Property tax shortfalls leading cause of customer dissatisfaction
Posted by Bill Rudzitis
Customers automatically assume that when their mortgage lender takes responsibility for administering property taxes on their behalf that the collection and remittance process will run smoothly. When it does, customers don’t give it another thought. When it doesn’t, customers become very dissatisfied with the lender as a whole.
Why are customers dissatisfied?
Most lenders collect municipal property taxes on behalf of their customers for three main reasons:
- offer a value added service to their customers by collecting the required tax portion together with their mortgage payment
- minimize corporate risk by ensuring the property tax obligation is honored
- gain access to tax escrow funds for investment purposes
At the end of each tax year, most lenders adjust the property tax portion being collected for each account. Tax adjustments that significantly increase the property tax portion result in customer questions, complaints and overall dissatisfaction. The customer dissatisfaction is heightened when the customers learn that they must make up the shortfall by paying a lump sum or an increased payment subject to additional interest charges. Furthermore, the customers learn that all this is due to a simple miscommunication or miscalculation when the tax portion was determined. Shortfalls of the property tax escrow account are a leading cause of customer dissatisfaction for many Canadian Mortgage Lenders.
Why do lenders continue to experience property tax account shortfalls?
The root cause of this customer dissatisfier is due to the fact that the property tax portion is not accurately calculated at the time of underwriting. The miscalculation primarily results from a lack of accurate property tax information made available to the customer, originator and lender. In addition, there are complex formulas required to project the collection and remittance schedule post funding.
In some cases, lenders find it difficult to simply identify in which municipality the property is located! In this case, properties are often setup with the incorrect municipality causing taxes to be paid after the due date or missed altogether.
Time is money. How much are you spending?
In an attempt to solve this problem, lenders are spending a significant amount of time, valuable resources and service charges contacting municipalities to obtain the information regarding the tax levy and the bill payment dates for each property. The correct projection of the payment schedule relies on accurate details and as the formulas are in many cases, complex; many lenders are forced to simply take the annual tax levy and divide it by the number of mortgage payments in the year (eg: 12 months or 52 weeks etc.). This simplistic approach often results in costly tax shortfalls and the need for adjustments at the end of the first year.
If you are interested in learning about how Delta 360 has addressed this problem, please see the below link: