Questioning the motives of payday lending for homeowners
It’s interesting that he would use the word “greed” since these groups are merely concerned about the high rates tax lien lenders charge homeowners, as well as their use of “expedited foreclosure,” which has limited judicial involvement and doesn’t allow for scrutiny over certain fees and costs claimed by the lender.
By the time the property owners pay tax lien lenders interest rates averaging 14-15 percent plus exorbitant fees, a $10,000 tax bill can turn into a $15,000 to $18,000 bill. For the tax lien lender, these loans are risk-free. For the bank that originated the loan in good faith to the borrower, these loans are a nightmare!
Legislators in Austin, charged with protecting consumer interests, could resolve this problem by just requiring tax lien lenders to give advance notice to the property owner and the bank BEFORE signing up for one of these egregious loans. This can be accomplished in legislation that has started winding its way through the intricacies of the legislative process.
Although McCombs describes tax lien lenders as a valuable industry that “keeps families in their homes and the doors of Texas businesses open,” these are the facts:
- Tax lien lenders solicit homeowners with official-looking documents that we believe are intended to scare homeowners who are unable to make their tax payment on time.
- They do not use standard underwriting criteria—such as the borrower’s ability to repay—to make these loans. They don’t have to since the loan is 100 percent equity secured.
- Tax lien lenders can bundle the loans and sell them on the secondary market to non-licensed entities.
- They enjoy a priority lien position, which means if the property is sold during foreclosure, the tax lenders jump ahead of primary mortgage holders and state and local governments.
- Due to what are referred to as “evergreen provisions,” tax lien lenders can automatically renew the tax debt every year, which means the amount owed on property taxes, fees and interest continues to grow.
- These types of loans do not stop foreclosures—they merely transfer the tax liens to a private company, which can foreclose for nonpayment.
- The Real Estate Center at Texas A&M University points out that property tax lenders may be more likely to foreclose quickly if the owner falls behind on payments, while local taxing authorities may be more reluctant to foreclose.
Most importantly, many property owners have the option of working out a tax payment plan with their local taxing authorities. Additionally, the Better Business Bureau, which warns property owners that these types of loans “can be a slippery slope that can lead to foreclosure and other financial difficulties,” advises consumers to call the taxing entity and make payment plans and other arrangements first.
The Texas Bankers Association and our almost 600-member banks that are often the first lienholders can help property owners save thousands of dollars just by working out arrangements with the originator of their loan.
The tax lien lending industry will tell people that this has been the law of Texas since the 1930s. What they don’t mention is that these private party loans all but vanished for eight decades—until a loophole was discovered in the Texas Tax Code that permits a property owner to authorize a third party to pay the real property owner’s property tax in exchange for a tax lien on the property.
Although McCombs believes banks and collection law firms want to shut down the industry through legislative changes, this, too, is not correct. TBA and the other groups supporting the new legislation merely want to have laws in place that will actually protect consumers.