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Property tax loans rise despite risks

AUSTIN — A growing number of Texans struggling with delinquent property taxes are turning to risky tax loans even as the state attempts to crack down on the lenders.

Consumers who use property tax loans risk losing their homes if they default on even a small loan. Fees can run into thousands of dollars, and interest rates top out at 18 percent.

"They are the payday lenders for property taxes," said Robert Doggett, an attorney with the Texas Low Income Housing Information Service, referring to the quick-cash loans issued by storefront lenders at often exorbitant interest rates.

An estimated $100 million in taxes was paid to local governments in Texas last year through the loans.

Tax lenders receive the tax lien on the homeowner's property from the county or school district as part of the loan agreement. They say their loans can help consumers avoid high penalties assessed on the unpaid taxes.

The Texas Property Tax Lenders Association, which represents about 75 percent of lenders, says that it initiated 11,750 loans in 2006 and foreclosed on only 34 homes.

But consumer advocates and mortgage lenders say there are better ways to pay the taxes, including unsecured credit card loans, creation of escrow accounts or refinancing. Most counties offer payment plans to help homeowners.

An indication of the growth of property tax loans is reflected in the increase in the number of tax lien transfers — from a local government to a loan company — in the state's largest counties, according to a recent report by the Center for Public Policy Priorities.

The jump was most remarkable in Travis County, where tax lien transfers went from about 50 in 2005 to an estimated 1,250 in 2007, after lending companies increased their marketing in the state capital.

In Harris County, loans jumped from about 650 in 2005 to an estimated 1,500 last year. And Bexar County saw an increase from about 600 to 800 in the same period.

Although closing costs will be capped, some will still be as high as half of the loan's value. Interest will continue to remain as high as 18 percent.

But beginning March 1, lenders will have to be licensed. And the loans can now only be offered to a homeowner with a delinquent tax bill, or if the homeowner has paid off the mortgage.

The regulations also require more disclosure to consumers and mortgage holders, particularly when a tax loan company plans to initiate foreclosure. For the first time, judges will be required to review the fore- closures.

Source : http://www.chron.com/