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Thinking About Installments

by Fred Cederholm

Lenders must advance their own money to cover real estate taxes to “perfect” or secure their liens on the properties when debtors get behind. Suppose the lenders get behind too?

I’ve been thinking about installments. Actually I’ve been thinking about the housing bubble, property taxes, pecking orders, escrow payments, deficits, and cash flow. The housing bubble continues to pass its gas. While this is a huge problem that refuses to go away and continues to grow in magnitude, recent stories on page one and newscasts have devoted little if any time, space, and ink to it. Fuel prices, food prices, election 2008 and “the flood” of natural disasters; have pushed it to the back burner.

You see, last Friday the first installment of our property tax bills for Calendar 2007 billings came due for those of us in Ogle County,Illinois. It was particularly fitting that this time the due date fell on Friday the 13th. In my case, the two real estate tax payments I have to make are the hands-down largest checks I write every year. The insurance premiums on my home, auto, and life policies are in distant third, fourth, and fifth place. I suspect this order of magnitude ranking is also true for a great many American households.

It will be interesting to see, a few weeks down the road, how many households were late (or delinquent) in meeting this critical deadline. While there might be a press release detailing the parcels which failed to get the first installment paid, it is more common to publicize the specific delinquencies about a month or so after the second installment comes due and was not paid. This usually precedes the “tax sales” publicized by the county officials responsible for the collection of the real estate taxes. The dates of these events vary from county to county—and from state to state. Still... the system of “selling” the unpaid taxes to third parties will occur on a prescribed timetable everywhere across America.

Amounts owed to the respective property tax collectors stand in the first position of the pecking order of who gets their money when a homeowner falls behind in their payments. Virtually every local and regional governmental (and quasi-governmental) entity depends upon the proceeds from real estate tax revenues to underwrite the lion’s share of their expenses, salaries, and pensions. These include the county, township, and municipal governments as well as the school, fire, library, and park districts.

Late payment or non-payment of these taxes could prove costly for the property “owners.” At the very least, there will be fines and penalties assessed. If the unpaid balances are “auctioned” off to third-party investors, these investors are entitled to rates of interest that far exceed the going rates paid elsewhere right now. Annualized rates of 10%, 12%, 14%, or more are not uncommon. After a varying prescribed period of time—should the property “owner” not make full restitution for the taxes, penalties, and interest—the third-party investor could take full title to the property.

Most property occupants make supplemental monthly payments to the holders of their mortgages for the payment of the respective property taxes. These are held in escrow and tendered to the real estate tax collectors by the “lenders” when the installments come due. If the mortgage escrow payments are not being made timely by the borrowers, the lenders must advance their own money to cover the taxes to “perfect” or secure their liens on the properties. Or... they simply do not make the payments on behalf of the occupants. I would suspect that since arrears in mortgage payments are escalating to record levels on a month-by-month basis, escrow payments are growing increasingly in arrears as well.

I would be hard-pressed to cite one local (or regional) governmental or quasi-governmental entity that isn’t facing deficits, budgetary mismatches, and/or cash flow problems now. Costs of this past winter far exceeded estimates/projections. Current costs of fueling their fleets of vehicles, for example, are through the roof. Since most of these entities have June 30th year ends, the public will not be made fully aware of these deficiencies and deficits until financial statements are made public sometime later this summer, or even fall. These entities are counting on the real estate tax proceeds right now!

Even if your household is lucky enough to be mortgage-free, you are still “renting” from the local taxing bodies.

Even if your household is lucky enough to be mortgage-free, you are still “renting” from the local taxing bodies that appear as line items on your real estate tax bill. If you don’t believe me, just try not paying your property tax bills for a couple of taxing cycles and see how long you are allowed to stay in your “own/ owned” home.

I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.

Copyright 2008 Questions, Inc. All rights reserved. Fred Cederholm is a CPA/CFE, a forensic accountant, and writer. He is a graduate of the University of Illinois (B.A., M.A. and M.A.S.). He can be reached at

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This story was published on June 17, 2008.