Property tax season may seem daunting, just like income tax season, but it certainly does not have to be. With the right processes and partnerships in place, companies can rest easy and feel confident that property taxes are paid correctly.
As we approach property tax season, there are a few things lenders and servicers must remember as they gear up to pay those taxes. With the majority of property tax bills due in the fourth quarter, financial institutions should begin taking the correct steps now to ensure a smooth and efficient payment process. Steps in the right direction all link back to one key process: bill procurement.
One of the most important requirements for any financial institution during tax season is determining exactly which pieces of property need to be paid and how much to pay the local tax collecting agencies to avoid late fees, penalties and interest. In order to correctly do this, servicers should perform an audit to ensure all escrowed parcels are accounted for. Servicers then need to ensure that these validated parcels have a bill procurement process performed in a timely and accurate manner with each taxing authority. Financial institutions that do not use this practice typically rely on previous tax bills, but often the information can be dated and essentially useless if a property value or tax rate has changed.
When financial institutions are proactive in obtaining tax amounts, they become acutely aware of exact amounts due, exemptions and possibly prior delinquent installments that must be addressed. This helps reduce the possibility of making costly and time-consuming mistakes when performing escrow analysis. For a financial institution, making correct payments during tax season is absolutely essential. Inaccurate information can lead to incorrect payments or payments on the wrong property, which can in turn lead down a long, winding path of penalties, added interest and in a worst case scenario, possible property losses. Even if a financial institution overpays by a single dollar, tax authorities can reject a payment and enforce a hefty penalty on the correct payment amount. These negative scenarios combined with an unhappy homeowner can equal disasters for a financial institution.
So, why doesn't every financial institution have a bullet-proof, pre-cycle audit and bill procurement policy? Typically, many servicers do not have staff educated and/or dedicated to the bill procurement process along with subsequent payment and follow-up processes. Managing these processes is far from simple and requires time and painstaking attention to detail. Without staff trained on these efforts, accounts fall into the cracks. Lenders can avoid this scenario by designating a staff or working with a third party that can manage the process.
Richard Yonis is a senior vice president at LERETA, a tax services provider.