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Property Tax Funding Blog

The Impact of Regulation, Licensing, & Competition on Texas Property Tax Loans

Posted by Joe Thompson on Mon, Feb 09, 2015 @ 15:02 PM

Although some have tried to cast Texas property tax loans in a bad light, they’ve only grown in popularity in the last six years. In 2008, just 8,949 people received this form of assistance to help pay the taxes owed on their property. However, just three years later, 12,686 had benefited from these lien transfers. While there are plenty of ways to help explain these numbers, the impact of regulation, licensing and competition has certainly played a role.

A Brief Introduction to Texas Property Tax Loans

Let’s begin with a quick overview of what these loans entail. To be accurate, they’re not actually loans at all. Instead, they’re lien transfers. When someone finds themselves severely delinquent on their taxes, they don’t face too many options. They can try to raise the money on their own, but the amount is often thousands of dollars. In fact, the average lien transfer in 2013 was for just over $12,000.

Making matters worse is that the property owner is also faced with mounting interest, making each payment they miss all the more difficult to pay off. On top of that, if they don’t get the money they need in enough time, they could lose their property to foreclosure. With a lien transfer, those in trouble can transfer the property tax obligation on their property to a lender as collateral and, in return, the lender will pay off their tax debt. The borrower then has years to pay off the amount, generally in monthly payments.

Regulation and Licensing

At first glance, it’s understandable that this arrangement makes some people squeamish, given the recession. However, all of the parties involved are potentially the most regulated in the entire country. After all, we’re talking about taxes and home ownership.

That means you automatically have the tax authorities in Texas involved. Obviously, they’re not going to let anything happen that would put the money they’re owed in jeopardy. Then, consider that the lender and originators both have to be licensed in order to take part in this transaction. In addition the industry is regulated by the Office of Consumer Credit Commissioner who regularly audits all licensees.

Of course, one should also keep in mind that, given the last seven years, the amount of scrutiny focused on this industry is possibly as tough as it’s ever been. Since 2005, even more laws have been passed specifically to monitor this industry.

Furthermore, the Texas government gains an extra $200 million every year in taxes from this industry—an amount they’d otherwise never see—so you can be sure that they are extremely invested in regulating it to the fullest.

Competition

Helping matters is the amount of competition that has entered the market too. One only has to look at recent statistics to appreciate that lenders are scrambling to take advantage of this opportunity. By doing so, they have drastically lowered the costs of receiving help.

In 2008, the average homeowner who went through a lien transfer had to spend $1,259.40 on closing costs. In 2011, that number fell to $865.52. What’s more, however, is that back in 2008, closing costs made up 17.41% of the entire amount. By 2011, it was just 9.82% of the total.

Last year, the closing cost average fell again, totaling just $707 for homeowners. This came to just under 7% of the total amount financed. Expect to continue seeing rates and closing costs drop in price as competition continues to ramp up.

It’s hard to argue that property tax loans aren’t playing a vital role in helping many Texans get back on their feet. This is no doubt thanks in large part to those who help regulate the industry and the many lenders that are competing hard to be a part of it.

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