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Whose Money Is It Really?

The fourth quarter is the busiest time of the year for tax payments. Borrowers want their taxes paid by year end for tax purposes, which creates a mad rush to pay, pay, pay. The title company pays, the lender pays, the borrower pays and/or the third party pays. All of these different sources of payments could ultimately lead to refunds. Those refunds mean the servicer is faced with refunds and the time consuming task of conducting research to determine who the money belong to.

Let’s take a closer look at a few factors around refunds including what causes a refund; what effect do they have on the servicer; and what can be done to prevent them.

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There are several factors to consider when determining what causes a refund. One of the primary causes of a refund is when more than one person or entity pays taxes on the same parcel and for the same tax year; this results in a duplicate payment. In some cases, the borrowers are not educated about who is responsible for paying the tax bill. So when they receive a copy of their tax bill, they will pay it and at the same time, the lender has paid it. Therefore, the tax agency may apply the first payment received and return any payments later received. Or they may apply the additional payment to the next installment or they deposit the funds and require a refund request to get them back.

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Another scenario that could cause a refund situation is the initial set up of tax line data on an escrowed loan. Generally, tax lines are set up according to the closing documents. If the documents show that taxes will be paid at closing, then the tax line would reflect a future date to avoid a tax payment. If the line has a current date indicating the taxes are due and the servicer pays them when in fact they were paid at closing, the result is a duplicate payment and the need for a refund.

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Yet another scenario that could create an overpayment is tax exemptions that could cause a decrease in the tax amount due, especially if the tax bill was paid and it was not reflected as tax exemption, which would cause an over payment. Paying the incorrect amount based on human error when keying an amount to pay or an error with the agency reporting an incorrect amount could require a refund as well. If the incorrect amount paid is more that the tax bill, it would create an overpayment possibly resulting in a refund or the agency may choose to simply apply the overpayment to the next installment. This could create a problem for future installments if the agency does not provide a notification that funds were posted to the next installment. When the next installment is due, the full amount would be paid, again creating yet another overpayment.

While over payments may not seem like a big deal, there are some serious effects refunds have on the servicer. For example, the amount of research involved to resolve the refund is costly. The servicer must contact the agency to determine what caused the refund, duplicate payment, overpayment, etc. Then the servicer needs to verify if the intended parcel matches the borrower’s name and address. The taxing agency should be able to advise who made the payment, whether it was title company, borrower, third party, etc. And if the servicer is requesting a refund, it has to provide proof of payment. Very few agencies automatically refund overpayments. Most agencies require a refund request be provided along with proof of payment.

Other time consuming and costly activities that are often prompted by refunds are an escrow analysis of a borrower’s account and additional resources in the call centers as activity generally increases due to borrower inquiries regarding refunds.

There are ways servicers can prevent or reduce refund volume including:

>>Establishing rules with closing agents regarding the payment of taxes,

>>Reviewing tax line due dates with closing agents to ensure business rules are well documented to prevent the duplication of tax payments,

>>Conducting an audit on new orders to ensure tax lines are built correctly to avoid duplicate payments,

>>Performing root cause analysis of refunds and addressing the findings,

>>Educating borrowers to understand what tax bills they should or should not pay, and

>>Advising borrowers to always examine their property assessment.

Left uncheck, taxing authorities could take months to acknowledge duplicate payments let alone sending a refund. This could create the need for additional research on the part of the servicer and will increase customer inquiries from borrowers. Being vigilant in addressing the cause of refunds can save a company time and money as well as build confidence among borrowers.

About The Author

Adrienne Williams

Adrienne Williams is the vice president of outsource and current disbursement manager. Her main focus is managing a team to ensure taxes a paid properly for borrowers on behave of the lender. She has been at LERETA for more than five years and has more than 30 years of experience in the mortgage industry.

Refunds: Whose Money Is it?

The fourth quarter is the busiest time of the year for tax payments. Borrowers want their taxes paid by year end for tax purposes, which creates a mad rush to pay, pay, pay. The title company pays, the lender pays, the borrower pays and/or the third party pays. All of these different sources of payments could ultimately lead to refunds. Those refunds mean the servicer is faced with refunds and the time consuming task of conducting research to determine who the money belong to.

Let’s take a closer look at a few factors around refunds including what causes a refund; what effect do they have on the servicer; and what can be done to prevent them.

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There are several factors to consider when determining what causes a refund. One of the primary causes of a refund is when more than one person or entity pays taxes on the same parcel and for the same tax year; this results in a duplicate payment. In some cases, the borrowers are not educated about who is responsible for paying the tax bill. So when they receive a copy of their tax bill, they will pay it and at the same time, the lender has paid it. Therefore, the tax agency may apply the first payment received and return any payments later received. Or they may apply the additional payment to the next installment or they deposit the funds and require a refund request to get them back.

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Another scenario that could cause a refund situation is the initial set up of tax line data on an escrowed loan. Generally, tax lines are set up according to the closing documents. If the documents show that taxes will be paid at closing, then the tax line would reflect a future date to avoid a tax payment. If the line has a current date indicating the taxes are due and the servicer pays them when in fact they were paid at closing, the result is a duplicate payment and the need for a refund.

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Yet another scenario that could create an overpayment is tax exemptions that could cause a decrease in the tax amount due, especially if the tax bill was paid and it was not reflected as tax exemption, which would cause an over payment. Paying the incorrect amount based on human error when keying an amount to pay or an error with the agency reporting an incorrect amount could require a refund as well. If the incorrect amount paid is more that the tax bill, it would create an overpayment possibly resulting in a refund or the agency may choose to simply apply the overpayment to the next installment. This could create a problem for future installments if the agency does not provide a notification that funds were posted to the next installment. When the next installment is due, the full amount would be paid, again creating yet another overpayment.

While over payments may not seem like a big deal, there are some serious effects refunds have on the servicer. For example, the amount of research involved to resolve the refund is costly. The servicer must contact the agency to determine what caused the refund, duplicate payment, overpayment, etc. Then the servicer needs to verify if the intended parcel matches the borrower’s name and address. The taxing agency should be able to advise who made the payment, whether it was title company, borrower, third party, etc. And if the servicer is requesting a refund, it has to provide proof of payment. Very few agencies automatically refund overpayments. Most agencies require a refund request be provided along with proof of payment.

Other time consuming and costly activities that are often prompted by refunds are an escrow analysis of a borrower’s account and additional resources in the call centers as activity generally increases due to borrower inquiries regarding refunds.

There are ways servicers can prevent or reduce refund volume including:

>>Establishing rules with closing agents regarding the payment of taxes,

>>Reviewing tax line due dates with closing agents to ensure business rules are well documented to prevent the duplication of tax payments,

>>Conducting an audit on new orders to ensure tax lines are built correctly to avoid duplicate payments,

>>Performing root cause analysis of refunds and addressing the findings,

>>Educating borrowers to understand what tax bills they should or should not pay, and

>>Advising borrowers to always examine their property assessment.

Left uncheck, taxing authorities could take months to acknowledge duplicate payments let alone sending a refund. This could create the need for additional research on the part of the servicer and will increase customer inquiries from borrowers. Being vigilant in addressing the cause of refunds can save a company time and money as well as build confidence among borrowers.

About The Author

Adrienne Williams

Adrienne Williams is the vice president of outsource and current disbursement manager. Her main focus is managing a team to ensure taxes a paid properly for borrowers on behave of the lender. She has been at LERETA for more than five years and has more than 30 years of experience in the mortgage industry.

A New Servicing Dilemma

Mobile homes by specific definition have always presented a challenge in the tax service industry due to the fact they are, well, mobile. Webster’s definition of a mobile home is “a dwelling structure built on a steel chassis and fitted with wheels that are intended to be hauled to a usually permanent site. Sometimes they are referred to as manufactured homes. They are different from modular homes, which are pre-cut but assemble on a particular site.

Mobile or manufactured homes are usually purchased very similarly to how you would purchase an automobile, boat or camper. A mobile home dealer has inventory on a lot, a buyer makes a selection, and the mobile home is then moved to the location where it will reside, either in a mobile home park or on a private piece of property. If placed on personal property, it can still be taxed as real property if permanently attached (home/land loan) or as personal property (chattel loan).

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Fannie Mae and Freddie Mac have announced that they are going to support the market for chattel loans on manufactured housing. This is happening because according to the U.S. Census, the average price of a manufactured house today is about $70,000 compared with $350,000 for a site-built home.  Fannie Mae and Freddie Mac’s principle mission remains that of meeting the housing finance needs of low- and moderate-income households. Their big question is how to provide financing for manufactured housing without incurring excessive risk.

There tends to be high loss rates because value tends to decline over time, especially if the collateral does not include the land which accounts for a large part of the price appreciation.  Also, if on rented land the owner is at the mercy of the landowner that may decide to raise rents or sell the property for other uses, this then requires the manufactured home to be moved.  The third point in impact value of manufactured home is that they tend to be vulnerable to natural disasters.  In 1992 Hurricane Andrew destroyed almost all the manufactured homes in its path, this compares to about one third of the houses built on site. Despite the three points that create increased high loss rates, manufactured housing can support the shortage of affordable housing. Federal Housing Finance Agency (FHFA) indicated that the percentage of new manufactured homes titled as chattel increased from 67 percent in 2009 to 80 percent in 2015.

This is the first hurdle for effectively servicing taxes on mobile homes, determining where the mobile home will be located. Usually when the original mortgage is secured a location is established. However, while the towing hitch, axles and wheels can be removed and the mobile home connected to utilities and placed on a foundation, the utilities can be disconnected, hitch, axles and wheels are reinstalled and that mobile home can be moved to another location. Sometimes the proper paperwork is registered and a moving permit is secured, other times that is not the case and the mobile home hits the road and finding its new location can be very challenging for lenders and servicers.

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Taxing jurisdictions throughout the United States have varying rules/regulations pertaining to mobile homes so it is very important to be knowledgeable of the ones that pertain to where your mobile home is going to be located.
If you are successful in accomplishing the first hurdle of determining the location, the second challenge is to determine how the mobile home is assessed and taxed. Is it carried by the tax jurisdiction as a personal property, treated as real property or licensed by a motor vehicle office?

Does your obligation specify only the mobile home or do you have a land/home loan? Ownership interests in the mobile home and land must be the same to be assessed for ad valorem (assessed value) tax purposes. If the mobile home is placed on non-borrower owned land, it would not be subject to assessment as real property. While some jurisdictions will tax the mobile home on the same bill as the land if the owner of land and mobile home are the same; some jurisdictions make it an option if the owner wants to have them taxed separately.

As an example of personal property assessment, most mobile homes in New York are placed in mobile home parks, the assumption is that they are on rented/leased land. This assumption could result in taxes not being paid if the homeowner applies/qualifies for an exemption beyond the basic STAR exemption (exemption from school property taxes for owner-occupied, primary residences), then the mobile home can be taxed separately from the mobile home park and the homeowner is responsible for a real property tax bill. Some servicing companies require a “Mobile Home Park Acceptance Letter” for New York. This document indicates whether the park manager or the tenant is responsible for their mobile home taxes.

If you have a chattel loan; you probably do not want to pay on the land unless the mobile home is assessed with the land. However because of taxation laws, you may be forced to escrow for the land as well if that is the way the mobile home is assessed according to the taxing jurisdiction and their requirements. In many cases, the payment of taxes for a mobile home that is considered personal property will have both a collection period different than what real property will have and also the same for the assessment period. Depending on the timing of the loan; the mobile home may not show on the assessment books for a number of months.

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Texas will carry the mobile home together with the land (assessed and taxes as real property) if a statement of ownership and location for the home reflects the owner as electing to treat the mobile home as real property and a certified copy of the statement of ownership and location has been filed in the real property records in the county which the mobile home is located in. Some jurisdictions taxation of the mobile home with the land only applies if the title has been purged/eliminated or a “Certificate of Permanent location” has been filed, otherwise they are taxed separately.

In Florida, if the manufactured home is placed in a mobile home park, it is assessed through the DMV. If the homeowner is purchasing a plot of land in the mobile home park, it will be assessed with the land as real property. But in the first year of placement, until the first assessment date, the mobile home will be taxed through the DMV registration regardless of whether or not it is going on the borrower owned land.

To further complicate the subject are the nuances of how each scenario is assessed. Assessment timing can also vary by state. It is critical that the servicer is aware when a mobile home will be on the assessment roll for the upcoming tax cycle. There are some states such as Pennsylvania, Louisiana, Georgia and Mississippi that can assess a mobile home at any time. This can result in an interim tax bill being sent to the mobile home owners within 90 days of placement. If the mobile home is treated as real property (considered an improvement on the land), the taxation piece is very simple, the taxes fall in line with the normal collection period for other real properties you are servicing.

In some areas the available exemptions for a mobile taxed as real property are the same as a conventional home. Other jurisdictions will levy the tax based on the age and square footage of the mobile home. In many states for a chattel loan the VIN/serial number is the way you will identify the correct mobile home, California and Texas use their own identifying factors to track the mobile home, California uses a decal and Texas uses a label, but both are tied to the VIN/serial number. These numbers are just like the VIN of a car, they are unique to the mobile home and the most important piece of information to verify that you have the correct collateral. A mobile home loan should contain that VIN/serial number. However, there are some states that do not use the VIN/serial number to track the mobile homes (Tennessee, Arkansas and Kentucky are examples), in looking for the mobile homes in those states, you will need to match the year, make and description as closely as possible.

In Illinois, mobile homes are billed under a “Mobile Home Privilege Tax.” The computation of mobile home tax also can differ from real estate tax. Tax bills can be issued to mobile home owners based on the age and square footage of the mobile home. This can even include values for appendages such as carports or porches.

Most jurisdictions do not have mobile home information on their websites or make it easily accessible to lenders or servicers. Determining all of the above usually requires contact with specific assessment and taxing departments across the country to ensure you obtain accurate information for the loan. California does have their HCD website which allows you to see the decal number/registration status for mobile homes in that state, also Texas TDHCA website will allow you to search for mobile homes titled in that state.

Mobile homes present a number of unique challenges in comparison to a stick built home. Knowing the location of your mobile home and the taxing jurisdictions procedures/requirements will go a long way in successfully servicing your mobile home loans as well as reducing risk of property loss.

About The Author

Fred R. Holstein

Fred R. Holstein is Vice President and National Tax Setup Manager for LERETA LLC, a provider of tax and flood services to the Mortgage Industry. He can be reached at fholstein@lereta.com. Since 1986, LERETA has provided the mortgage and insurance industries the fastest, most accurate and complete access to property tax data and flood hazard status information across the U.S. LERETA is committed to giving customers extraordinary service and cost-effective property tax and flood solutions. LERETA’s services are designed to increase efficiency, reduce penalties and liabilities and improve processes for mortgage originators and servicers.

Getting The Most Out Of Your Contact Center

The first and fourth quarters of the year are when the tax servicing industry is flush with high call volumes. During these times especially, when customer demands are escalated, it becomes even more important to ensure service levels are not jeopardized. One of the most important and influential means of providing the best customer service is to take a proactive stance, rather than reactive.

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The contact center, when managed properly, can be a source of great information. Below are three ways to get the most out of a call center.

Reduce Call Volume

Why are borrowers calling? While this may seem like an obvious question, it is important to use data to corroborate and to make changes if necessary. For example, in your due diligence efforts, you could uncovered that a lot of the calls requesting information for 1098 forms for income tax purposes. In response, you can update your interactive voice response system to route these calls to right department.

Properly managing calls can improve caller experience as well as abandon call rates. This afforded companies financial benefits in the money saved from reducing overtime – without affecting performance. Customers will ultimately be happier as they will not need to be transferred from one department to another and agents could more effectively assist borrowers with their property tax inquiries.

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First Interaction Resolution and Staff Training

When a request requires research, it is imperative for the contact center team to be well trained in active listening, effective questioning, timely follow through and collaborated solutions. This ensures that, if the call cannot be resolved immediately, a timely resolution will be found with all the information gathered that is needed by the borrower.

For example, if a homeowner calls about delinquent taxes, an agent should listen carefully without interruption and gather as much information as possible. Usually, this will allow the agent to obtain critical information such as; the agencies name to which the taxes are delinquent, the amount due, and if any action is being taken against the property. The agent can advise the borrower on the time frame for either a follow up, update or resolution. In this way, companies can operate efficiently and effectively to address borrowers’ concerns. When a customer understands what is being done, and when, it prevents an escalation of the situation or repeat calls.

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Random Call Audits

There is always room for improvement. Random call audits are one of the tools that lead to call quality improvement. Through this training system, the agent can better understand his or her strengths and correct any areas that need improvement. In this process of streamlining the call center, you could uncover areas that could benefit from better quality control efforts.

Even if you exceed requirements, it is important that companies understand the importance of continuous efforts to improve the caller experience service.

About The Author

Christy Perez

Christy Perez is Customer Care and Call Center Manager at LERETA. Since 1986, LERETA has provided the mortgage and insurance industries the fastest, most accurate and complete access to property tax data and flood hazard status information across the U.S. LERETA is committed to giving customers extraordinary service and cost-effective property tax and flood solutions. LERETA’s services are designed to increase efficiency, reduce penalties and liabilities and improve processes for mortgage companies.

This Is Important

One of the most important financial decisions that we make in a lifetime is the purchase or refinance of a home or other real property. While most all of us understand the benefits of car, life or health Insurance, title insurance is something that is rarely given much thought prior to sitting down at the closing table with an escrow officer or attorney. A title insurance policy insures that there will not be any unpaid claims or interests tied to the newly purchased property. The American Land Title Association reports that more than 30 percent of all real estate transactions have a defect in title, and while there are many ways that the title to our property can be compromised, delinquent property taxes remain one of the most problematic and costly.

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Imagine purchasing the home of your dreams, only to find out that the previous owner had failed to pay the taxes on that property for the last several years. Those taxes have inadvertently become your responsibility, as they are tied to the property. Your recourse as the new owner would be to contact the title company that issued the title policy and file a claim. In the vast majority of these cases, the insuring title company defers to the tax certificate which can provide full or partial indemnity in the case of unknown or unpaid property taxes, penalties and interest, or tax liens.

During the last 30 years, tax certificates have become an integral part of the escrow closing process as title companies have looked to third-party vendors that manage this potential liability. Through well-defined risk assessment, turning this task over to property tax experts makes all the sense in the world.

So, what is a tax certificate?

A tax certificate is a fully or partially indemnified document that reflects the current status of property taxes, penalties, interest, and any other affiliated costs due on a designated property legal description. It also provides up-to-date ownership and address information, assessed values, tax rates, exemption status, and, most importantly, any delinquencies. Additionally, a tax certificate identifies all collecting entities and their contact information allowing for quick and easy disbursement. A tax certificate does not constitute a report on the status of title, mineral interest’s taxes or leases, personal property taxes or other forms of non-ad valorem taxes.

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Tax certificates provide another level of protection to the borrower, the title company/agent and ultimately the underwriter who is insuring the transaction. In the case of tax delinquencies or liens, a sound tax certificate provides a safety net for the buyer. Generally provided by companies that specialize in property tax research, the information is vetted by professionals who have a clear understanding of taxing authority requirements and property characteristics. Hidden delinquencies, rogue property splits, special districts and agricultural rollback liabilities all play a big part in the everyday world of tax service. For a title insurer with so much at stake, the smart and obvious play is to reduce liability by employing a tax service to assume the risk.

Gathering reliable information

What was originally a completely manual process has evolved greatly over the years. While there are still some aspects of tax research that require a hands-on approach, the vast majority of tax research is now automated. The most common method of data aggregation requires the periodic purchase of assessor/appraisal tax rolls. Depending on the tax service’s requirements and the designated tax cycle, these rolls might be purchased weekly, bi-weekly, monthly or quarterly. This method has shown to be for the most part, efficient and reliable. The most common complaint regarding the roll-purchasing method is that even when obtaining rolls on a weekly, basis there can be a time gap in the information which could result in delayed or inaccurate results.

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Another method is “real-time” fulfillment. Through technological advancements, real-time research is emerging as the go-to solution in tax service fulfillment. This method provides up-to-date results with no time lag. The information is retrieved through automation at the time of order and reflects all current and delinquent taxes along with the most current appraisal account information. This provides the title company a true snapshot of the property status, effectively reducing the number of “updates” needed prior to closing by the escrow team. Real-time is especially effective during the current tax cycle, when tax bills are sent out by the assessor. It is during this frenetic time when tax payments are being received by the collector on an almost minute by minute basis. While a week old purchased roll cannot reflect the payment status, real time results can report this information up-to-the minute, once posted. The most common complaint regarding real-time fulfillment is the current limited availability in smaller, rural counties.

Tax certificates are in most cases ordered by the title company/agent at the beginning of the title examination process. Whether through escrow software automation or a stand-alone platform, the order is submitted directly to the contracted tax service. Depending upon the complexity of the research required on the subject property, the tax certificate can be returned within minutes or in some cases it could take several days to complete the examination. These cases are rare; tax certificate requests are almost always fulfilled prior to the completion of the title work.

In most states, tax certificates can be considered a pass-through cost on the closing disclosure. This passes on the fee to the seller if a purchase, and the borrower if refinance, and is inclusive in the total closing costs. Comparative to other closing preparatory items, a tax certificate is moderately priced considering the risk associated with property taxes

What happens if there’s an error on the tax certificate?

Chasing down property tax information can appear very simplistic, and in the vast majority of cases it is. However, it’s that other small percentage of orders that can morph into a serious issue before, during, or after the closing process. No matter how thorough or complete the research is errors still may occur. Depending upon the warranties represented in the agreement between the tax service and the title provider, the tax service can be liable for the missed taxes, penalties and interest, and any tax suit costs that may apply.

Title servicers understand these risks and rely on the tax service professionals to research, identify and report any threats to the transaction. Like many challenges that emerge during a title search, a property tax issue can effectively bring a transaction to its knees. Ultimately, the tax certificate provides a simple, common-sense solution for all parties involved in the transaction, and more importantly, peace of mind.

About The Author

Chris Flynn

Chris Flynn is the president of APG, a division of LERETA. Flynn joined APG in 2014 with more than 30 years of real estate tax/title industry leadership, computer software expertise and management experience to his role with the company. Flynn focuses on strategy, leadership, innovation and excels in customer relationships and retention. A former President’s Award winner, Flynn has been a long-time member of Texas Land Title Association.

Preserving The American Dream Through Proper Property Tax Collection Procedures

Tax servicing companies are tasked with achieving customer satisfaction by processing property tax payments in a timely and accurate manner on behalf of their respective lenders. As a tax service company, we must also consider that customer satisfaction extends far beyond merely achieving (or exceeding) our lenders’ expectations. We also have another client’s interest and satisfaction concurrently at stake; namely, the borrower.

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The American Dream was founded on the notion that any hard working American family could one day own their very own slice of the land of the free and the home of the brave. Many Americans, nationwide, learned just how desperate holding onto that dream had become after as many as 10 million homes were lost due to the housing crisis in 2008.

While tax service companies do not maintain control of the timely remittance of mortgage payments, they do oversee and control property tax payments, which, when left unpaid, can ultimately result in property loss. Paying all property taxes in a timely manner is therefore of the upmost concern. The implementation of key tax procurement check points along with establishing processing prioritization methods are two approaches in maintaining the security of the American home. Servicers should either choose to implement these methods or make sure they partner with a company that does.

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Procurement Check Points

In order to succeed in obtaining an accurate property tax status, procurement processors must be trained to ask the appropriate questions when working with tax collecting authorities. We find that patience and professionalism are two necessary tools to apply in order to help expedite the tax procurement process. We must understand that tax collectors are busy, especially during peak cycles, and so gathering the appropriate information in a succinct single attempt is both the goal of the procurement specialist as well as the tax collector. Of the many necessary questions asked, we must be sure to determine the appropriate check remit type, whether or not an original bill is required with payment, if a duplicate bill fee is required, whom the check is to be made payable to, whether or not the funds have been turned over to a third party, and who (or what entity) paid the last delinquency of record. While many agencies establish web sites that contain delinquent property tax data, should a processor identify a critically delinquent parcel, it behooves us, as a tax service company, to reach out to the tax office in order to verify that their web site contains all relevant payment details.

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Prioritization Methodology

Each state and tax jurisdiction establishes guidelines in determining how long a property tax can remain unpaid before tax sale, foreclosure and property loss. These guidelines must be gathered and recorded for each of the more than 25,000 tax jurisdictions nationwide. The severity of the delinquencies identified, in terms of when said taxes must be redeemed before loss, are to be prioritized as they are over-laid against the tax agency’s established delinquency guidelines. For example, since a property can be lost within a 12-month period, once property taxes are sold at tax sale, in states such as Connecticut, District of Columbia, Maryland, Rhode Island, South Carolina and Vermont; it is vital to cure all delinquencies before foreclosure proceedings occur.

Without the appropriate understanding of the tax jurisdiction terminology, specific to the classification and severity of delinquencies identified, it is literally impossible to proceed. For example, a procurement processor must know and understand how to process a delinquency that has been sold in a tax lien sale. Since tax lien sales consist of the delinquent base tax amounts, accrued interest and additional costs associated with the sale, the procurement processor must be sure to obtain the complete pay off figures. A processor must also know that there is more than one type of foreclosure sale. For instance, foreclosures by judicial sale, more commonly known as judicial foreclosure, are available in every state. A judicial foreclosure involves the sale of the mortgaged property under the supervision of a court, with the proceeds going first to satisfy the mortgage; then other lien holders; and, finally, the mortgagor/borrower if any proceeds are left. It is important to note the type of foreclosure and status of said foreclosure before proceeding with payment. Therefore, procurement processors must be certain that they are picking up only property tax related charges and fees specific to the secured parcel of record.

These are just two examples whereby an appropriate level of expertise is required in order to understand, classify and prioritize the delinquent item. It is also important to establish a team of specialists that exclusively handles and processes property tax payments for properties that are at risk of loss. At risk property tax specialists must not only pay taxes in a timely manner, but they must also reach out to the tax jurisdiction to ensure that all necessary funds have been received and applied without any residual balances due. Noting the lender’s system at all points of the critical payment process, including the receipt of the delinquent tax payment itself, naturally provides a sense of satisfaction and security to lenders as well as our borrowers.

According to ATTOM Data Solutions, which has a large multi-sourced property database, during the last year, there has been a 23 percent reduction in property auctions, foreclosure filings, default notices and bank repossessions, which just so happens to be the lowest level since 2005. While there are undoubtedly multiple contributing factors involved in the aforementioned reduction, we believe that developing and maintaining proper prioritization and procurement strategies is a great way to do our part in helping to protect the American Dream.

About The Author

Marcus Balocca

Marcus Balocca, vice president, outsource current disbursement manager, has been at LERETA for the last five years of his 18 years in the mortgage servicing industry. In his tenure, he has managed a procurement department, call center, delinquency department and a mailroom. Balocca has worked on multiple servicing systems and currently manages a collective portfolio of more than 750,000 loans for LERETA.

Tax Certificates: They Are Still Important

One of the most important financial decisions that we make in a lifetime is the purchase or refinance of a home or other real property. While most all of us understand the benefits of car, life or health Insurance, title insurance is something that is rarely given much thought prior to sitting down at the closing table with an escrow officer or attorney. A title insurance policy insures that there will not be any unpaid claims or interests tied to the newly purchased property. The American Land Title Association reports that more than 30 percent of all real estate transactions have a defect in title, and while there are many ways that the title to our property can be compromised, delinquent property taxes remain one of the most problematic and costly.

Featured Sponsors:

 

 
Imagine purchasing the home of your dreams, only to find out that the previous owner had failed to pay the taxes on that property for the last several years. Those taxes have inadvertently become your responsibility, as they are tied to the property. Your recourse as the new owner would be to contact the title company that issued the title policy and file a claim. In the vast majority of these cases, the insuring title company defers to the tax certificate which can provide full or partial indemnity in the case of unknown or unpaid property taxes, penalties and interest, or tax liens.

During the last 30 years, tax certificates have become an integral part of the escrow closing process as title companies have looked to third-party vendors that manage this potential liability. Through well-defined risk assessment, turning this task over to property tax experts makes all the sense in the world.

So, what is a tax certificate?

A tax certificate is a fully or partially indemnified document that reflects the current status of property taxes, penalties, interest, and any other affiliated costs due on a designated property legal description. It also provides up-to-date ownership and address information, assessed values, tax rates, exemption status, and, most importantly, any delinquencies. Additionally, a tax certificate identifies all collecting entities and their contact information allowing for quick and easy disbursement. A tax certificate does not constitute a report on the status of title, mineral interest’s taxes or leases, personal property taxes or other forms of non-ad valorem taxes.

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Tax certificates provide another level of protection to the borrower, the title company/agent and ultimately the underwriter who is insuring the transaction. In the case of tax delinquencies or liens, a sound tax certificate provides a safety net for the buyer. Generally provided by companies that specialize in property tax research, the information is vetted by professionals who have a clear understanding of taxing authority requirements and property characteristics. Hidden delinquencies, rogue property splits, special districts and agricultural rollback liabilities all play a big part in the everyday world of tax service. For a title insurer with so much at stake, the smart and obvious play is to reduce liability by employing a tax service to assume the risk.

Gathering reliable information

What was originally a completely manual process has evolved greatly over the years. While there are still some aspects of tax research that require a hands-on approach, the vast majority of tax research is now automated. The most common method of data aggregation requires the periodic purchase of assessor/appraisal tax rolls. Depending on the tax service’s requirements and the designated tax cycle, these rolls might be purchased weekly, bi-weekly, monthly or quarterly. This method has shown to be for the most part, efficient and reliable. The most common complaint regarding the roll-purchasing method is that even when obtaining rolls on a weekly, basis there can be a time gap in the information which could result in delayed or inaccurate results.

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Another method is “real-time” fulfillment. Through technological advancements, real-time research is emerging as the go-to solution in tax service fulfillment. This method provides up-to-date results with no time lag. The information is retrieved through automation at the time of order and reflects all current and delinquent taxes along with the most current appraisal account information. This provides the title company a true snapshot of the property status, effectively reducing the number of “updates” needed prior to closing by the escrow team. Real-time is especially effective during the current tax cycle, when tax bills are sent out by the assessor. It is during this frenetic time when tax payments are being received by the collector on an almost minute by minute basis. While a week old purchased roll cannot reflect the payment status, real time results can report this information up-to-the minute, once posted. The most common complaint regarding real-time fulfillment is the current limited availability in smaller, rural counties.

Tax certificates are in most cases ordered by the title company/agent at the beginning of the title examination process. Whether through escrow software automation or a stand-alone platform, the order is submitted directly to the contracted tax service. Depending upon the complexity of the research required on the subject property, the tax certificate can be returned within minutes or in some cases it could take several days to complete the examination. These cases are rare; tax certificate requests are almost always fulfilled prior to the completion of the title work.

In most states, tax certificates can be considered a pass-through cost on the closing disclosure. This passes on the fee to the seller if a purchase, and the borrower if refinance, and is inclusive in the total closing costs. Comparative to other closing preparatory items, a tax certificate is moderately priced considering the risk associated with property taxes

What happens if there’s an error on the tax certificate?

Chasing down property tax information can appear very simplistic, and in the vast majority of cases it is. However, it’s that other small percentage of orders that can morph into a serious issue before, during, or after the closing process. No matter how thorough or complete the research is errors still may occur. Depending upon the warranties represented in the agreement between the tax service and the title provider, the tax service can be liable for the missed taxes, penalties and interest, and any tax suit costs that may apply.

Title servicers understand these risks and rely on the tax service professionals to research, identify and report any threats to the transaction. Like many challenges that emerge during a title search, a property tax issue can effectively bring a transaction to its knees. Ultimately, the tax certificate provides a simple, common-sense solution for all parties involved in the transaction, and more importantly, peace of mind.

About The Author

Chris Flynn

Chris Flynn is the president of APG, a division of LERETA. Flynn joined APG in 2014 with more than 30 years of real estate tax/title industry leadership, computer software expertise and management experience to his role with the company. Flynn focuses on strategy, leadership, innovation and excels in customer relationships and retention. A former President’s Award winner, Flynn has been a long-time member of Texas Land Title Association.

Get The Information You Need From Tax Agencies, When You Need It

Obtaining accurate information from the various taxing agencies can be, in itself, taxing. Each agency operates differently, with some handling real estate taxes from end-to-end, while others manage only a portion. When taxes become delinquent or go to tax sale for example, many agencies will send the bill to a third party to be collected. To further cloud the waters, the different agencies may also use their own specific terminology for what happened to the taxes or where to locate the appropriate information. However, servicers can help expedite and streamline the information gathering process.

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When trying to obtain accurate and current tax information, servicers should prepare and organize what information is needed before calling the agency. This will prevent wasted time for everyone involved. Also, keep in mind that most tax agencies are extremely busy around collection time and are less willing to work with companies if they call without adequate preparation or a clear understanding of what is needed. Some agencies can go so far as to block a company from calling again. When this happens, companies lose the ability to gather the required material and must go through other, less efficient routes such as mailing the request in or even making an in person visit to the agency.

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Streamline, Don’t Complicate

By being proactive and working closely with the taxing agencies, companies can prevent an information bottleneck and ensure that communication is being fostered. Most importantly, it ensures that the information obtained is correct and up-to-date. Here is what you do before contacting an agency:

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1.) Gather all tax information available, such as the parcel number, homeowner’s name and address.

2.) If possible, familiarize yourself with some of the specific agency’s terminology. For instance, some other common terms for “tax sales” are lien, tax title, tax taking, in rem, tax foreclosure, forfeiture, tax deed, certified sale, tax suit, upset sale, judicial sale. Its important to stay abreast of what an agency uses to prevent miscommunication.

3.) Perform any website searches first to see if it can help you in the information gathering process. Be prepared to have information ready to validate with the tax office. When using a website, do not assume that all information is listed and up to date. It may be necessary to contact the tax office and ask:

>>Does the website provide delinquent tax and tax sale information? If the answer is no, you need to always call to verify delinquency/tax sale details.

>>If taxes are listed as paid, does the website provide the payers name? If the answer is no, you need to call to verify who paid the taxes.

>>How often is the website updated?

>>Are there other websites you should reference to obtain delinquent or tax sales information?

4.) Prepare a script to direct the conversation in order to get all the data needed in the most efficient manner. When calling an agency for the first time, open the conversation by being professional, positive and polite. If you can build a relationship with the person you speak to at the agency, it could result in help with future inquiries and a more streamlined process.

5.) Have questions prepared such as why are you calling and what you need from the agency? Try to stay away from stand-alone “yes” or “no” questions, and instead, ask leading questions for more detailed answers, such as:

>>Do you collect your delinquencies? If not, then you must get the name and phone number of the appropriate party to contact. If the agency does collect delinquencies, then the next question should be, “Are the taxes delinquent?” If you are told all taxes are paid, make certain to ask if taxes were paid at tax sale or by a third party.

>>Were taxes paid at tax sale?

If they were, then when were taxes sold?

Can we still redeem taxes?

When does the redemption period end?

What is the redemption amount?

6.) If time allows, and if the agency will comply, request that the agency send you a document that breaks out any amounts owed so that there is no room for error with the amounts being obtained.

There are a number of unique challenges when working with the different taxing agencies around the country, but understanding the organizational nuances and procedures can help to overcome these hurdles to ensure cooperation and success.

About The Authors

Louise Byrnes (left) and Shelley Lucas

(Left) Louise Byrnes, vendor manager, is responsible for the research of claims and lost properties at LERETA, a leading national real estate tax and flood service provider. (Right) Shelley Lucas, vice president, Tax Operations, has more than 25 years of industry experience. She currently oversees the management of agency and other proprietary information for LERETA, a leading national real estate tax and flood service provider.

LERETA University Offers Virtual Tax Service Training

LERETA, a national real estate tax and flood service provider, has created LERETA University, a web-based training platform to support and assist servicers in navigating in-depth tax servicing information.

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LERETA University is virtually led by instructors who assist servicers and their staff in real estate-specific tax servicing. Accessed through LERETAnet, the company’s existing hub and customer information portal, the LERETA University platform serves as an extension of on-site training and is focused on helping companies avoid risks that are caused by common mistakes and oversights. Inaccuracies in real estate tax servicing have the potential of costing servicers in penalties, interest and property loss not to mention having a negative effect on borrowers.

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“Training is particularly critical for staff in these roles due to the function’s inherent risk,” said Jonnine Eras, vice president of client relations at LERETA. “Tax servicing is an intricate and specialized function that requires employees to have thorough and specific knowledge. LERETA is in a position to share our resources to better equip our customers and their staff with knowledge, understanding and skill that can protect them against possible risk.”

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Since 1986, LERETA has provided a full suite of national real estate tax services for residential and commercial loans, including automated online research and certification, tax bill processing, a suite of delinquent tax services and customized tax outsourcing service programs. In addition, LERETA provides real-time flood zone determination services that include flexible levels of service based on customers’ needs.

“Sharing our resources in this area is just another way that LERETA is redefining what tax service means and what servicers should expect from their partners,” John Walsh, CEO of LERETA, added. “Our innovative technologies and dedicated team of real estate tax and flood service professionals provide our customers with the service and ongoing support they need to succeed.”

Progress In Lending

The Place For Thought Leaders And Visionaries

Vendor Launches Comprehensive Additional Parcel Search Solution

LERETA, a national real estate tax and flood service provider, has launched its Additional Parcel Search Solution, a proprietary new solution that materially improves identification of additional parcels at the initiation of tax service. This solution reduces portfolio risk associated with penalties and interest and potential loss at tax sale.

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One of the biggest challenges in tax service has been identifying additional parcels associated with an address without going through the expense of using a legal description on every loan. Missing parcels when a property is set-up for tax service exposes the servicer to both potential losses from penalties, interest and lost properties as well as borrower dissatisfaction. Despite the importance of identifying additional parcels, the industry has relied on the same tools and methodologies for decades.

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“Over the past 30 years, mortgage servicers have had to rely on virtually the same tax service solutions without significant enhancement or product innovation,” said John Walsh, CEO of LERETA. “LERETA has been aggressively working on methods to reinvent tax service technology and processes. Additional Parcel Search Solution is just one initiative in that agenda, and it’s an important solution that can reduce servicers’ financial risk and increase borrower satisfaction.”

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LERETA recently ran a test for a top five servicer that included a subset of approximately 16,000 loans that had been parceled by another tax service vendor. LERETA’s Additional Parcel Search Solution found 11 properties that had previously been unidentified. Although 11 loans is only 0.1 percent of 16,000, it does represent $2.4 million of potential losses or 10 basis points of MSR value.

“We understand the importance of identifying these parcels and the difficulties created from the inability to discover them,” Walsh explained. “This is an area in the tax service landscape that needed an injection of innovation, and we are proud to provide a solution that can bolster tax service and provide servicers materially better solutions.”

About The Author

Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.