Some struggle to pay property taxes and turn to high-interest lenders
The skyrocketing property valuations released this month have left many homeowners in sticker shock. Like a struggle to pay taxes, 2022 could offer renewal for a controversial industry.
Property tax lenders offer to help desperate homeowners and businesses protect their properties from foreclosure by offering immediate loans at high interest rates. After years of steady growth, the pandemic has cut its fortunes short, but some see the conditions ripe for a comeback.
“It’s definitely been a good year after a few pretty tough years before,” said Andy Cahill, president of Johnson & Starr, an Austin-based property tax lender that serves homeowners across the state. “I suspect this will be the best year we’ve seen in a long time.”
This year, Bexar County has estimated the average farm to just over $ 309,000, an increase of over 23% compared to last year, according to the Bexar County Appraisal District. There are just five years, the average farm was valued around $ 170 600, so that the largest tax bills will probably prevent some owners to pay.
Cahill said the property tax loan industry saw high activity in February and March, typically the busiest time of year. February is when unpaid property taxes become overdue and the first notices are sent. Next February, when the 2022 property taxes come due, may see an even bigger bump.
Not only is soaring assessment values leading some to apply for a property tax loan, Cahill said, but also an end to evictions, a moratorium on homes that are just beginning to match the number of pre -pandemic. Homeowners feel more pressure to delinquent tax pays, with years worth of levies due.
Critics often compare the industry to payday lenders, which also offer fast, high-interest loans to desperate borrowers. According to the latest figures from the Texas Office of Consumer Credit Commissioner, the average interest rate on these loans was 13.09% for residential properties and 11.87% for non-residential properties. Bloomberg reported last year that borrowers often end up paying more than double face value for their tax liens.
While taxpayers have a variety of options for pain relief – such as working with the county on a payment plan, seek feedback, apply for homestead exemptions or involve their mortgage provider – companies tax loan promise of flexibility, they heavily advertise through flyers, letters, billboards.
The industry began to flourish in Texas in the 1990s and grew steadily until the pandemic cut its fortunes short. Peaking in 2019, property tax lenders processed a total of $198 million in loans that year, according to state records. In 2020, that number has dropped to just over $165 million. Total loan amounts for 2021, when valuations began their steep ascent, have yet to be released, let alone 2022.
Peter Squier, president of the Texas Property Tax Lienholders Association, predicts that “many more people will need help paying their taxes next January when tax bills for new assessments come due.”
Although federal funds have enabled the creation of a new state assistance program for homeowners, not everyone will be eligible. And for those people, Squier said in an email, “The Texas state-regulated property tax loan industry stands ready to provide tax loans that save homeowners money and prevent them from possible seizure of outstanding property taxes”.
Squier is also the president of Propel Financial Services, the San Antonio-based property tax lending company that dominates the industry. According to its website, it is the largest property tax lender in the state.
Propel was co-founded in 2007 by Red McCombs, the San Antonio billionaire who made his fortune in car dealerships and radio. McCombs was bought out in 2012 for $187 million, but four years ago bought the company for an undisclosed price.
“This is one of my babies that I intend to turn into a financial services company very competitive,” said McCombs in San Antonio Business Journal at the time. “In two to three years, it will be a company of 100 million.”
McCombs and other industry players claim that it offers flexibility to owners and other owners, as he detailed in a 2013 opinion piece.
Cahill echoed the sentiment. “Once we have a client, we do not want to exclude,” he said, because foreclosure would break the credit relationship between the company and the customer – cuts power money. Missed payments are more likely to lead to calls for a foreclosure collection agency, he said.
Critics say there are less risky alternatives.
Nick Longo, who recently founded PropertyAxe, a company that uses data-assisted techniques to help property owners appeal their appraisals, called the industry “sharks”. He described desperation to see a billboard for them on the way to Austin, and said many of the people targeted by these ads were the same ones who could be helped by his business.
Steven Scurlock, director of government relations for the Texas Independent Bankers Association, described tax lenders as an “irritation” to the industry and an exploitation for homeowners. “A lot of times the consumer doesn’t understand what they’re getting into, and that can create problems far beyond your non-compliance with your taxes.”
His association has long lobbied in the state house against the industry, whose model is disrupting bank-provided mortgages. He urged homeowners to talk to their bank for help in situations where they can’t pay property taxes.
Bexar County chief assessor Michael Amezquita called the companies predatory. He said he sympathized with landlords who were experiencing rising property values and strongly urged them to appeal their appraisals, which he said have a 94% settlement rate. The process has been simplified in recent years with online appointment scheduling.
He also urged those struggling with taxes to enter into a payment plan with the county. The owners have several options for payment plans, especially if the owner is older, has a disability or is a veteran or married to one.
Bexar County Tax Assessor-Collector Albert Uresti said homeowners can enter these types of payment plans at any time — even now — and the county also has flexibility. Those who miss a payment are subject to a 6% penalty fee and 1% interest.
More people use county payment plans than property tax lenders, according to figures provided by his office. For the 2021 tax bills, he said about 11,500 accounts — less than 2% of owners — opted into a county payment plan, compared to only about 700 who transferred their lien to a tax lender.
“Why go to Propel? ” he said. “We have the same program here, and it’s a lot less risky.”