By Jessica Longman, VP, Operational Tax Manager
While most people think about Independence Day, family vacations and cook-outs during July, LERETA is already planning for Q4 success when half of all property tax payments are due. Considering that 18 states have property taxes due in October, another 18 states are due in November and 13 states are due in December there is no avoiding a Q4 crunch.
To prioritize success for our clients and maximize their efficiencies, LERETA focuses on preparation for Q4 all year long, and July is when we encourage our clients to take steps that will ensure they’re prepared when December rolls around. Waiting until September or after to tackle all the moving parts could put clients behind before they’ve even begun.
The 2024 property tax season has the potential to be more difficult than in prior years, given that rising property taxes and/or insurance rates may mean larger escrow amounts and higher monthly mortgage payments. In many parts of the country, higher home values are driving up property taxes, and at the same time, homeowners are getting hit with higher insurance premiums. According to S&P Global Market Intelligence, the average premium rate increase was more than 11% in 2023. In a LERETA survey among 1,000 homeowners only 52% of those surveyed said they were completely aware of how their escrow account worked, and more than a quarter (28%) were only somewhat aware or not aware at all that changes in their escrow account could affect their monthly payments. You can bet these increases in escrow accounts will result in more inbound customer calls, making the already hectic Q4 rush even busier.
Here are three things tax servicers should consider completing in July to reduce the stress, overtime staffing, and mad-dash scramble to the tax payment finish line on New Year’s Eve.
- Conduct a portfolio audit.
We recommend that all our clients audit their portfolios to ensure their complete loan portfolio and all parcels are being serviced. Identified exceptions should be acted on now to minimize any impact to the escrow tax cycle. Conducting an audit provides an assurance that all loans and parcels are accounted for in the proper reporting channels to reduce fallout and open items.
The most common exceptions are incorrect due dates and mismatches with parcel IDs and owner names, all of which are easily corrected. To ensure all information is up to date and tax lines are set up correctly, LERETA conducts a variety of pre-cycle portfolio tax audits for its clients, so we know firsthand how much this can improve the Q4 workload, not only for our LERETA teams, but more importantly for our clients’ teams so there are no holiday surprises.
- Ensure all parcels have adequate legal descriptions.
Ensuring that all parcels have adequate legal descriptions will help prevent late payments and property tax delinquencies. Running an ILD [inadequate legal description] report will identify where additional data is needed by LERETA so that the correct parcel is identified and, subsequently, reported accurately. Without a full and adequate legal description, a property may not get a parcel assigned correctly before a property tax due date which could trigger a payment delinquency and potential penalties down the line. Many of the issues identified in this report can be resolved simply, but even simple fixes require staff resources and time, which can get back logged if it’s all pushed to Q4. Starting now to identify and rectify gaps in legal descriptions provides a longer runway for planning, which improves efficiency and productivity.
- Confirm due dates and tax agency contact information.
Property tax due dates can and do change or, in some cases, get postponed, so it can be risky to assume that the dates for last year for a particular tax agency will be the same again this year. This is a common pitfall for servicers and can be avoided with proactive planning. Our agency relations team is seeing an increase in the number of agencies that release their property tax bills late, or very close to the due date, which can cause confusion and frustration among servicers and borrowers and potentially result in incorrect payments. Confirming due dates — and being prepared when an agency makes a change — is key for proper planning.
Likewise, tax agency contact information and agency-specific payment processing details are always changing. Part of this is due to the increase in automation among various agencies. This year, we’ve seen a 20% increase in the number of agencies that are moving to an automated system. This transition, which will ultimately result in more efficient operations, means people and processes are shifting and, as a result, servicers’ interactions with them may need to be adjusted to accommodate the new way of doing things. Each year, LERETA engages with more than 24,000 agencies to confirm critical information including payment due dates, contact, address and preferred payment methods (wires, ACH, check).
There’s no avoiding the Q4 property tax crunch, but you can avoid having it crush you and your teams by focusing now on what can be done to streamline activity at the end of the year.
