Soaring property appraisals released this month have left many homeowners with sticker shock. As some struggle to pay the taxes, 2022 could deliver the renewal of a controversial industry.
Property tax lenders offer to help desperate homeowners and businesses safeguard their properties from foreclosure by offering immediate loans with high interest rates. After growing steadily for years, the pandemic cut its fortunes short, but some see conditions ripe for a comeback.
“It’s definitely been a good year after a couple of fairly difficult years before,” said Andy Cahill, president of Johnson & Starr, an Austin-based property tax lender servicing owners across the state. “I suspect this will be the best year we’ll see for a long time.”
This year, Bexar County appraised the average homestead at a little more than $309,000, up more than 23% from last year, according to the Bexar County Appraisal District. Just five years ago, the average appraised homestead was around $170,600, so bigger tax bills likely will leave some property owners unable to pay.
Cahill said the property tax lending industry saw strong activity in February and March, typically the busiest time of the year. February is when unpaid property taxes become delinquent and the first notices are sent out. Next February, when 2022’s property taxes come due, may see an even bigger bump.
It’s not just soaring appraisal values that are driving some to seek a property tax loan, Cahill said, but also the end of moratoriums on evictions, which have just begun to match pre-pandemic numbers. Homeowners are feeling more pressure to pay delinquent taxes, with some owing years worth of levies.
Critics often compare the industry to payday lenders, which similarly offer quick, high-interest loans to desperate borrowers. According to the latest figures from the Texas Office of Consumer Credit Commissioner, the average interest rate of 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 the face value of their tax liens.
While taxpayers have a variety of options to ease the pain — such as working with the county on a payment plan, appealing appraisals, filing for homestead exemptions, or involving their mortgage provider — tax lending companies promise flexibility, which they advertise heavily through fliers, 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 dropped to a little more than $165 million. Total loan amounts for 2021, when appraisals first began their sharp ascent, have not yet been released, to say nothing of 2022.
Peter Squier, the president of the Texas Property Tax Lienholders Association, anticipates “a lot more people will be needing help paying their taxes next January when the tax bills for the new appraisals come due.”
While federal funds have allowed for the creation of a new state assistance program for homeowners, not all will be eligible. And for those people, Squier said in an email, “the Texas state regulated property tax lending industry stands ready to provide tax loans that save property owners money and stop them from the possible foreclosure from delinquent property taxes.”
Squier is also the president of Propel Financial Services, the San Antonio-based property tax lending firm 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 money in car dealerships and radio. McCombs was bought out in 2012 for $187 million, but four years ago he re-purchased the company for an undisclosed price.
“This is one of my babies that I intend 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 argue that it offers flexibility to homeowners and other property owners, as he detailed in an opinion piece from 2013.
Cahill echoed the sentiment. “Once we have a client, we don’t want to foreclose,” he said, because foreclosing would sever the credit relationship between the company and the client — cutting off the supply of money. Missed payments are more likely to lead to calls from a collection agency than foreclosure, 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, referred to the industry as “sharks.” He described despair at seeing a billboard for them on the way to Austin, and said many of those targeted by these ads are the same that could be helped by his company.
Steven Scurlock, director of government relations for the Independent Bankers Association of Texas, described tax lenders as an “irritation” to the industry, and exploitative to homeowners. “Many times the consumer doesn’t understand what they’re getting into, and it can create problems well and above being delinquent on your taxes.”
His association has long lobbied in the statehouse against the industry, whose model disrupts bank-provided mortgages. He urged homeowners to talk to their bank for help in situations when they can’t afford the property taxes.
Michael Amezquita, Bexar County’s chief appraiser, called the companies predatory. He said he sympathized with homeowners experiencing soaring property values, and strongly urged them to appeal their appraisals, which he said have a settlement rate of 94%. The process has been made easier in recent years with online scheduling.
He also urged those struggling with taxes to enter a payment plan with the county. Homeowners have several options for payment plans, especially if the homeowner is older, has disabilities, or is a veteran or married to one.
Bexar County Tax Assesor-Collector Albert Uresti said homeowners can enter these kind of payment plans at any time — even now — and that the county has flexibility as well. Those who miss a payment are subject to 6% penalty charge and 1% interest.
More people use county payment plans than property tax lenders, according to numbers provided by his office. For 2021 tax bills, he said around 11,500 accounts — less than 2% of property owners — had opted for a county payment plan, compared to just 700 or so who transferred their lien to a tax lender.
“Why go to Propel?” he said. “We’ve got the same program here, and it’s a lot less risky.”