Delinquent property-tax bill could trigger foreclosure
Few borrowers know it, but most lenders have the right to foreclose if the property-tax bill goes unpaid.
Q. You recently answered a question from a reader who said he was laid off last year and could no longer pay his monthly mortgage. Although our loan payments are up-to-date, we did not have the cash to pay the final installment on our property-tax bill that was due in April. Our lender has now sent us a letter stating that it will begin foreclosure proceedings if the tax bill is not paid immediately. Can the bank do this, even though our loan payments have been made on time? If so, do we have any options to prevent foreclosure?
A. Yes, the bank probably can begin foreclosure proceedings even though your mortgage payments are current. Fortunately, you have a number of alternatives to keep the foreclosure wolves at bay.
Most standard loan contracts allow a lender to foreclose if property-tax payments aren't made by the deadline set by the county tax collector or assessor. That's mostly because a tax lien always takes precedence over a bank's mortgage: If the home is eventually sold at a tax-deed auction or similar foreclosure sale, the bank could see some or all of its own interest in the property wiped out because the tax collector would get "first dibs" on the sale proceeds. The lender would be entitled to get only what's left, even if the amount falls short of the loan's outstanding balance.
Call your local tax collector or assessor and explain your problem. The agency might agree to accept the past-due amount through a series of small installments. Hundreds of counties across the nation also operate special programs that allow owners to defer or reduce their property-tax payments, especially if home values in the area have dropped, if the owner is suffering financial difficulties or if the owner is handicapped or over the age of 62.
The bank itself even might be willing to help, particularly because you have a good record of making the loan payments by the due date. Aid can come in a variety of forms, including a temporary reduction or suspension of your mortgage payments, which would allow you to use the money to pay the overdue tax bill. Making such concessions also would allow the lender to avoid the costly foreclosure process.
Refinancing your mortgage and drawing enough cash out of the deal to pay off the overdue taxes might be another alternative, especially if the rate on the new loan would be lower than the rate that you're currently being charged.
If your current bank won't help, perhaps you can find another lender or even a relative who is willing to provide a small loan to pay the overdue bill. Everything should turn out OK, provided you explore all your options and choose the one that's best for you.
Q. I went to the county recorder's office to do some research on a home that I might want to buy. Records show that title to the home is owned by a woman "in severalty," but only her name is listed on the deed. How can I find out who the other owners are?
A. There aren't any other owners. It's kind of confusing, but "in severalty" means that the woman owns the property all by herself - any interest that another party may once have had in the home has since been severed.
Q. I have always paid my mortgage and other bills on time, so I thought I had an excellent credit rating. When I went to refinance recently, however, I was told I have only an "above average" score - apparently because I have a few outstanding traffic tickets! The lower score means that I will have to pay a higher rate on my refinance loan because my score is not as perfect as I thought it was. Since when did a homeowner's driving record affect the rate that must be paid on a new mortgage? Is this whole thing fair, or at least legal?
A. The fact that you'll have to pay more for your loan because your credit score has been hurt by your unpaid traffic tickets may seem unfair. Nonetheless, the practice is perfectly legal.
Law-enforcement organizations have always been frustrated by traffic scofflaws who won't pay for their violations. To pressure those drivers into paying, a growing number of them directly report overdue traffic bills to the credit bureaus, and many others turn them over to collection agencies. Either way, it damages a person's credit score just as an unpaid credit-card account or other bill would.
Mortgage lenders, in turn, are legally allowed to charge the prospective borrower a higher rate based on the lower rating that was wrought by the overdue tickets.
The moral here is that safe driving doesn't just help prevent traffic tickets and accidents: It also can keep folks from wrecking their credit score.
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© 2009, Cowles Syndicate Inc.