paid the taxes.
For example, a borrower in South Carolina owns multiple properties; one is a residence, which is listed as the mailing address, and the other an investment property at a different address. One lender holds loans for both properties; however, the lender tied the second loan to the residential mailing address, resulting in paying toward the borrower’s residence, not the investment property tied to the loan.
If there had been proper initial communication about the different property addresses on file, this situation could have been avoided altogether. This ensures that the proper parcel identification used for tax collection or verification is established for the property tied to a loan.
PROPERTY PRESERVATION
Typically, property management companies, attorneys, and preservation and field services companies are hired to manage and maintain foreclosed or abandoned property. Lenders typically contract with these companies to provide services such as lawn maintenance, debris removal, winterization, lock changes and general maintenance of the home. Unfortunately, the vendors’ name is not readily on file or easily obtained. Tax services vendors, more often than not, receive calls from tax offices requesting the tax service vendor to notify the lender of maintenance needs or obtain a contact name and phone number. Because these properties are considered a public nuisance, it is imperative that timely and accurate responses be administered before the issue escalates.
To help promote effective communication regarding foreclosed and abandoned properties, lenders should (and many do) perform regular maintenance on their loan portfolios, especially when working with a tax service vendor. This ensures that the portfolio is current, and it allows the lender to have access to accurate information should any issues arise. If a lender is not working with a tax service vendor, it is imperative that the lender knows the procedure in providing tax offices with the correct information that links the lender to these properties.
PAYOFF
When no mortgage exists on a property, in most cases, the loan should reflect paid off.
There are several different reasons why tax bills might be transferred or requested by parties other than the homeowner. This occurs when an escrow account is set up on a loan that requires the lender to pay the taxes using the account monies to facilitate taxes being paid. The lender or its tax service vendor contacts that tax authority and requests that the bill is sent to them. An example is Lender ABC originated the loan but its servicing is released to another lender. The result is the tax bills for those escrow properties are not requested by the homeowner or Lender ABC but instead by the lender that is now servicing the loan. If a loan is paid off that has an escrow account tied to it, and the lender does not notify the taxing authority or tax service vendor, the bill will continue to be forwarded to the lender or tax service vendor.
To ensure there is no miscommunication here, it is imperative for a lender working with a tax service vendor to regularly perform portfolio maintenance. If a lender is not using a tax service vendor, an audit with the tax authorities should occur to ensure the agencies records are accurate.
RECONVEYANCES AND PARTIAL RELEASES
A reconveyance is a document issued by a mortgage holder indicating that the borrower is released from the mortgage debt and transfers the property title from the lender to the borrower. Most commonly it is issued when a mortgage has been paid in full. Partial releases are issued when a portion of the collateral securing a mortgage have been transferred to another party.
Reconveyances and partial releases could become more common as the economy improves and the rate of development increases. Unfortunately, there is a cumulative lack of controls on notifications of mortgage releases in these situations. This can result in duplicate payments or tax delinquencies being reported if proper notification is not provided to the tax service companies in a timely manner. When this happens, the tax services companies will be providing incorrect information to the lender as well as the tax authorities.
If all parties involved in the transaction had communicated properly, this situation could have been prevented and there would have been a lot less headaches.
PROPERLY RECORDING DEEDS
In the world of tax sales, it is important that agencies know who the recorded owner is. Mobile homes are particularly challenging because they are, by nature, mobile; they can be moved to other locations. If the home does changes location and is not registered, this becomes a problem between the agencies properly taxing the property and the tax service vendors that need to account for the proper taxing data.
A recent instance of this happened in Henderson County, Texas. In 2014, a letter from the homeowner correctly listed the mobile home address in that county. Today, however, it is a different story. The original parcel is no longer valid; the address is not in the Henderson Country assessment file. Where did that mobile home go? An incorrect property address or legal description, for instance, can result in a misidentification of the parcel numbers needed to secure each year’s tax bill.
Effectively managing risk is a hallmark of the tax servicing industry. Minimizing data integrity errors, working across lines to ensure open communication, and proactively seeking quality and resolution of data integrity problems will be a trademark of the industry going forward.
In today’s world where things move very quickly, it is paramount that even the smallest details be shared so that all the aforementioned challenges can be lessened or eradicated completely.
