Nothing is Certain Except Death and (Property) Taxes

A Conversation with John Gilberti

Discussions about property taxes are often met with a frown and a change of subject. But these homeowner taxes are not just one of life’s inescapable truths; they also help create essential revenue for cities and maintain healthy economies. So, when owners fall delinquent on property tax payments, the consequences can be pronounced.

In this episode, host Maiclaire Bolton Smith sits down with CoreLogic Senior Leader of Government Solutions John Gilberti to discuss property taxes, why and how they are collected, the way municipalities use them and what happens if someone is delinquent in paying them.

Maiclaire Bolton Smith:

Welcome back to Core Conversations: a CoreLogic Podcast, where we dive into the heart of what makes the property market tick. I’m Maiclaire Bolton Smith, your host and curious observer of all things related to property — from affordable housing to market trends to the impacts of natural disasters to climate change — I want to converse about it all.

Although the saying “nothing is certain but death in taxes” is a bit cynical, it’s true. While we may all dislike paying taxes, I think it’s worth taking a step back and examining why we have them in the first place. And while there are many types of taxes, today, we’re going to take a look at property taxes.

Real estate property tax payments are a critical component of funding local state and federal budgetary and infrastructure needs. Increases and decreases in tax payment delinquency rates are often early indicators of further economic change. In fact, property taxes are indicative of homeownership rates, which in turn corresponds to the overall health of the economy.

Keeping track of all the homeowners in the U.S. And the status of their property tax payments is no small feat. In the U.S., there are over 20,000 servicing agencies and each state has its own payment cadence and property assessment protocols.

In addition to collecting payments, servicers also need to prevent homeowners from becoming delinquent on their payments. To do that, they need data, and CoreLogic helps with this, processing $151 billion in property taxes for 40 million mortgages. But there’s still plenty of analysis left to be done once the bill is paid.

So, to help us understand the importance of looking at property tax payments through a historical lens and how it can help us understand the overall health of different geographical areas of our nation, we have CoreLogic Senior Leader of Government Solutions John Gilberti. John, welcome to Core Conversations.

John Gilberti:

Great. Thank you. Happy to be here.

MBS:

All right. So to get us started today, why don’t you tell us a little bit about your background and your role here at CoreLogic?

JG:

Sure. My background is pretty unique. So I’ve worked with CoreLogic for over 30 years.

MBS:

Oh, wow.

JG:

Most of my time in the operations actually making those property tax payments on behalf of mortgage servicers across the country, and most recently, I work in the product group now working with municipalities on perfecting ways to have more efficiency in making those property tax payments.

MBS:

Wow. Well, you are the right person for us to talk with today. So let’s set the stage for our listeners. We know that taxes have been a hot topic since the country began under the shadow of the Boston Tea Party, but specifically, why do we care about property taxes and whether the bill is paid?

JG:

Yeah. As you mentioned earlier, property tax is kind of the majority of the funding that goes to local municipalities and school districts for operations.

MBS:

So I guess when we take a step back and look at property taxes specifically, not everyone pays the same way, right? I know when we bought our house, we had the option of did we want to pay our property taxes through escrow or did we want to pay them just independently on their own? So, can you talk a little bit about the different ways that people can pay their property taxes?

JG:

Sure. A majority of the folks actually opt to pay their property tax to an escrow account, where, as they pay their mortgage payment monthly, they’ll be paying a portion one-twelfth of their property tax included in that mortgage. And then one of the things that CoreLogic assists the servicers with is when those taxes become due, we report those taxes and assist with the disbursement and payment of those taxes to their local municipalities.

MBS:

Okay. So just kind of having an option of paying it in little chunks throughout the year versus all at once, or into two payments is how it’s done here in California, where I live. We probably should quickly just define escrow for our listeners as well in case people aren’t familiar with that term.

JG:

Yeah. Escrow is actually an account that’s set up for the borrowers so that they can put that money in monthly payments. And then when taxes and sometimes also escrow for insurance become due, that money is available to make the payment by the servicer.

MBS:

Perfect.

JG:

So it kind of guarantees that the money is there and the taxes will get paid.

MBS:

Got it. Thanks for that. So I guess the other thing I want to talk a little bit about is: property taxes aren’t the same across the country. I mean, there are people that will move states to find favorable taxes. So can we talk a little bit about this? I know I live in California. I have friends that live on the East Coast, and they talk about how high their property taxes are. Can you explain a little bit about how the states approach the process differently and how it affects the tax cycle?

JG:

Sure. I mean, there’s a number of dimensions that go into the property tax amounts. So really, it starts before the tax bills come out. There’s generally an appraisal or an assessment done on the property at some frequency. And then independent of that, local towns, municipalities and school districts do their budgets. And then in between the two, there’s an auditor that comes in and actually sets the tax rate. So you really have three components. You have the municipalities budget. You have the values of the properties, both residential and commercial, coming in. And then you have the tax rate. So this way, it ensures municipalities will have the funding to meet their budgetary needs and create that sustainable life in the community.

MBS:

Okay. And you specifically, John, you’re located in Texas. I’m in California. Let’s talk a little bit about how the two are different.

JG:

Yeah. Yeah. So in the state of Texas, our property taxes are due once a year, annually. There are some options for senior citizens to pay it quarterly, but typically, they are due on January 31. And Texas, we are experiencing a high amount of growth here, still a lot of new construction going on.

MBS:

Interesting.

JG:

States like California, you’ve got your two installments or your kind of… And that’s pretty much a norm across the country. You see, when look across the country, the average is two installments for most municipalities. And then we go up to the Northeast and we have states like New Jersey and Connecticut that have four installments that they’re actually paying the property taxes. And in those states, some of those taxes are relatively high, so it makes it a little bit easier.

MBS:

Wow. That’s interesting. I hadn’t realized — I mean, California, it’s two — I hadn’t realized that there were places that it’s four. Are there advantages to having multiple payments? I mean, two or four payments versus one. Other than you don’t have to pay a huge amount of money all at one time, are there advantages?

JG:

Yeah. Yeah. I think there’s some advantages to the municipality because they get the general flow of money coming in throughout the year.

MBS:

Sure, yeah.

JG:

So that helps. But also with that, when we talk to collectors who have four installments, they’re always in tax cycle. So they’re always either winding down on it or gearing up for another one. So I mean, a case could be made for both cases. In Texas, you get your money at the beginning of the year and then the municipality has got that to spend and manage throughout the year, whereas New Jersey, they’re getting it quarterly.

MBS:

Sure. Right. Yeah, no, that’s really interesting. I hadn’t realized that some states did it quarterly. Honestly, I am not originally from this country, and I’ve only lived in California in the U.S. So to me, you pay them twice a year. That’s how it works. So, I hadn’t actually realized that it was different across the country too. So that’s an interesting perspective. Thank you for adding that.

Okay. Circling back a little bit, when I started the conversation, I did mention that CoreLogic processes 40 million mortgages last year alone. Can you give an idea of the scale at which property taxes are processed here in the U.S.?

JG:

Yeah. And I think you kind of alluded to some of the dollar figures that we are processing with those 40 million loans in average of two reporting events a year and in excess of 148 million property taxes that we’re emitting across the country to 20,000 municipalities in about 3,000 different counties.

MBS:

Wow. That’s a lot of data. That’s a lot of homeowners. I would imagine, too, that compliance is a big issue. I guess, how do the servicers work through their portfolios and ensure that compliance is happening, that people are paying? How does that work?

JG:

Yeah. There’s two things that come to mind. Number one is that CoreLogic assisted servicers in keeping track of not only when the taxes are due, but if there are any relative discounts that are available to make sure that the consumer is getting the best payment option that’s favorable. So we have to keep in touch with that.

And then on the back end for particularly… We didn’t really touch on the non-escrow, but on a non-escrow account, the borrower is responsible for making the tax payments. So we do monitoring on behalf of the servicers, after the taxes have become delinquent to check, to make sure they’ve been paid. And then we work with services to do some follow-up services with those borrowers to ensure those taxes get paid before there’s any risk of losing that collateral.

MBS:

So that’s interesting. I want to dive into that a little bit, and there’s kind of two things I want to go into the direction of. I want to talk a little bit about delinquencies. I mean, with the pandemic, we’ve talked a lot on this podcast about how many mortgages have gone into forbearance. I assume that delinquencies have been an issue as well. Do we have any idea of, independent of the pandemic, the percentage of people who do tend to go delinquent on their tax payments? And then in the context of the pandemic specifically, did we see an increase?

JG:

Yeah. So CoreLogic just completed a study taking a look back to 2011, and I think the average delinquency rate was 6.2% that we saw. And when the pandemic hit, in the beginning, most of that money in escrow was already collected for a lot of the tax cycles. So that alleviated some delinquencies on the escrow side. And then a lot of municipalities did some short-term extensions to allow homeowners to pay without penalty for a short period of time. And that helped curve some delinquencies.

MBS:

Okay.

JG:

The other thing we did see is a high amount of electronic and online payments with the pandemic. So that actually kicked up quite a bit from where it was, prior to the pandemic.

MBS:

Okay. You mentioned penalty. So, I want to talk a little bit about this, but what happens when someone doesn’t pay their taxes? I assume, I mean, I’m always paranoid about, “It’s due on this day. I have to pay or I’ll get in trouble.” But what happens if you don’t pay your property taxes? Is it just, you get hit with a penalty and you have to pay extra interest? Or how does it work?

JG:

Yeah. Typically, pretty much all the municipalities have a penalty and interest program. So once they go delinquent, penalty and interest gets tacked on. And some states, it’s per diem. Some states, it’s per annum. So it just depends on where you are.

And then ultimately, there is kind of an end date where in many states, the municipality will actually have a lien sale and actually look for investors to come in and buy, pay those taxes. And on behalf of paying those taxes, they get a lien certificate, which typically the homeowners have a period of anywhere from one to two to three years to redeem their property with that investor. So that investor gets obviously taking on some of the interest payments, and then the municipalities are made whole. So that’s primarily what the penalty is in most states.

MBS:

Interesting. Yeah. And I have heard of that as a real estate investment tactic that people do as well. So that’s interesting that that’s the direction that it can go in some states. If we look across the country, are there certain states that tend to be more delinquent than others?

JG:

Yeah. I think our studies showed a couple states that I can talk about. Mississippi was one state that had a high amount of delinquency. And when we looked at Mississippi, it seemed like the interest rate was very low, the penalty. So that could be…

MBS:

Oh, interesting.

JG:

… one reason that people, they think they could pay late and it’s not costing them that much more. Other states, I think we looked at dealt with some collecting entities that collect not only property tax but water and sewer. So we also saw that as another — they were collecting more than one. And when CoreLogic looks at delinquencies from a collection standpoint, we’ll look at anything that’s lienable, and in those states like Massachusetts, like Virginia, those water and sewer taxes are collected by the same municipality and would have a tax lien with them.

MBS:

Interesting. Interesting. So weren’t there too — didn’t I hear that during the pandemic, that some states tried to help alleviate the burden of property taxes, specifically because of the impact the pandemic was having?

JG:

Yeah. And I think, the pandemic first, and then I think there’s been a general worry at the state level about just the rising values of property and how that will turn into rising property taxes. So CoreLogic has actually worked with the state of Colorado in just recently completing a study, looking at a deferment plan that the state’s looking to offer up as relief for homeowners who would need it, primarily short-term relief.

MBS:

So I guess when we look at some of the states that have done, had some sort of measures in place to help alleviate some of the impacts, do we see that in the data? Do we see that if there are measures available, that there are potentially more delinquencies?

JG:

We don’t see that in the data because what we do is we identify… For the most part, CoreLogic will identify what we call payment plans.

MBS:

Oh, okay.

JG:

So we’ll actually work with municipalities to identify — even though they are legally in many states, like the state of Texas, they’re still deemed delinquent — we often report the payment plans to the servicers, and typically, as long as those payment plans are what we call them good standing, where homeowners are making their payments, then most of the servicers are good with that.

MBS:

Okay. And do we think we’re going to continue to see any ripples from any deferral that happened during the pandemic as we move further into 2022 and beyond?

JG:

Well, I think we’re in interesting times, especially with a lot of the economic activities. So one of the things, I think it’s real important. I think CoreLogic is just going to take a close look in monitoring these delinquencies going forward. I think over time, we’re probably going to see similar patterns than what we saw over the last 10 to 11 years, but again, we’re kind of in unprecedented times, so we’re going to monitor a little bit closely, and hopefully, this will have more reports out in the future to give more insights.

MBS:

And I think everyone is wondering if we’re ever not going to be in unprecedented times at this stage because this just continues to continue to-

JG:

It’s the new norm.

MBS:

Exactly.

JG:

Yeah.

MBS:

Okay. I want to dive a little bit more into the report that you mentioned, the study CoreLogic did recently, and you did mention that the average national property tax delinquency rate between 2011 and 2021 and a 10-year period was 6.2%. Is that a rate we would expect to see or what is driving this number if it’s unusual?

JG:

No. I think when we look over a period of time, that seems to be the norm when it gets to delinquencies. And obviously, there’s some correlation to delinquent taxes and delinquent mortgage payments, and I think the underlying data shows that people are more apt to pay their mortgage first and then their property tax, if you believe that, because they don’t understand all of the risk behind that. So typically, that’s what we kind of see. So it’s definitely an indicator, and again, it’s something that we’ll have to continue to monitor in the future.

MBS:

Yeah. I can definitely see that. I think it’s pretty well known that if you don’t pay your mortgage, you will lose your house. But it may not be the same perspective for your property taxes that it can have that same impact, but people may think, “Well, I’m paying my mortgage. I’m fine.” So, yeah, it’s an interesting perspective.

Okay. I want to dive in a little bit something too. There’s another study that we’ve looked into here, and the Library of Congress, found that there’s a correlation between real estate speculation and tax payment delinquency. And the National Tax Association has said, “delinquency is an inevitable byproduct of deflation.” So, I’m curious if the higher rates of property tax delinquency in the early 2010s reflect the real estate bubble bursting during the Great Recession.

JG:

I mean, that’s absolutely true. So I think that was one big contributing factor to that. And then as we look at investors now in the market, I think a lot of them understand the risk. They understand the property tax aspects of it. So I think going through what we went through in that Great Recession, I think there was also a lot of legislation that changed to help our industry.

MBS:

Sure. Yeah.

JG:

And I think there’s also been a lot of education. So I think the investors that are jumping in now are a little bit more poised to understand the property tax dimensions and the importance of making sure that those taxes get paid and the risk associated, if you don’t.

MBS:

Okay. That’s really helpful and really interesting. And I mean, we’ve heard about the impact the Great Recession had on just real estate in general. So I think that’s an interesting perspective to have from property tax as well too. So thank you for that.

Okay. One last question here, as we wrap up, I want to go back to the delinquency report that you’ve talked about. And how are servicers, who are collecting the property taxes, how can they use the information? How can they take this report that CoreLogic has produced? What does it mean for them, and how can they use it?

JG:

Right off the bat, the obvious use would be to take a look at where they’re doing their lending practices and take a look at those states that are more prone to higher delinquent property taxes, and maybe look at that as they make decisions on whether they set up escrow accounts or non-escrow accounts in those states.

MBS:

Okay. Thank you, John. That was so interesting, and I learned a lot. I hope others learned a lot as well. So, thank you for joining me today on Core Conversations: A CoreLogic Podcast.

JG:

Great. Thank you very much for having me.

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