The Right Game Plan: Commercial Property Tax Administration Is a Challenging Endeavor for Servicers. It Requires a Solid Team of Professionals, a Good Game Plan and the Right Equipment
Eshoo, Lori, Mortgage Banking
WHAT DO COMMERCIAL REAL ESTATE TAX ISSUES AND A BASEBALL game have in common? Even with a strong starting rotation, problems can still force the servicer or owner to forfeit a desired outcome. Injuries and errors can interrupt a winning streak. And while baseball franchises and tax-management teams both can rebound from their troubles, it usually takes a midseason adjustment to improve overall performance. [??] During this year's Mortgage Bankers Association (MBA) Commercial Asset Administration & Technology Conference in Chicago, I took in a White Sox game with some of the leading commercial lenders and servicers. Between hot dogs and home runs, we discussed the critical issues and concerns they face in commercial tax administration. When asked about their biggest challenges with tax management and technology, regulatory issues, risk management and client communications, these professionals had some interesting--and a few unexpected--things to say. [??] In this article I explain in more detail what concerns they expressed, why challenges exist and what lenders and servicers need to know to effectively manage these issues. [??] Commercial property tax is not just the concern of the tax servicing department within a mortgage company--it affects the entire company, from the finance department to legal to servicing. Like baseball, effectively managing commercial property taxes requires a team of trained professionals dedicated to continually improving their game and with the skills, knowledge and strategies in place to prevent critical and costly errors.
First inning: Changing requirements
No matter how well-prepared servicers are in the game of commercial property tax administration, changing requirements can throw them a curve ball and leave them wondering what to do next. With more than 25,000 taxing authorities in the United States ranging from state governments down to municipalities, tax rates, technologies and internal policies, a constant state of flux is present in each of these jurisdictions.
Jerry Watts, assistant vice president of commercial mortgage-backed securities (CMBS) mortgage servicing at Bank of America, puts it this way: "Ferreting out critical information from the barrage of data we receive from taxing authorities is an ongoing challenge. That's why commercial loan servicers must have automated systems in place that can manage large volumes of information, quickly access that data to respond to client questions and stay ahead of frequently changing tax deadlines. The financial liability incurred for the delinquency of a commercial tax bill can be severe, especially when a flawed process results in losses across an entire portfolio of loans."
In addition to automated systems, commercial servicers must also have experienced commercial tax administration specialists on their team--people who understand the nuances and variables of the tax process. Whether commercial property tax administration is outsourced or managed by dedicated in-house staff, handling the changing requirements of taxing jurisdictions is only possible with trained personnel who understand complex tax issues.
With the knowledge of trained professionals and advanced technology, servicers will be better prepared, and tax problems can be avoided before an error costs them the game.
Second inning: Working with agencies
Several challenges exist that lenders and servicers face when working with taxing agencies that vary widely in size, electronic capabilities and staff accessibility. Of course, making timely tax payments is imperative, but unfortunately, receiving tax information in a timely fashion from the taxing agency isn't as simple as it may seem.
This becomes a complicating factor for servicers on two fronts. First, in many instances the tax office does not have to release the tax information until 30 days before the payment due date. By the time the bills are issued and delivered, there is little time to communicate escrow account shortages to borrowers. …