Editor's note: This feature appears in the June 2021 print issue of DS News Magazine, available here.
If 2020 was a chaotic year for mortgage originators, 2021 could wind up just as challenging for mortgage servicers. Between the increasing likelihood of a spike in loan modifications and delinquencies and ongoing demand for refinancing, servicers will have a lot on their plate this year.
As companies prepare for these challenges, it can be easy to overlook one of the most fundamental aspects of servicing loans—property taxes. The pandemic has already exacerbated the challenge of identifying and ingesting property tax information, a challenge that will only intensify as servicers work with borrowers coming off forbearance plans. But there is help if servicers know where to look.
Hurdles to Managing Property Taxes
One of the misconceptions about property tax data is that it’s easy to obtain. After all, many tax collector and assessor offices around the country publish tax data publicly. However, that doesn’t mean the data is easily accessible for servicers. For example, in several states in the Northeast, property tax records aren’t available electronically. Servicers are required to submit a payment request to a tax collector in order to procure a tax bill/data.
Because there are thousands of overlapping jurisdictions, many mortgage servicers spend an extraordinary amount of time tracking and ensuring payment of tax bills. The methods and timelines various tax collectors use to assess and collect taxes deviate wildly as well. For instance, some tax collector offices collect just 30 days past the due date and tax delinquencies are collected by a third party, while others accept payments for tax delinquencies but a tax sale can occur as soon as 60 to 90 days past the time they’re due. For servicers with portfolios that span multiple counties and states, this lack of consistency often results in extra manhours and frequent errors. Even a small miscalculation can lead to significant financial problems, not to mention borrower frustration.
Another challenge servicers face is onboarding tax data, which is when most issues with property taxes emerge. The key question is to find out what information can be procured from a title company or prior servicer so duplicate tax payments or delinquent taxes can be avoided. For example, the processes servicers use to confirm and set up tax data in their system often differ, which often results in data not being loaded accurately. Because most servicers don’t have the proper technologies in place to manage property tax data, they depend on human staff and manual processes to handle this work. As a result, many servicers face discrepancies in tax data when onboarding loans, which frequently result in collecting duplicate or erroneous tax payments. Meanwhile, most servicers do not have the deepest expertise about property taxes, let alone maintaining tax experts on staff.
One of the biggest problems facing servicers this year is advancing escrowed property tax payments to tax collector offices for borrowers who have paused their mortgage payments. In order for the current taxes to be paid on time, servicers are advancing corporate funds to support outgoing tax payment due to insufficient funds being in escrow at time of tax payment. The advance is then collected from borrowers on their next escrow analysis resulting in an increased escrow payment on their loan. For non-escrow borrowers, servicers are seeing an increase in tax delinquencies due to the borrower’s inability to pay current taxes on time. Servicers are forcing escrow and advancing payment for delinquent taxes in order to prevent a property from going to tax sale and protecting their lien on a property.
Getting Ahead of the Game
There are ways to overcome these challenges, starting with technology. Fortunately, the tools that enable verification of property tax data have come a long way in providing that information in a streamlined fashion. However, not all technologies are the same.
Few mortgage servicing technologies offer tax modules, for example, let alone provide access to the latest property and tax information from every jurisdiction represented in the average servicer’s portfolio. Even among third-party vendors that offer property tax tracking and management platforms, few of these platforms can be easily integrated with leading mortgage servicing systems. Also rare is the property tax tracking platform that is agile and scalable enough to give servicers complete control and visibility in their tax reporting, regardless of how large their portfolios are or how many loan modifications and refinances they do.
A trustworthy third-party outsourcing company that specializes in property taxes typically has built out a technology framework that enables servicers to seamlessly and safely exchange tax information when onboarding loans and a track record of reducing costs. Such providers typically have their own end-to-end property tax tracking and reporting solutions, so that lenders and servicers are able to maintain visibility and control over their portfolios. Such solutions should be able to integrate with leading servicing platforms via application programming interfaces (APIs) and file sharing, so they can be implemented quickly.
For long-term success, it’s also critical to partner with providers that are committed to constant innovation. During a time in which technologies are always improving, all of your partners must be continually updating their systems to keep pace with new innovations as well as new business demands. Look for organizations that are putting out constant platform enhancements and features, and don’t be shy about asking for references or doing your own due diligence to determine whether their claims are true.
Accessing the Right Expertise
Of course, technology alone can’t solve every business issue. So it’s also a smart move to partner with a third-party provider that has tax experts on staff who have experience working in the servicing industry and who understand the challenges servicers face and how they can be met.
Such experts are well-versed in not only conducting property tax searches, but also know how to uncover municipal and utility liens and property code violations. A third-party tax service provider can also help servicers understand and keep abreast of differences between separate tax jurisdictions and their requirements and timelines.
The benefits of accessing the right property tax expertise cannot be overstated. The more time servicers spend attempting to track and manage tax payments, the less time they spend on their core mission of assisting borrowers with their financial needs and providing excellent customer service.
The bottom line is that mortgage servicers face a difficult year ahead, including the likelihood of increased government scrutiny with a new Congress and presidential administration in place. Ultimately, having access to tax experts and property tax tracking technologies will help reduce a servicer’s risks in the coming year without having to add in-house staff. If ever there was a time to access such assistance, it’s now.