Private equity firms to buy tax and flood services vendor Lereta

Flexpoint Funds and Vestar Capital on Tuesday announced that they plan to acquire Lereta, a national tax and flood services vendor that works with mortgage servicers.

Financial terms for the acquisition of the company, which is currently held by funds owned by Tarsadia Investments as well as Lereta management, were not disclosed. Management will retain a minority stake in the company and its current leadership and structure will remain intact.

Lereta, previously known as Lenders’ Real Estate Taxes, is reportedly seeing growth in part because many loans have refinanced and changed hands in the busy market. That complicates the sensitive task of managing property tax payment in conjunction with a borrowers’ loans. As a result, many mortgage companies have sought additional help to improve the service levels in this area.

“The way that impacts the borrower is getting more and more scrutiny,” John Walsh, CEO of Lereta, said in an interview.

The Consumer Financial Protection Bureau recently released a list of answers to frequently asked questions about escrow, which shows it’s focusing on the issue. With home prices soaring, property taxes in many areas have been unusually high and they’re increasingly important for servicers to manage correctly for borrowers on budgets. Lereta processes more than $17 billion in tax payments on behalf of housing finance firms.

Mortgage companies most commonly escrow funds for consumers’ property taxes and homeowners insurance in conjunction with low down payment loans. Lereta helps mortgage companies with the tax portion of the arrangement.

The two biggest players in mortgage-related tax services are Lereta and CoreLogic. Lereta has primarily focused on smaller players and has 4,000 clients whereas CoreLogic has worked more with larger players.

However, Lereta has been doing business with some more sizable clients due to the aforementioned developments and interest in diversifying vendors to avoid concentrating a large amount of business with a single company.

“The most important growth is not in our overall number of clients, it’s in our addition of some large servicers,” Walsh said. He declined to name the companies involved but noted that Lereta has added two top 30 clients in the past year. It is in talks with a top five player, he added.

In addition to its tax services business, Lereta monitors more than 17 million loans for flood determinations for mortgage companies. Servicers need to know if mortgage properties are in flood zones due to responsibilities they have related to insurance coverage. Mortgage companies have become more focused on flood zone status due to the uptick in natural disasters in recent years.