Some of you may be familiar with the old adage, you only have to do two things in life, die and pay taxes. While some people might add working out and watching your gluten intake, paying taxes still remains very true. For property taxes to be paid correctly, it is crucial for servicers to set up loans correctly on their system during the boarding process. Not doing so could lead to penalties or even the loss of a property.
The tax line is a record in a loan servicing system that includes all the data needed to identify when property taxes need to be paid, the amount of payment and what jurisdiction receives the payment.
The following charts represent the monthly number of items and dollar amounts for occurrences of paying the wrong amount of property taxes. The information is based on LERETA national data from prior servicer/lender acquisitions from July 2015 through April 2016.
One important area to be cognizant of is the tax line, which includes all the data needed to identify when property taxes need to be paid, the amount and the jurisdiction to receive the payment. The line includes:
>> The tax payee code is the unique number assigned to identify the tax collection jurisdiction on the servicing system. This code cross-references to another file that includes the taxing jurisdiction name and mailing information.
>> The tax identification number is the actual number assigned to the property by the taxing jurisdiction and is required when obtaining any information from the taxing jurisdiction about the property.
>> The disbursement amount or last amount paid is the last amount paid to the taxing jurisdiction for this tax line (can be an annual or installment amount) and is updated with the current amount to be paid when new taxes become due.
>> The due date is the date the servicer assigns to this line to alert them to an upcoming payment requirement (this date is based on business rules and is generally 15 to 30 days before taxes are due to the taxing jurisdiction).
>> The type is a code that identifies the type of taxes due, typically county property taxes, city taxes, school taxes and some non-standard payees, such as sewer taxes, garbage taxes, ground rents, etc. Servicers are required to report escrow payments annually to borrowers, and the tax type is used in preparing tax deductions on the borrower’s income tax return.
>> The term is used to identify the frequency the taxes are being paid, for example a Term of three indicates the annual taxes are being paid every three months, or quarterly (three months x four installments = 12 months).
>> Other codes as determined by the business rules of the servicer.
Servicers cannot rest on their laurels once the tax line is set up on a loan. It is extremely important that tax lines are monitored and maintained to ensure the accuracy of the data due and to any potential changes. Those changes could include new payees or the consolidation of taxing jurisdictions that no longer collects taxes, and how they are now collected by the county or separating taxing jurisdictions (a city decides to collect its own taxes instead of them being included by the county). There could also be changes in the due dates, contact information or tax identification numbers.
Servicers can either take on the responsibility of managing this process or work with a tax service vendor that can offer and facilitate the tax line setup and tax line audit services on behalf of the servicer. Either way, the taxes have to be paid correctly, else penalties will be incurred, which no one wants to happen.