This situation is unfortunately all too familiar for banks. Tax Liens are sold to investors in 29 states, with some of the most renown sales occurring in Illinois, New Jersey, and Florida. Local governments use property tax revenue to fuel the functions of public schools, police and park departments, libraries, and other vital local offices. 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 the unpaid property taxes hardly seems like a bad idea.
Here’s where things become complicated. 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 to continue its operations. In return, the county allows the investor to step into their lien position and charge the property owner additional interest. This is a first lien position and will trump the priority of a first lien mortgage in every participating state. Each state’s tax lien statute varies slightly in the timeline, but after the investor has possession of the lien the property owner must pay back the property tax debt with interest. If they are unable to pay the investor, they now have the opportunity to foreclose and take possession of the property at a fraction of its value.
Now why did you receive this letter? 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 interest accrued upwards of 36%, and there are few options left for saving your collateral. What went wrong? Is the borrower in financial distress? How will you explain this to the Chief Credit Officer?
There is a simple solution for your situation; manage your property tax portfolio. As a lender you have a fiduciary responsibility to manage the risks of your mortgage lien, and property taxes are a critical piece. Local government processes vary greatly, and how can you be expected to know the inner workings of each county? Property tax management companies like National Real Tax Tracking exist to help you with this process. It is time to have an expert partner on your side to manage this risk. The simplest proactive solution is tracking taxes. Why wait for a letter? Having a partner gives you the opportunity to step in 30-60 days after the due date to discuss a plan with the borrower.
If this happens to you, it could be too late. Don’t waste your time and money, and don’t let a tax lien be a silent killer in your portfolio.