NTS Blog

Are PACE risks hiding in your portfolio? We’ve got you covered, guaranteed.

The home loan program PACE — or property assessed clean energy — is touted by many as a successful way for helping property owners pay for otherwise expensive clean energy and environmental upgrades. The concept of PACE sounds promising to homeowners and commercial property owners — low payments over long periods of time — so it’s no wonder PACE loans have seen skyrocketing demand in recent years.

Energy-wise loans

But, beware. In our opinion, PACE loans can cause more harm than good; an opinion many other industry followers seem to share. The Mortgage Bankers Association believes energy efficient building or home improvements can be beneficial for property owners, but significant concerns exist when these improvements are financed with Property Assessed Clean Energy (PACE) loans — because the financing structure presents lien priority risks to lenders, investors and guarantors. The property owner pays back the loans by increasing property taxes by a set rate for an agreed-upon term ranging from 5 - 25 years. These higher tax assessments often come as a surprise to borrowers, who were either misled by unscrupulous third parties who recommended the loans or because they misunderstood the payment plans. As a result, homeowners or commercial property owners can default and lose their property. Fannie Mae and Freddie Mac, as well as the Federal Housing Administration and the Department of Veterans Affairs, won’t insure mortgages with PACE liens because those liens go to the front of the line for repayment if a borrower defaults.

Installing solar panelsPACE loans can spell disaster for mortgage lenders and servicers, as the MBA explains: “PACE loans in first lien position erode the value of the collateral supporting a first mortgage in the event of foreclosure and the eventual sale of a property.”

A Wall Street Journal analysis of tax data in 40 counties in California—by far the biggest market for PACE loans—shows that defaults have jumped over the last year. Roughly 1,100 borrowers missed two consecutive payments in the tax year that ended June 30, compared with 245 over the previous year. That means they are in default, and could potentially have their homes or commercial buildings auctioned off by local governments within five years.

So, what steps can lenders and mortgage companies do to avoid being surprised by PACE loans lurking in the shadows? They can devote time to researching each property in their portfolio to see which ones have had PACE loans taken out on them, or they can confidently hand the reins over to us to outsource all of their PACE needs.

For more than 20 years, National Tax Search has offered proven solutions and services designed to reduce risk for real estate lenders, investor and owners. We're known for TaxQ, our powerful tax research solution, which offers a 100% guarantee. Now, in response to new market needs driven by PACE loans, we're bringing that same guaranteed accuracy and dedicated service to help our customers discover and track PACE payment status.

National Tax Search is the clear choice for relationships and expertise to protect against PACE delinquencies and debilitating tax liens:

  • NTS has real-time access to over 26,000 taxing entities in the U.S. and its territories. Through this vast dataset, we can identify any loans within your portfolio that have PACE liens.
  • The NTS platform is fully integrated with your system of record, so PACE loans can be identified and managed within your existing workflow.
  • Ongoing tax monitoring can identify any PACE delinquency as soon as it occurs. With accurate updates, you can mitigate PACE liens risk before foreclosure, thereby reducing risk of loss.
  • NTS PACE research is 100% guaranteed.

We'll be showcasing our PACE solution at the upcoming MBA Commercial/Multifamily Servicing and Technology Conference in Miami. Visit us in booth 10 to learn how National Tax Search can reduce your risks associated with PACE loans. Or, contact us at sales@nationaltaxsearch.com to schedule a detailed risk reduction consultation.

How to Limit Your Residential Real Estate Risk

Over the past several years, there have been several changes to tax delinquency processes that can negatively impact residential real estate investor portfolios. For instance, in certain states, delinquent taxes can cause assets to go into tax sale more quickly than they would have moved several years ago. In addition to understanding those complexities, investors also need to be well versed in the nuances of HOAs. This is particularly true in super lien states, where management companies can take first position on outstanding delinquent HOAs over lenders.

Delinquent taxes can cause assets to go into tax sale more quickly than they would several years ago

Our CEO Lori Eshoo, an industry veteran pulling from more than 30 years of experience in commercial and residential valuation and tax compliance, will be speaking on a panel during the Single-family Rental Summit, taking place this week in Nashville, Tennessee, to share her expertise on these issues. She will share her recommendations on how single family residential investors can navigate tax delinquency and HOA issues with ease, dramatically reducing their investment risk.

Details on the panel are below. We invite you to listen to the panel, or visit us in booth #17 during the summit. If you have questions about how National Tax Search can help you limit your exposure to unforeseen collateral loss related to unpaid Tax, HOA fees or inaccurate flood determination, please swing by, or contact us at sales@nationaltaxsearch.com.

What: “Issues in Local Governance”
When: March 20, 1:30 PM to 2:15 PM
Where: Single-family Rental Summit | Renaissance Nashville Hotel | Nashville, Tennessee

Risk Reduction in Today's Mortgage Servicing Climate

We'll see you in Texas! Our National Tax Search team is excited to exhibit and speak at the Mortgage Bankers Association’s National Mortgage Servicing Conference and Expo taking place this week just outside Dallas, Texas. As the saying goes, everything is bigger in Texas, and this conference fits the bill. We’ll be mingling with mortgage servicing executives from across the country to discuss hot issues, trends on the horizon, and best practices to help our peers keep pace with the massive growth our industry has been experiencing.

National Mortgage Servicing Conference & Expo 2018

Mortgage Bankers Association

To that end, there is no shortage of fascinating topics that we suspect will be discussed during the show. Among those there are a handful of trends that I believe are worth calling out, because they have the potential to drastically increase or decrease risk for mortgage servicers, depending on how servicers approach the issues at hand. It pains me to see servicers putting themselves at risk, so I’ve addressed each trend very briefly below, with my thoughts on most appropriate actions and considerations. I'll plan to expand on these and other pressing issues in coming weeks.

Delinquencies are starting to stabilize, but are still a ticking time bomb. Don't blindly trust the numbers.

In my 30-plus years working in the mortgage servicing and real estate management industries, I’ve seen my fair share of ups and downs in delinquencies across the nation.Although hurricanes Harvey, Irma and Maria drove up the U.S. mortgage delinquency rate in the fourth quarter, overall mortgage performance continued to improve in 2017, according to Black Knight’s Mortgage Monitor Report. Transunion expects the mortgage delinquency rate will drop to its lowest level since 2005.

While I appreciate the jubilance that may come from delinquencies being on the decline, I think the dip in delinquency rates may be a ticking time bomb and should be watched carefully. Regulations are lightening up a bit, but I caution against swinging the pendulum and reducing restrictions on mortgages too soon. Dips like this aren’t sustainable in the long term. There is too much global strife, national economic uncertainty, not to mention what seems like an abundance of natural disasters, facing the market right now. I’ll report back after the conference to share more insights and predictions on this matter, gathered from the show floor and my esteemed industry colleagues.

HOAs and COAs can sneak up on you. Be prepared.

Homeowners Associations and Condo-owners Associations can force mortgage lenders to pay delinquent assessments. Though a homeowners association lien is junior to tax and certain mortgage liens, an HOA still can foreclose using it. Homeowners association and condo owners association super liens are considered "true priority" liens in a growing number of states, holding a higher priority in foreclosure than a property's first lien mortgage. Too often, servicers incorrectly assume they can service HOA / COA properties like any other properties, but this is an assumption that can have disastrous consequences for the servicers. For lenders, this is a massive risk. If a lender is not aware a property owner is not paying their HOA fees, the lender can lose that asset.

To mitigate this growing risk, mortgage servicers should be sure that if they do have an HOA they are paid up -- just like they would in property taxes. This means lenders need to track HOAs early, often, and diligently to ensure they're being paid. That’s easier said than done, though, because there are countless numbers of HOAs, and they are not government controlled, making them more difficult to manage. It’s critical that lenders and mortgage servicers work with third parties who can determine if there is an HOA and manage every step of the process to get ahead of the pitfalls, so the impacted parties can put money away in escrow or make sure the borrower is paying on an ongoing basis.

Automation is the key to reducing risk and driving efficiencies.

It's a given: everyone in the mortgage servicing industry wants to cut time out of inefficient, manual, time consuming processes. But even more than time savings, manual processes leave too many opportunities for human error – equating to huge risks. Those risks were no more apparent than in the crash of 2008. Consider this example: prior to the crash, one of my large clients had been updating its non-escrow loans once a year – due in part to the fact that the process of making those updates was exceedingly slow and laborious. The problem with that timeframe is that they could potentially have lost property in that time. We pushed them to take data in more often, and because our technology automates the intake and reporting process, we were able to give the client up to date details every week. Six months later the market crashed. Luckily, the team didn’t have to panic, because they knew every current detail about their non-escrow loans. Without our frequent checks and balances in place they wouldn’t have had any idea where their loans were.

I look forward to delving into these issues and others during the MBA conference this week. I'd love to hear your opinions and discuss some of the other trends you see impacting the industry. I invite you to visit me in our National Tax Search booth or join me to our demo on the side stage Wednesday, Feb 7 at 10:15 a.m. We'll share our takeaways from the event back here on our blog.