Protecting Collateral From Tax Liens

Delinquent property taxes can be a form of loan default, jeopardizing a lender’s lien position and putting collateral at risk. Complicating matters is the fact that monitoring property taxes is no simple task. One reason is that local government processes vary greatly, and under-standing the inner workings of each county or municipal tax system is complicated. The larger your lending foot print is, the more complicated it becomes.

Many states allow municipalities to sell tax liens to investors in order to capture much needed revenue. The selling of a delinquent tax bill as an investment creates a Tax Lien Certificate, and investors will pay local governments the tax amount and interest. This allows the investor to step in as first lienholder. It also allows the investor to charge the borrower additional interest. After the investor has possession of the lien, the borrower must pay back the tax debt, plus interest. If the taxes remain unpaid, the investor can foreclose and take possession of the property for a fraction of its value.

By the time you as the lender find out, it’s too late. You receive a “Take Notice” letter, a last effort to collect the tax debt that is sent to all interested parties of the property. By the time you receive the notice letter, the taxes have quite possibly been delinquent for years, and there are few options left for saving the collateral.

Having a reliable process in place to accurately monitor property taxes is critical. EDR recently incorporated NRTT’s tax monitoring services into Collateral360, providing lenders with an easy, efficient way to assure their collateral is protected from unforeseen tax liens. EDR recently hosted a webcast featuring NRTT’s Kelly Hebert who provided an in depth look at the complexities of tax monitoring. Go here to view a recording of the webcast.