A Message from Vicki
As 2014 comes to a close, our tax teams have been preparing to enter the busiest cycle of the season. Throughout the year, our real estate property tax operation has been working to implement technology and process improvements that will ensure quality service and performance throughout this period. For 2014, we expect tax payment volume to exceed the 2013 amount of $89B paid on behalf of our clients. By the end of this year, we are on track to achieve a record $133B in tax payments.
Now that we are transitioning from the 2014 storm season to upcoming winter weather, we can take a moment to look back at the events of the year. During the 2014 Atlantic hurricane season, there were only eight named Atlantic storms, which is the lowest number since 1997. Despite the relatively quiet hurricane season, there were significant flooding events that occurred this year across the United States, impacting people and property in parts of Nevada, Arizona, California, Florida, New York and Michigan. Besides flood, many borrowers faced challenges related to other types of disasters. As a result of unprecedented drought in areas across the country, homeowners have faced greater wildfire risk. Other events, such as earthquakes, sinkholes, wind and hail, are also getting attention as the industry moves toward gaining a deeper understanding of natural hazard risk to properties. The CoreLogic® Spatial Solutions team analyzes and tracks these risks, including wildfire, and our clients are leveraging new property data sets and scoring tools to better understand hazards potentially impacting homeowners.
In our Flood operations, we continued to make great strides this year with our infrastructure improvement initiatives. As a result, I am pleased to announce the successful migration of the Flood Services disaster recovery environment from the CoreLogic secondary data center in Santa Ana, Calif., to our new secondary technology center in Plano, Texas, on October 19, 2014. Because we now have the extended capability of Dell Services for hosting and managing this center, their expertise and assets will help further ensure the performance and stability of our platforms and data for years to come.
In our compliance area, our teams have been actively monitoring changes such as new proposed regulations relating to the Homeowners Flood Insurance Affordability Act of 2014 as well as state level legislation involving abandoned property conveyance and foreclosure. In this issue, you can read more about these and other legislative and regulatory updates potentially impacting your operation.
As always, we value the relationships we have built with our clients and we appreciate your continued business. While we move through this busy season, we will continue focusing on our commitment to excellence and we look forward to working with you throughout 2015.
Senior Vice President, CoreLogic Escrow Services
Property Taxes around the Globe
Here in the U.S., our tax operations group facilitates property tax reporting that covers over 34M mortgages. Through our six Regional Service Centers, our network of field personnel works with more than 20,000 taxing agencies to ensure accurate and timely property tax information is available for our clients.
Real estate property tax is generally levied by local agencies at the county or municipal level. In most cases, rates are up to approximately 4 percent of the home value but vary across the country. This is very familiar to those of us in the mortgage industry. Perhaps less familiar, however, is the real property tax process in other countries. In countries like Australia, where CoreLogic has a significant operation, only the value of land is taxed. In the U.S., taxes are typically levied on both the values of land and improvements. It is worth noting, however, that some countries may require an upfront “stamp” fee when a property is acquired or sold.
The Tax Foundation, an independent tax policy research organization based in Washington, D.C., recently released their 2014 International Tax Competitiveness Index (ITCI).* The document measures the degree to which 34 OECD countries’ tax systems promote competitiveness and considers more than forty variables across five categories: corporate taxes, consumption taxes, property taxes, individual taxes, and international tax rules. While some countries rank favorably in the area of real estate property taxes, other countries received lower scores because different tax types, such as corporate and estate, somewhat offset the benefits of lower property taxes. Australia, ranked fourth overall, achieved the second highest “real property tax score” in the Tax Foundation study.*
To put the above rankings in context, consider property tax revenue as a percentage of a country’s gross domestic product (GDP). Total property tax revenue, which includes real property tax, varies as a percentage of GDP. France, the lowest ranking country in the study referenced in the ICTI publication, is included in the chart below for perspective. Note the steady increase since 1980 when France’s total property tax revenue as a percentage of GDP was 1.9 percent. By 2011, that number had climbed to 3.7 percent.
For Mexico, the percentage of property tax revenue relative to GDP is very low when compared to France, the U.S. and Australia. In fact, it tied with Estonia for the lowest property tax revenue as a percentage of GDP. Through our subsidiary, Soluciones Prediales De Mexico, CoreLogic is providing property tax services in Mexico and has worked over the past few years to help this market apply the same successful principles proven in our U.S. property tax reporting services operation.
While the GDP for these countries varies widely, the property tax revenue percentage is similar across most countries. With the exception of Mexico and Estonia at the lower end with 0.3 percent, most countries hover around 2 percent to 3 percent. At the upper end is the United Kingdom at 4.2 percent. Here at home, the current percentage for the U.S. is 3.0 percent.
If you would like to learn about the property data, analytics and services offered by CoreLogic in Australia, you can visit the site here.
Upcoming Flood Map Revisions
As your life-of-loan service provider, we understand the impact that flood map revisions have on your loan portfolios and your customers directly. When these map revisions occur, flood insurance requirements on your loans may change as some properties will be newly mapped into the SFHA and others will be removed from the SFHA—all of which requires effort on your part to process the changes received from us and notify your customers. Therefore, we wanted to make you aware of various resources which CoreLogic and FEMA make available to help you anticipate future map changes.
Importantly, preliminary or pending flood map information may not be relied upon for regulatory purposes such as the mandatory purchase requirement; however, we want to make general advance information available to you as appropriate. Through this recurring article we make you aware of certain notable revisions each quarter. Further, we hope you are regularly monitoring our Flood Services website (under “Risk Map Updates”) on which we maintain a list by map revision date of recent map revisions and those scheduled as much as 6 months in the future. Finally, we are considering additional ways to communicate certain general information about upcoming map revision activity and will keep you informed as to future opportunities.
As for FEMA, BW 12 (Section 100216) as amended by HFIAA (Section 30) [refer to our Guide to BW 12 for more information] requires FEMA to increase its communication during the mapping process. In response, FEMA is now required to provide a monthly update to Congress on mapping activities. This monthly report not only includes status of future map revision projects, but also provides educational information that breaks down the mapping process (see Appendix A: Flood Maps). In addition, FEMA has a webpage dedicated to current mapping activity (What’s New in Flood Hazard Mapping) through which you can register for email updates on mapping activities in certain regions, states or communities. We expect additional communication and outreach to occur as FEMA implements the Acts’ provisions. In early 2015 we understand the Flood Insurance Advocate position (as required by HFIAA, Section 24) will become operational within FEMA. Among the Advocate’s responsibilities will be to educate property owners on the flood map review process, assist with appeals of preliminary flood maps, and coordinate outreach within communities impacted by map revision activity.
Notable upcoming map revisions:
- Newport News, Virginia – December 9
- Chesapeake, Virginia – December 16
- Norfolk, Virginia – December 16
- Montgomery, Alabama – January 7, 2015
- Virginia Beach, Virginia – January 16
- Wilmington, Delaware – February 4
- St. Louis, Missouri – February 4
- Rancho Cucamonga, California – February 18
Again, you can view our list of upcoming map revisions at Risk Map Updates. We trust this advance information helps you as you prepare for map changes that may impact your portfolio and your customers. As always, feel free to contact us at 1-800-447-1772 with any questions on upcoming map changes or with other flood related inquiries.
The FEMA Technical Mapping Advisory Council Begins Its Work
Established under Section 100215 of the Biggert-Waters Flood Insurance Reform Act of 2012, the Technical Mapping Advisory Council (TMAC) had its inaugural meeting in Washington, D.C. on September 30 through October 1. Pursuant to the law and captured in its charter, the TMAC is charged with reviewing FEMA’s mapping activities and making recommendations to the FEMA Administrator regarding mapping standards and guidelines, flood map accuracy, flood map maintenance, and improving coordination and cooperation between the federal and local governments around flood map development.
To carry out this important work, FEMA announced this past July the membership of the TMAC which includes some of the top subject matter experts from various NFIP stakeholder groups and related fields. Cheryl Small, CoreLogic Flood Services Vice President of Operations, is one of these individuals. While Cheryl’s experience and expertise is in both the insurance and flood zone determination industries, she actively invites the perspectives of others. “I’m excited to hear from all the different constituencies and parties interested in FEMA’s mapping efforts,” Cheryl explains. “This is an enormous, ongoing project and their input will inform the work of the Council.”
The TMAC will hold up to six meetings over the first twelve months as it commences its work and then semi-annually going forward. Meeting notices will be published in the Federal Register, and all meetings are open to public comment. The second TMAC meeting is underway and being held December 4-5, 2014. CoreLogic Flood Services will be monitoring the work of the TMAC and will make you aware as important information becomes available. If you have any questions about the TMAC or if you wish to provide opinions on FEMA’s mapping program to inform Cheryl’s participation, then please feel free to contact her by email in our Compliance Department.
The Complexities of Commercial Tax Service
“Everything should be made as simple as possible, but not simpler.” – Albert Einstein
We may not know what Einstein would have thought about commercial property tax, but we suspect he would have agreed that commercial mortgage servicing can be complex. Unlike residential parcels, commercial properties present heightened challenges with escrow reporting. With typical residential tax service, a mortgage loan is usually associated with a single residential dwelling and parcel. For commercial properties, however, there may be one or more mortgages associated with one or multiple parcels that include office buildings, industrial, retail, multifamily or land. And, in some cases, multiple parcels may each have different property tax requirements. As you might expect, a different level of monitoring and analysis is required to ensure timely and accurate commercial property tax reporting. Based on research within our tax group, the ratio of residential escrow to non-escrow loans is 75 percent to 25 percent. Conversely, commercial property tax is approximately 30 percent escrow and 70 percent non-escrow. To facilitate an operation conducive to successful commercial non-escrow tax reporting, our annual delinquency search listings for each property typically occur within 90 days after the economic loss date for each taxing jurisdiction. Where an agency taxes a property more than once per year, our commercial tax team provides semi-annual delinquency search reporting that includes the status of each property’s real estate tax.
The CoreLogic data team compiles commercial property data to provide clients with the latest information and analytics. As published in our most recent monthly Commercial Market Monitor, the number of commercial mortgages coming due this month is 4,029. For commercial real estate sales, the trend from July of 2014 through September of 2014 shows a decline of approximately 15 percent.
To stay up to date with these figures and latest commercial real estate trends, be sure to subscribe to our Commercial Market Monitor report here. To learn more about our Commercial Real Estate Property Tax Services, please contact your account manager or call 800.526.9220.
Comment Period Open for Proposed Rulemaking
As we began covering in our Industry Alert from October 23, the federal lending regulators are requesting comment on a joint notice of proposed rulemaking that would implement certain provisions of HFIAA. In particular, the proposed rules would update the flood insurance escrow requirements pursuant to HFIAA and adopt HFIAA’s exception to the federal flood insurance requirement for detached nonresidential structures on residential properties. A 60-day public comment period began with publication of the joint notice in the Federal Register on October 30. The deadline for comments is December 29, 2014.
Subsequent to publication of the joint notice, the OCC issued a bulletin for its supervised institutions on November 14 that pertains to the proposed rulemaking. Also, as part of their series of events for bankers, the FDIC recently announced a teleconference to be held on December 9 to focus on statutory changes to the flood insurance requirements, including an update on agency flood insurance rulemaking. The deadline to register is December 5.
You may wish to consider to what extent this proposed rulemaking may impact your business processes, and if appropriate, work with your compliance or legal departments on a possible response prior to the comments deadline. Instructions for submitting comments can be found in the joint notice along with details and background on the proposed rulemaking.
Hearing on Private Flood Insurance
On November 19, the House Committee on Financial Services’ Subcommittee on Housing and Insurance held a hearing on “Opportunities for a Private and Competitive Sustainable Flood Insurance Market.” The hearing was related to a bill introduced earlier this year, HR 4558 – the “Flood Insurance Market Parity and Modernization Act of 2014,” that if passed, would modify the definition of “private flood insurance” to allow a flood insurance policy issued by an insurance company approved by a state insurance regulator to be considered acceptable for a lender under federal law. Among other things, the hearing participants discussed how the bill’s provisions could encourage additional growth in the private market, however, with the end of this legislative session drawing near, it may fall on the 114th Congress to take up any future consideration or action on this issue.
House Activity on Pending CBRS Bills
Earlier this week, the House passed HR 3572 which was introduced last year and would provide replacement maps for certain units of the Coastal Barrier Resources System (CBRS) in North Carolina if enacted. It remains to be seen if the bill will be taken up by the Senate. Other CBRS related bills that were introduced last year and that were recently placed on the calendar for possible consideration by the full House are HR 277, HR 1810, HR 3226, and HR 3227. If enacted, these four bills would provide various replacement maps for certain units of the CBRS in Rhode Island, Florida, and South Carolina.
Proposed Regulations for Massachusetts Law
The Massachusetts Division of Banks recently posted a Notice of Public Hearing related to the release of proposed regulations for Chapter 177 of the Acts of 2014 (“An Act Further Regulating Flood Insurance”). The hearing will be held on December 16 with an associated comment period open until December 29. The proposed regulations include a Model Form of the disclosure to use when requiring a borrower to obtain a flood insurance policy pursuant to a loan transaction. The regulations also specify that this Massachusetts-specific disclosure should be provided at the same time as the federally-required Notice to Borrower in Special Flood Hazards, as well as other aspects of lender compliance. As a reminder, the law went into effect on November 20, 2014 and FAQs were previously released which discussed compliance efforts prior to final adoption of the regulations.
On October 1, FEMA issued NFIP bulletin W-14053 which enumerates changes to the NFIP that will go into effect on April 1, 2015, and that will further implement provisions of BW 12 and HFIAA. FEMA also released a related fact sheet with information on how the April 2015 changes will affect federal flood insurance premiums. Among the changes listed for April are updated flood insurance rates compliant with the HFIAA annual rate caps, an average increase of at least five percent for pre-FIRM subsidized policies, premium surcharges for all policies, an increased optional deductible of $10,000 for residential properties, and rating procedures for properties newly mapped into a SFHA.
On October 16, FEMA issued an addendum (W-14055) to the October 1 bulletin with clarified procedures, eligibility criteria, and processing guidelines for properties newly mapped into a SFHA. Essentially, flood insurance policies for properties newly mapped into a SFHA due to a map revision on or after April 1, 2015 will be rated based on NFIP’s Preferred Risk Policy rating the year following the map revision. After the first year, affected policies will gradually transition to full risk rates through annual premium increases that comply with the HFIAA annual rate caps. Moreover, policies issued under the PRP Eligibility Extension prior to April 1, 2015 will be renewed under this procedure for renewals on or after April 1, 2015.
Finally, FEMA issued bulletin W-14057 on November 13 to further delay until March 1, 2015 the compliance date for large-font NFIP policy documents pursuant to Section 100234 of BW 12.
Fannie Mae Servicing Guide Updates
On October 17, Fannie Mae announced a change to its Servicing Guide regarding the handling of insurance losses. Whereas the handling of these matters previously depended on cause of damage (disaster or non-disaster), handling is now dependent on the status of the loan.
More recently, Fannie Mae released their redesigned Servicing Guide and associated website on November 12. From the website, you can download the entire Guide as a PDF document, or view the various sections as individual webpages. There is also a link that provides additional information about the new Guide, including how it is organized. As for flood insurance requirements now found in Chapter B-3, Fannie Mae has indicated that matters of policy would not change as a result of the redesign.
Again, you may wish to consider whether or not these various developments impact your business processes and work with your compliance or legal departments, as appropriate. If you are interested in additional information or discussion related to the topics in this article, please feel free to contact our Compliance Department via email.
Abandoned Property Conveyance and Foreclosure Legislation
Ohio Senate Bill 172 provides for accelerated seizure of abandoned property and has negative implications to right of redemption. It allows municipal government to accelerate foreclosure on tax delinquent abandoned property. The bill was enacted June 5, 2014 and became effective September 4.
The bill makes various changes in law pertaining to county land reutilization corporations (land banks) and property foreclosures. And, it allows abandoned or nonproductive real property to be offered for sale once, rather than twice, before being acquired by government. It shortens the time periods for certain actions in the real property foreclosure process and makes other changes that appear to facilitate foreclosure for failure to pay real property taxes.
The fact that a mortgage company may have a first lien on such abandoned property has no bearing on the provisions enacted by this bill. The potential impact may be significant; especially with regard to abandoned REO properties. Clients should ensure that taxes are current on REO properties.
In New Jersey, Assembly Bill 3357 passed out of committee on October 2, 2014. If ultimately passed, the bill would allow third party lien holders to streamline foreclosure.
More specifically, this bill would permit a person who holds a tax lien on an abandoned property to institute an in rem tax foreclosure action against the property. Under current law, an in rem tax foreclosure action may generally only be instituted by a municipality. This bill would allow other tax lien holders to institute such actions, but only with respect to abandoned properties. This would enable such tax lien holder to institute an action to foreclose the right of redemption with respect to a tax lien on an abandoned property in a more streamlined manner than is currently allowed.
As with Ohio bill S172, the fact that a mortgage company may have a first lien on such abandoned property has no bearing on the provisions proposed in this bill. Below are several example scenarios to consider should this bill pass:
- Tax delinquencies on REO properties could accelerate the possibility of a property loss.
- REO properties 6 months vacant with a tax sale certificate would instantly meet the “abandoned property” criteria and could have any right of redemption extinguished by the new bill.
Although this bill did pass out of committee on October 2, it has yet to be considered before the full Assembly. Further, a senate companion bill has yet to be introduced, indicating that there may not be enough support to move this bill any further in the New Jersey Legislature’s 2014 regular session.
CoreLogic first reported in September on another accelerated foreclosure bill recently introduced in Ohio on the heels of the passage of Senate 172, which favors local government. This latest bill, Ohio House Bill 613 introduced August 20, 2014, favors private foreclosures by mortgage lenders. It proposes to amend Section 2329 of Title 23 of the Ohio Revised Code and enact new Section 2330; citing it as the Private Foreclosure Fast-Track Law. If passed as introduced, Ohio H613 would appear to allow financial institutions to bring expedited foreclosure actions against owners of unoccupied/abandoned residential property. This bill has not yet been referred to committee.
CoreLogic is now reporting on a similar bill recently introduced in New Jersey. The bill, Assembly 3793, was introduced October 2, 2014 and was referred to the Assembly Financial Institutions and Insurance Committee. The bill was subsequently transferred to the Assembly Housing and Community Development Committee. An amended version passed out of committee on October 23, 2014. A companion bill, Senate 2545, was subsequently introduced in the New Jersey Senate on October 27 and referred to the Senate Commerce Committee. This indicates that the Assembly bill may have enough support to pass. If passed, the bill would create an expedited process for mortgage lenders to use to foreclose vacant and abandoned residential properties and move to public sale in uncontested actions.
Customers should engage their own legal counsel for specific guidance concerning these bills and their implications. As always, our Weekly Tax Bulletin provides ongoing updates in these areas for our clients.
ASK THE FLOOD EXPERT
Q: We make loans on properties in Massachusetts and understand a new law was passed limiting the amount of flood insurance we can require to the loan balance. Are there other states with a similar state law limitation?
A: At this time we are not aware of any other states with a similar law related to the amount of flood insurance which can be required. We have seen bills proposed in other states, but none that have passed into law. We will continue to monitor federal and state legislative activity as we’re sure your legal and compliance teams are doing. We are happy to discuss any proposed legislation that is identified. For more information on the Massachusetts law, you may refer to our prior Industry Alert announcing its passage and the above Flood Legislative Updates article, or you may contact our Compliance Department.
If you have a question for Ask the Flood Expert that you believe would benefit the lending or insurance community through response in this quarterly publication, please send us an email. All questions will receive a response regardless of whether or not they are published.
ASK THE TAX EXPERT
Q: What is a millage rate and how is it calculated?
A: A millage rate is a tax rate applied to the assessed value of real estate. Instead of a percentage, this rate is represented as the amount of tax per thousand currency units of property value. To illustrate, consider this example:
A local taxing agency levies property tax at 6 mills. In this case, the homeowner’s property is assessed at $150,000. To calculate the property tax:
- 6 mills = 6 x 1/1000
- = .006 x $150,000 = $900
Some locations may have more than one rate for city, county, schools, etc. For these areas, the rates must be added to determine the total millage rate.
If you have a question for Ask the Tax Expert that you believe would benefit the lending community through response in this quarterly publication, please submit by email. All questions will receive a response regardless of whether or not they are published.
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