Avoid temptation to delay property tax payments

March 30, 2009
Q: Like many companies, my firm has been struggling recently. However I've managed to make almost every mortgage payment on time: I've never been more than a few days behind and am current. My other accounts are up to date.

All of a sudden, the bank that holds my mortgage sent me a demand notice. Frankly, I'm baffled! When I asked my lender about this, she said it was related to back property taxes.

Lately, I put off property tax payments because the day-to-day bills seem much more important. I'm assessed a 10-percent late fee for property taxes when they are one day overdue, but the penalty never increases, so there is no rush to pay. Right now, I'm two payments behind on property taxes, but I will catch up.

I'm still making my bank payments on time. Why did they send me a demand notice?

A: The bank is nervous for a simple reason: If your property was sold at a tax sale, the bank could be out a lot of money.

Now, here's a more complete answer: We've talked to several business owners who defer property tax payments so they can pay other creditors. There are two reasons for this: The penalty for missing property taxes is the same whether you are late by one day or 365 days. Also, your county treasurer doesn't send repeated overdue notices, nor does the treasurer's office call you on the phone. Property taxes are not a "squeaky wheel" that demands attention. So you pay a creditor who makes more noise.

But this is one molehill that becomes a mountain. You mentioned that you are two payments behind. For most counties, the next property tax deadline is in May. If you fail to make a payment before then, you will be three payments in arrears, triggering the process that could lead to your property's being sold in the next tax sale.

I do not know the total of property taxes you owe, but it will be extremely difficult to make up three delinquent payments of any amount.

Your best strategy would be to pay something—even $1,000 a week—to begin to chip away at your property tax bill. I know credit card rates are high, but with a 10-percent penalty for being one day late on a property tax payment, it might be worthwhile to put one installment of the taxes on a credit card to keep you from being in the next tax sale.

Call your county treasurer, work out a plan, and stick to it. From the tax collector's perspective, you need to be showing a good-faith effort to catch up. Keeping a consistent payment history will also make the bank feel more comfortable. The bank can likely access the tax records online to see your efforts are being recorded.

You should also keep your banker fully apprised of your activities. You may not be alone in receiving a demand notice from your banker. Your banker is probably seeing delinquent accounts on a daily basis from borrowers who have been on schedule for years. Make the banker feel less nervous by making regular, significant progress on your tax bill.

Your banker needs to be confident you won't end up on his or her problem loan list.


Wojtowicz is president of Cambridge Capital Management Corp., which operates several alternative financing funds. She can be reached at 843-9704.
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