Understanding a borrower’s delinquency status with respect to real estate taxes is critical for a private lender. It’s even more of an issue with note buyers. Most lenders and investors rely on on-line data and title reports to determine the real estate tax delinquency status of a collateral property. Simply looking at the title report or pulling up the local tax assessor’s web site isn’t as reliable as one might think. Even calling the tax assessor’s office sometimes will give a lender/investor a false sense of security. Why is that you might ask? Well, many tax assessors report taxes as being paid when, in fact, a tax certificate has been sold on the property.
What is a tax certificate? When real estate taxes in most jurisdictions get past due by a certain point, the county will sell the delinquent tax bill off to an investor. The county gets their money and the investor gets the right to collect on your taxes. Since the county has been paid, they often report the delinquency as paid with no mention that the tax certificate has been sold. At a certain point, the investor that has purchased the tax certificate can exercise their rights against the property by taking the collateral property. Although notices might supposedly be sent to you as the lender, often they slip through the cracks or they were slyly sent so you don’t notice them. The tax certificate investor usually wants the deed, so they normally act as quickly as they are allowed to legally steal the collateral property out from under you and the borrower. Always, always, always call the local tax assessor and don’t just ask what taxes are due, but make sure to inquire if a tax certificate has been sold. It’s a critical part of the due diligence phase whether you are a lender or you are purchasing a note.