The spike in property valuations released this month has left many homeowners in shock. As some struggle to pay taxes, 2022 could bring revival to a controversial industry.
Property tax lenders offer to help desperate homeowners and businesses protect their properties from foreclosure by offering immediate loans at high interest rates. After years of steady growth, the pandemic has cut its fortunes short, but some see the conditions ripe for a comeback.
“It’s definitely been a good year after a few pretty tough years before,” said Andy Cahill, president of Johnson & Starr, an Austin-based property tax lender that serves homeowners across the state. “I suspect this will be the best year we’ve seen in a long time.”
This year, Bexar County assessed the average farm at just over $309,000, up more than 23% from last year, according to the Bexar County Assessment District. Just five years ago, the average farm assessed was around $170,600, so larger tax bills will likely keep some owners from paying.
Cahill said the property tax loan industry saw high activity in February and March, typically the busiest time of the year. February is when unpaid property taxes become overdue and the first notices are sent. Next February, when the 2022 property taxes come due, could see an even bigger bump.
It’s not just soaring assessment values that are pushing some to apply for a property tax loan, Cahill said, but also the end of eviction moratoriums, which are just beginning to match the numbers in before the pandemic. Homeowners are feeling more pressure to pay overdue taxes, with some facing years of levies.
Critics often compare the industry to payday lenders, which also offer fast, high-interest loans to desperate borrowers. According to the latest figures from the Texas Office of Consumer Credit Commissioner, the average interest rate on these loans was 13.09% for residential properties and 11.87% for non-residential properties. Bloomberg reported last year that borrowers often end up paying more than double face value for their tax liens.
While taxpayers have a variety of options to ease the pain — like working with the county on a payment plan, appealing for appraisals, applying for homestead exemptions, or involving their mortgage provider — corporations tax loan companies promise flexibility, which they advertise strongly through leaflets, letters and billboards.
The industry began to flourish in Texas in the 1990s and grew steadily until the pandemic cut its fortunes short. Peaking in 2019, property tax lenders processed a total of $198 million in loans that year, according to state records. In 2020, that number has dropped to just over $165 million. Total loan amounts for 2021, when valuations began their steep ascent, have yet to be released, let alone 2022.
Peter Squier, president of the Texas Property Tax Lienholders Association, predicts that “many more people will need help paying their taxes next January when tax bills for new assessments come due.”
Although federal funds have enabled the creation of a new state assistance program for homeowners, not everyone will be eligible. And for those people, Squier said in an email, “The Texas state-regulated property tax loan industry stands ready to provide tax loans that save homeowners money and prevent them from possible seizure of outstanding property taxes”.
Squier is also president of Propel Financial Services, the San Antonio-based property tax lending company that dominates the industry. According to its website, it is the largest property tax lender in the state.
Propel was co-founded in 2007 by Red McCombs, the San Antonio billionaire who made his fortune in car dealerships and radio. McCombs was bought out in 2012 for $187 million, but four years ago bought the company for an undisclosed price.
“It’s one of my babies that I plan to grow into a very competitive financial services company,” McCombs told the San Antonio Business Journal at the time. “In two to three years it will be a $100 million business.”
McCombs and others in the industry say it provides flexibility for landlords and other landlords, as he detailed in a 2013 opinion piece.
Cahill echoed the sentiment. “Once we have a customer, we don’t want to foreclose them,” he said, because foreclosure would sever the credit relationship between the company and the customer, cutting off the money supply. Missed payments are more likely to lead to calls from a collection agency than a seizure, he said.
Critics say there are less risky alternatives.
Nick Longo, who recently founded PropertyAxe, a company that uses data-assisted techniques to help property owners appeal their appraisals, called the industry “sharks”. He described desperation to see a billboard for them on the way to Austin, and said many of the people targeted by these ads are the same ones who could be helped by his business.
Steven Scurlock, director of government relations for the Texas Independent Bankers Association, described tax lenders as an “irritation” to the industry and an exploitation for homeowners. “A lot of times the consumer doesn’t understand what they’re getting into, and that can create problems far beyond your non-compliance with your taxes.”
His association has long lobbied in the state house against the industry, whose model is disrupting bank-provided mortgages. He urged homeowners to speak to their bank for help in situations where they cannot pay property taxes.
Bexar County Chief Assessor Michael Amezquita called the companies predatory. He said he sympathized with landlords who were experiencing rising property values and strongly urged them to appeal their appraisals, which he said have a 94% settlement rate. The process has been simplified in recent years with online appointment scheduling.
He also urged those struggling with taxes to work out a payment plan with the county. Owners have several options for payment plans, particularly if the owner is older, has a disability, or is a veteran or married to one.
Bexar County Tax Assessor-Collector Albert Uresti said homeowners can enter these types of payment plans at any time — even now — and the county also has flexibility. Those who miss a payment are subject to a 6% penalty fee and 1% interest.
More people use county payment plans than property tax lenders, according to figures provided by his office. For the 2021 tax bills, he said about 11,500 accounts — less than 2% of property owners — opted into a county payment plan, compared to only about 700 who transferred their lien to a tax lender.
“Why go to Propel? ” he said. “We have the same program here, and it’s a lot less risky.”