Property Tax Deferrals
All below THE "~~~~~ LINE" was posted before the end of the 2017 Texas Special Session. Most of it before the end of the regular session. Instead of updating it all I'll leave it as is to show the progression.
Bottom Line: this November Proposition 1 contains the ONLY THING TO PASS IN TEXAS THIS YEAR THAT PROVIDES ANY PROPERTY TAX RELIEF TO ANYONE that becomes effective 1/1/2018.
NONE OF THAT WOULD'VE HAPPENED WITHOUT PHILLIP HUFFINES, DON HUFFINES, AND MYSELF. PERIOD.
Breaking News: We Got It Done!!! Unlike all the Dems & RINO's WE Actually Gave More Than Lip Service:
After my bringing this issue to their attention, thanks to the vision, courage, and efforts of Phillip Huffines and his brother State Senator Don Huffines (as well as his staff members Lauren Welch & Vivianna), who added the necessary ammendment to HB150, this change will now become law to take effect January 1, 2018 (assuming the constitutional amendment it is included in - HJR21 - passes this November).
Several other lawmakers were contacted and none responded to me to follow up with the info I provided to them about this issue - GIFTWRAPPED AND ON A SILVER PLATTER! Either they didn't care, didn't understand, didn't get it, or don't REALLY want to provide ANY property tax relief! I don't believe any of them did anything to help. If anyone wants to know who did nothing just contact me.
Of course I do realize that this is not an issue a Congressman would likely be able to take direct action on (as it is nearly entirely a states issue) but that in no way precludes me from advocating for what's right. Certainly a Congressman who believed the below is the right thing to do could publicly express that opinion - including TO state officials. That's the beauty of democracy and freedom of speech.
A little background first.
The Texas Property Code Section 33.06(d) currently mandates that any county granting a property tax deferral or abatement MUST charge 8% interest on those deferred amounts. I don't believe it was ever the intent of the Texas legislature to mandate the EXACT amount a county should charge but instead set a MAXIMUM rate. The way it stands now it is effectively a MINIMUM.
I believe counties should be allowed to charge any rate THEY want NOT TO EXCEED a state mandated maximum. All that would have to be amended in the current law is for the 11th word of the 2nd sentence of 33.06(d) to be changed FROM "is" TO "shall not exceed". I believe - AND I AM NOT AN EXPERT IN LEGISLATIVE PROCEDURAL MANEUVERING - the best way to get this achieved in the current legislative session is to have an amendment added to a bill that is believed to have a great chance of passing.
I believe whoever was able to get this passed would garner much appreciation from senior citizens and disabled persons (and their families) eligible for these deferrals. Many people otherwise eligible refuse to defer to get the relief they need simply because the current state mandated rate - i.e. 8% - is too high and with the continuous annual compounding realize that eventually there will be little or no equity remaining either for themselves or their heirs.
See this SAMPLE SPREADSHEET to see how equity gets destroyed under this current "stale" 8% rate insanity and how the original intent was always to have this rate LOWER than the prevailing mortgage rates but is now about double!
Allowing counties to charge a lower rate would not only help people who need deferrals but would allow counties to offer more of them and generate more revenue for themselves as logic would dictate they would offer them at some small(er) margin over and above their average cost of capital. e.g. if a county's average cost of capital is 2% it could offer deferments at 4% and effectively make a 100% profit and simultaneously cut the cost to the senior by 50% - the definition of a win-win!
This change to the Property Code would also allow local voters to determine what their respective counties charge for deferments. Currently county's hands are tied and voters are unable to decide on a lower more appropriate rate.
There has probably never been such a simple legislative fix as this:
1. The Texas Property Code Section 33.06(d) states (in part) the following:
"...The annual interest rate during the deferral or abatement period is eight percent..."
2. Change the "is" to "shall not exceed".
In basketball terms, this is a total layup. In hockey terms, this is an empty net goal. In common parlance, THIS IS A COMPLETE NO BRAINER!
I could not even imagine a rational reason why ANY elected official would be opposed to fixing this statute in the way suggested above. More so, it would be hard to reconcile a politician that supposedly (and through frequent lip service) spoke out against high property taxes and in favor of property tax relief on the one hand but on the other did nothing to try to fix this - ESPECIALLY AFTER HAVING BEEN GIVEN ACTUAL NOTICE OF THIS ISSUE AND ALL THESE DETAILS IN BLACK AND WHITE.
Perhaps at the time it was enacted 8% was a reasonable rate (e.g. if 8% was the original rate when this law was enacted in 1979 when the mortgage rates ranged between approximately 10% & 12% throughout the year it is clear the original intent was to provide a bit of relief relative to market rates at the time), but it certainly isn't any longer. If Texas really wants to come into the 21st century on this matter the maximum rate really should be indexed (perhaps tied to the rate on 30 year treasury bonds, e.g.). But absent THAT common sense fix - AT THE BARE MINIMUM - the state needs to change the wording so that counties are not being mandated as to what rate to charge AND voters in each respective county get the power to decide what THEIR counties shall charge - of course subject to the state mandated MAXIMUM.
Ideally, in addition to the above, the maximum rate should be cut in half and reduced to 4% ( just FYI, Alberta, Canada only charges 2.7% per year, e.g.) but if so, I'd advise that clear language needs to be added to explicitly insure that the new lower maximum rate shall all apply to all currently accrued deferral balances going forward.
TIME IS OF THE ESSENCE! WE ONLY HAVE UNTIL THE END OF MAY! CONTACT YOUR STATE REPRESENTATIVE TODAY AND ASK THEM TO OFFER THIS AMMENDMENT TO AN EXISTING BILL AND BEGIN THE PROCESS OF ALLOWING COUNTIES - AND MORE IMPORTANTLY VOTERS IN COUNTIES - TO SET THE INTEREST RATE ON PROPERTY TAX DEFERRALS IN TEXAS!
Keep Fingers Crossed (now passed)
TIME TO TAKE IT UP A KNOTCH IN THE SPECIAL SESSION!
I will make sure every single legislator in Texas gets educated about these issues and urge them to DO SOMETHING ABOUT THEM!!
I was actually able to inspire 4 bills to be filed in the special session - one of which (HB108) that would've lowered he deferral rate even more AND index it to the 5 year treasury rate. Dems 7 RINOs let all those bills die!
CHECK OUT HOW FAR WASHINGTON STATE IS AHEAD OF US e.g. CLICK HERE (ridiculously simple, concise, and FAIR!) as just one possible way to provide relief AND at NO taxpayer cost!
There's still LOTS that can be done in this area to provide relief to people in Texas including the below and to once again trying to put the "shall not exceed" language back in the property code and perhaps lowering the rate a bit more:
Just FYI: In Collin County the 2016 EOY total deferred balances included 696 accounts totaling $7,755,147.38 (this represented an increase over the EOY 2015 balance of 21.02%). The average deferred balance is $11,142.45. Average current annual interest cost $891.40. One can extrapolate these numbers to get per capita or statewide totals. This info should be publicly reported into a central database!
THERE IS STILL MUCH WORK NEEDED IN THE AREA OF PROPERTY TAX DEFERRAL LAW
The above is step one in this regard. Future steps should include correcting the scenarios under which people are being denied deferrals due to mortgage restrictions. In short, as long as there is sufficient equity to cover mortgage balances and deferral balances - plus some margin of safety for the lender - there should be no reason why lenders should deprive homeowners from exercising their right to defer.
Additionally, an additional (and flip side) issue is the current situation - at least in Texas - whereby state law has created a situation whereby predatory lenders are providing property tax loans to those not eligible for deferrals at exorbitant interest rates and astronomical fees (average over 14% interest rate and over $700 in fees) - AND WITHOUT ANY FEDERAL TRUTH IN LENDING ACT SAFEGUARDS! The state could so easily start a mezzanine financing program whereby instead of immediately beginning foreclosure procedures once taxes became sufficiently delinquent (or ideally before it even got to that point so one could avoid all fees and penalties) it could turn those past due balances (that people are now going to these loan sharks to seek relief from) into loans with monthly or quarterly payments that are about half the rate with no fees AND generate income for itself (or its counties). Only after THOSE agreements were breached should foreclosure be sought as a last resort. As soon as the county established an account there would be actuarily predictable value to it.
Fallacious Arguments Against Property Tax Lending Reform:
1. FALLACY: Counties can't spare the liquidity.
TRUTH: If counties offer property tax financing at an above market rate - e.g. 7.5% - banks (and even individuals & businesses) will line up to provide revolving lines of credit to counties for the market rate - say 3.75%, e.g. AND will be HAPPY to be contractually bound so that the cash flows are never negative to the counties. Perhaps the county "gross margin" can be deducted from every inflow they receive to pay off or down said accounts. Gotta think big AND outside the box.
2. FALLACY: We don't need an extra layer of bureaucracy.
TRUTH: the existing county bureaucracy that handles property tax notices is more than sufficient to handle this. Just like they send out notices now informing people what is owed they can send out the same type of notice indicating what amount (that they have granted a payment plan) is due and when. Nothing changes.
3. FALLACY: why would we want to "give loans" to those that can't afford it?
TRUTH: that's exactly what the counties are effectively doing now anyway. Currently, when taxes are due an obligation arises whereby the property owner owes the taxes to the county. If the taxes aren't paid by certain dates penalties and interest are added. The county has effectively become the lender to the property owner. What would change would be for the county to allow someone to enter into a payment arrangement that would save that person the stress and cost of all the penalties and enter into an agreement whereby the amount of taxes would be paid off over some amount of agreed upon time thru either monthly, quarterly, or semi-annual payments. It's a win-win as the county gets revenue they otherwise may not have and the taxpayer saves lots of penalties and the fees and higher rates charged by property tax lenders.
Expanding those eligible for deferrals to reduce the Senior age from 65 to 62 as well as including veterans and/or lower income along with the above will generate $10's of millions of revenue to counties and save the same amount for taxpayers.
Another area to look into is what would be needed to be able to securitize totals of the deferred balances and the repayment stream (like dividends) and so that counties can free up and replace their cash flow froom taxes they do not get in the current year due to deferrals. Without going in to much detail (and trying to not get into the weeds and causing eyes to get glossed over), these deferred balances represent de facto secured lines of credit whereby the county is the creditor, the homeowner is the borrower, and the home equity is the collateral. The indebtedness itself is an open ended (in time) revolving line of credit secured income stream that has no specific term (with the "credit limit" exactly equal to the amount of the current year taxes and current balance of all deferred balances). All that is predictable is that the "lender" knows that they MUST increase the "line of credit" each year (by the amount of the taxes deferred), what the interest rate is (at a point in time), and that there will be some actuarially predictable inflows that pay down or off the deferred balances going forward. Bottom line is that this would be an easily marketed security that might allow for the freeing up of resources so that any portion of current taxes that were being used to offset current deferrals could be freed up at a relatively small cost and thus help to reduce taxes even further. If something like this could be done on a statewide level so as to pool the deferred balances from all counties further economies of scale may be possible. In fact, there are probably a multitude of market participants that would jump at the chance to provide counties with every cent of the deferred amounts (so county cash flow would not be impacted at al) in exchange for such a safe and predictable income stream. The counties would then act as the "servicers of debt" I put this forth solely as something to look into and consider - for the NEXT legislative session perhaps.