With the passage of SB 247 during the 83rd Texas legislative session, property tax lenders have bad news for many of their existing borrowers. The bill modified and removed provisions that allowed for a tax lien to be transferred to a property tax lender for taxes that were due, but not delinquent, at the time of payment if the property is subject to recorded mortgage lien.
Property Tax Lending Laws Affect Timing of Property Tax Loans
Under the new legislation any property encumbered by a 1st lien mortgage will not be eligible for a property tax loan until the taxes are actually delinquent. We’ll look at a real world example of how this new legislation will hurt property owners. Before we begin, let’s quickly review the penalties for not paying your property taxes on time. Property tax bills are always due on January 31st. On February 1st a 7% penalty and interest charge is automatically assessed to all properties with tax balances not paid in full. Penalties and interest will continue to accrue with each successive month that taxes go unpaid, resulting in a cumulative penalty of almost 48% in the 1st year of delinquency. While tax assessor penalties and interest charges increase every month, the penalty imposed on February 1st is second only to the July 1st penalty.
Now for the example, let’s assume Mr. Smith has an existing tax loan with a property tax lender which was completed for a previous tax year. Mr. Smith owns a $250,000 home with a mortgage and has an $8,000 property tax bill due January 31st. Unfortunately, he doesn’t have the $8,000 to pay his taxes today, although he hopes to get them paid later in the year once he gets his income tax refund. Under the old legislation, Mr. Smith could contract with his property tax lender to pick up his new taxes in January before they were delinquent. By having the property tax lender pays these taxes in January, Mr. Smith would save $560.00 in penalty and interest charges. This option is no longer available to Mr. Smith. Under the new property tax lending laws, the tax lender would tell Mr. Smith that they can only pay the taxes once they are delinquent and that the $560.00 in penalty and interest charges were unavoidable.
The Impact to Property Tax Lenders
It’s difficult to determine exactly how this requirement will impact property tax lenders. Many believe that it will just push loans that would have been completed in December and January into February. The notion is that if the property owner doesn’t have the money to pay the taxes in January they won’t have it in February either. Assuming this is the case, the new regulations will have minor impact to property tax lenders. However, the unfortunate consequence will be the cost to property owners. In many cases the property owners will find the 7% February 1st penalty unavoidable. They will still have their taxes paid by a property tax lender in February, albeit on the higher tax amount.