Advancing Property Taxes for NPNs

[Andy Mirza]

What are investors attitudes and processes when deciding on advancing property taxes?

Big banks advance property taxes on every asset (unless it falls through the cracks for some reason). Much simpler that way since they eliminate the risk of tax sale or penalties and late fees.

As a smaller investor that can pay more attention to individual assets, I consider more aspects than just the risk of the tax sale. Most tax sale situations require delinquent taxes for 2-5 years before someone can foreclose. 

Since most of our NPNs liquidate in less time than that, I've let taxes go delinquent knowing that I'd foreclose sooner than a tax sale would occur.

The main advantage is that it's essentially a loan I don't have to obtain that frees up my capital. This is especially true when the property sells at foreclosure sale. The delinquent taxes become the winning 3rd party bidder's problem.

If it becomes REO, I consider the penalties the interest I would have paid if I got a loan to pay the taxes. Sometimes this can be significant and it makes more sense to advance than to pay 20% plus in penalties.

The main risk of not advancing property taxes on a NPN is forgetting to redeem or pay taxes that become too delinquent and having the property go to tax sale.

The best way to mitigate this risk is to schedule a task to look up the tax status once a year on each NPN.