When you purchase a large loan pool, the key to loan preservation is automating the process of calculating the remaining time you have to pay off the taxes. The evaluation of time to go from a tax certificate or tax delinquency to a tax deed should take a number of things into account:
the due diligence
time cycle, settlement and closing, boarding the loan with the server and, possibly, recording an assignment into the investor’s name. It’s also a good idea to allow for the kickback of assets that have been lost to tax deeds right after closing, or a certain period after closing, in your reps and warrants agreement with seller.Remember, in many states, the mortgage is completely wiped off by a tax deed without redemption
, which then becomes an unsecured asset.
Property or mortgage portfolio
managers or servicers for large asset (or mortgage) pools might not notice that one of their properties is going up for a tax sale, or could miss when the taxes and tax certificates are ignored or unpaid. In fact, a few jurisdictions don’t require the sheriff or treasurer to even notify all the interest holders of the tax sale. Proactive monitoring of taxes is sometimes performed by servicers, but not always with enough thoroughness to guarantee a property won’t be sold at a tax sale. For example, the city of Philadelphia does not require the treasurer to send out notices to interest holders or loan servicers. This practice (or lack of practice) is problematic for title insurance companies when issuing title insurance on the tax deed; lenders who miss the tax sale are forced to file for an appeal, which may lead to a significant expense for the title company.
Every state has unique tax fiscal years (different from the current year), as well as unique installment and due dates. For example, if the current tax year is 2017, Connecticut may be in fiscal tax year 2015, California may be in 2016-17 and Pennsylvania in 2017. There are many online references that can help you with state-specific due dates and fiscal years. In some states/counties, there are additional tax jurisdictions collecting taxes which have the right to foreclose on properties for tax non-payment. States such as Tennessee, Georgia, New York and Pennsylvania have township or city tax jurisdictions collecting taxes separately from the county taxes. In some cases, when the property overlaps two counties, both counties may collect the taxes or one county will collect for both. As an investor, therefore, it’s always important to verify the following:
1. The tax card or tax printout has a breakdown of collecting jurisdictions through the county treasurer
2. School taxes are collected through the county
3. The property lies in the township jurisdiction disclosed on the assessor’s printout
In many cases, the tax assessor will state on the assessment card that the town code will be county or unincorporated, which means the county collects the local taxes for the township, or there are no township taxes present.
One relatively new Pennsylvania law worth mentioning: As of 2014, any delinquent property tax assessment which has been reduced to a judgment constitutes a lien on all the real property owned by the borrower/owner. A judgment for real estate taxes, once indexed in the prothonotary’s judgment index (in Pennsylvania, this is similar to a civil court judgment recording), shall constitute a lien upon all real property of the owner in that county. Therefore, tax liens must be verified for any and all properties the owner owns in this state (which is not very practical, if you ask me).