Choosing the Best Texas Property Tax Loan Provider
Property tax, at its core, is a tax that property owners pay for the privilege of owning property. Local governments use the revenue from property taxes to pay for public services such as schools, libraries, and public transportation. Because property tax is a major source of revenue for many local governments, those governments are very proactive in their enforcement of the local property tax code.
Property tax is typically levied against real property, such as land, homes, and commercial and residential buildings. Many local governments also assess property tax on certain classes of tangible personal property, typically large items like boats and automobiles.
If a property owner fails to pay his or her property tax, however, the government will place a tax lien on the property. A tax lien is an interest in the property that gives the lienholder the right to foreclose on the property and collect some of the proceeds from the sale of that property if and when it is sold. In other words, a tax lien provides the government a legal way to recover unpaid property taxes out of the proceeds of any future sale of the property.
However, despite the government’s generally broad authority to initiate a foreclosure sale of tax delinquent property, falling behind on property taxes by no means guarantees the property owner will lose his or her property. Instead, a niche industry has developed to help property owners retain their property while satisfying their tax obligations: property tax lending.
In this post, we’re going to set forth the basics of property tax lending, along with a few key factors to consider before choosing a property tax lender.
The Basics of Texas Property Tax Lending
Property tax lending is quite simple in theory, and it resembles other types of personal loans such as auto or home loans. If a property owner owes property tax that he or she is unable to pay, the property owner can go to a property tax lender and take out a loan in the amount of the overdue property tax.
Then, instead of you, the property owner, writing a check to the local taxing authority to satisfy your tax obligation, the lender pays your property tax on your behalf. In exchange, the lender receives a lien on the property-just as the government had before the tax sale. The lender will then establish a payment plan with the borrower to repay the loan with interest.
There are myriad benefits to taking a property tax loan, not the least of which includes retaining your property. After all, no one wants to lose what they’ve worked hard to gain, and when property owners do decide to sell their property, they of course want it to be on their own terms.
Furthermore, although property owners are generally entitled to keep any proceeds of a tax sale beyond the amount needed to satisfy his or her tax obligation, property sold at tax sales often sells for substantially less than market price. Thus, a property owner would rarely, if ever, realize the full value of his or her property at a tax sale.
Taking a property tax loan, accordingly, can be the difference between keeping and losing property that you’ve worked hard to acquire.
What to Look for in Texas Property Tax Lenders
Just as it would be unwise to take out a home or auto loan without meeting with at least a few lenders, potential borrowers should shop around for a property tax lender that best suits their financial situation, personal preferences, and style of doing business.
Below, you will find several of the most important factors to consider before choosing a property tax lender.
1. Repayment Terms
One of the first questions any borrower should ask is what are the loan’s repayment terms. While exact terms will almost always differ from borrower to borrower, any reputable lender should be able to at least give you an idea of basic loan characteristics such as the length of time available to repay the loan, whether there is a prepayment penalty, and whether there is a grace period for late or missed payments.
2. Interest Rate
In this vein, the loan characteristic likely in the forefront of every borrower’s mind is the interest rate. This determines how expensive the loan will be. You should compare the interest rate on the Texas property tax loans that you are considering with the interest rates on other forms of credit to determine whether a property tax loan is the most economical option for paying overdue property tax in your unique situation.
3. Other Charges and Fees
Borrowers should also inquire about other charges and fees associated with the loan beyond the interest rate. For example, borrowers should find out whether the lender charges an application fee in order to even consider whether it will issue a loan in the first place. Many lenders offer free estimates and some even offer free loan approval, allowing potential borrowers to precisely assess their financial situation before taking out a property tax loan.
Borrowers should also determine whether the lender charges an origination fee and, if so, what that fee is. An origination fee is an additional charge that lenders assess in order to cover the overhead costs that it incurs to issue the loan. But because the primary purpose of an origination fee is to cover overhead costs and expenses, not necessarily to make a profit, borrowers should be warry of excessive origination fees. Origination fees are typically set out in terms of a percentage of the total loan amount, so this fee becomes more expensive with larger loans.
4. Servicers Versus Originators
Borrowers should determine whether a lender services the loans it makes or whether it simply originates the loan. Another way that money lenders make money is by selling the loans they make to other institutions such as investment banks, which then act as the loan servicer. Thus, if a property tax lender does not intend to also service its loans, borrowers could find themselves writing a check to a variety of entities month after month as the loan is sold from one servicer to the next.
To be sure, this is not to say borrowers should avoid lenders that do not also intend to service the loans they make. Indeed, this arrangement often harnesses the power of market forces to provide a variety of economic advantages that ultimately work out to be in the best interests of both the lender and the borrower. Rather, this is only to say borrowers should not be surprised if their monthly statement comes from an entity other than the lender that initially issued the loan.
5. Business Practices
Last, but certainly not least, borrowers should consider the business practices of each lender they consider. First, borrowers should ensure the lenders they consider are licensed by Texas’s Office of Consumer Credit Commissioner. Lenders licensed by the OCCC must meet and maintain minimum levels of capitalization, ethics, and professionalism designed to ensure that only reputable businesses operate in the lending industry. Borrowers may contact the OCCC by phone at 1-800-538-1579 or on the web at www.occc.state.tx.us. Borrowers should also research the various lenders they are considering through the Better Business Bureau to determine whether any consumers have levied complaints against the lender in the past.
Aside from formal licensing requirements, there are less tangible factors to consider as well. These include the lender’s willingness to work with borrowers on an individual basis to design a product that is right for their personal financial situation. After all, no two borrowers are in exactly the same position. Therefore, no single loan will be exactly right for two different borrowers either. Try to find a lender that seeks to develop a relationship with its clients, one that wants to see its clients succeed and work with its clients to achieve their goals, instead of a lender that views its clients only as numbers on a spreadsheet.
Finally, determine whether the lender is a member of the Texas Property Tax Lienholders Association. The TPTLA is a trade group comprised of the leading lending professionals in the industry. Membership in the TPTLA indicates a lender is serious about its business and sufficiently well-established in the industry to provide stable and professional service to its clients.
We hope you enjoyed this article on choosing the best Texas property tax loan provider!
Dr. Nick Oberheiden, founder of Oberheiden P.C., focuses his litigation practice on white-collar criminal defense, government investigations, SEC & FCPA enforcement, and commercial litigation.