Monday, January 28, 2013

Scrutiny Increases On Texas Lenders Specializing In Unpaid Real Estate Tax Refinancing Schemes That Smell Like Predatory Near-Usurious, Inflated Fee Rackets

Deep in the heart of Texas, Forbes reports:

  • The housing meltdown over the last several years claimed many victims. But in Texas, it keeps creating new ones: the thousands of homeowners who fall prey to property-tax lenders that help them pay overdue property taxes. So now there’s an effort in the new 83rd session of the Texas legislature to prevent property-tax loans from financially disabling still more Texans.

    It turns out that thousands of homeowners not only have ponied up nearly usurious rates to property-tax lenders to get themselves out of a big financial squeeze but also that this specialized group of lenders legally jumps to the front of the line — even ahead of primary mortgage holders, and state and local governments with non-property-tax liens – when it comes to disposition of assets from subsequent foreclosure or sale of the house.

    And property-tax lenders can use “expedited foreclosure,” which has limited judicial involvement and doesn’t allow for scrutiny over certain fees and costs claimed by the lender.

    “It’s a pretty significant issue here, because Texas derives lots of dollars from our property-tax system because we don’t have an income tax,” explained Robert Doggett, an attorney for Texas Rio Grande Legal Aid, an Austin-based not-for-profit consumer-advocacy organization.(1) “So property-tax bills are pretty high.”

    Under these loans, including all fees and interest and other charges by the property-tax lender, “a $10,000 tax bill can turn into a $15,000 to $18,000 bill pretty quickly,” said Steve Scurlock, executive vice president of the Independent Bankers of Texas. “We’re questioning that and looking at potential legislation to address that.”

    One key point, Scurlock said, is that while property-tax lending is legal in Texas, the marketing practices of some companies are less than savory — and, therefore, add to the problem. “Some of their marketing schemes are on the deceptive side,” he said. “They make everything look easy and official.”

    While a unit of local government might let delinquent property taxes for a hard-pressed household slip for as long as two or three years, homeowners can feel undue pressure when they get a solicitation from a property-tax lender that warns of dire consequences if the homeowner doesn’t borrow money now to pay off the tax.

    It’s not that Texas cities and counties, and bank lenders, are sympathetic figures to Texas homeowners or anyone else. The concern is that the property-tax lenders are a predatory group that only have their immediate financial self-interests at heart. Whatever anyone can say about local governments and banks, they have many reasons to include the interests and needs of taxpayers and customers in their actions concerning delinquent taxes.

    A lot of folks are tricked into getting a loan that they don’t really need that is very expensive and is serviced by an entity that doesn’t have their interests at heart and has only its own financial motives at heart,” Doggett explained, “unlike [officials of] taxing entities that aren’t going to lose their jobs one way or another if they don’t squeeze more dollars out of a low- to moderate-income family.

    Delinquent borrowers “jump from a frying pan into a fire” by succumbing to the lures of a property-tax lender, he said. “Miss a couple of payments and that lender will be all over you.”

    “And with their superior-lien status, they’re going to get their money no matter what. At least a [regular] lender has restraints. These people have none — all the benefits of government in their superior-lien status, but no checks and balances that government and elected officials have.”
For more, see Predatory Property-Tax Lenders Are Targeted In Texas Effort.

(1) Texas RioGrande Legal Aid (TRLA) is a non-profit organization that provides free legal services to low-income residents in sixty-eight counties of Southwest Texas, and represents migrant and seasonal farm workers throughout the state of Texas and six southern states: Kentucky, Tennessee, Alabama, Mississippi, Louisiana and Arkansas.

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