Wanted, tax day lenders
April 23, 2010 5:36 AM Subscribe
Do lenders make loans to cover property tax bills?
During the subprime bubble, my mother managed to take out a HELOC to pay off her fixed rate mortgage and a trip to Disneyland. The HELOC is variable rate at WSJ -0.25. Apparently since that transaction in 2004 she's not paid county property tax, and basically ignored any painful financial decisions and angry letters. The county is threatening to foreclose over the 10k owed. (Jurisdiction: Kansas)
She probably has roughly 40k in equity on the house, but terrible credit; a judgment against her on CC debt, and chronically behind on payments (tax bill withstanding, she's current as of today). I've known she was in trouble, she comes to me for small loans from time to time, but until now I've never been able to get a complete diagnostic on how bad things are. I've moved back in over a year time ago and paid rent to help her income and save myself some money as well.
The good news is that the threat has been a wake up call I've used to get her to organize her paperwork and financial situation. She's filed a new w-4 with the exempt status she qualifies for. She's done the calls and due dilligence to cut her car insurance bill in half. She went to the state unclaimed property website for money (found a few bucks and a bunch of dead family members). We cleaned out dresser drawers and closets to organize her bank statements, legal paperwork and general finances, and found a few hundred in a 401k with a former employer. I had her do some research on the terms of her loan and her current interest rates. We worked out a budget that was unsurprisingly negative, and I think it's turned around to roughly a few hundred positive, and we've got more ideas down the road.
But all this is just freeing up cash flow today, which might amount to perhaps 10 percent of the total bill by the time the foreclosure proceedings start. She's come to me take out a loan in my name for her debt, which I'm uncomfortable with, but the situation is dire enough that I should at least consider the options*. All advice on the situation is welcome, but what I'd particularly like to ask is, what options are out there to finance a tax bill?
*Options that come to my mind, but I'm not sure about their feasibility:
1. Local Bank loans
2. Credit Union loans
3. Work out something with Citibank, the HELOC issuer.
4. Family loans
5. Foreclosure
6. Payment plan with the county (they're not willing yet, but that may change with time)
7. More options welcomed!
(Post anonymous to protect her privacy. She hasn't told her parents or family other than me, her child, about this notice.).
During the subprime bubble, my mother managed to take out a HELOC to pay off her fixed rate mortgage and a trip to Disneyland. The HELOC is variable rate at WSJ -0.25. Apparently since that transaction in 2004 she's not paid county property tax, and basically ignored any painful financial decisions and angry letters. The county is threatening to foreclose over the 10k owed. (Jurisdiction: Kansas)
She probably has roughly 40k in equity on the house, but terrible credit; a judgment against her on CC debt, and chronically behind on payments (tax bill withstanding, she's current as of today). I've known she was in trouble, she comes to me for small loans from time to time, but until now I've never been able to get a complete diagnostic on how bad things are. I've moved back in over a year time ago and paid rent to help her income and save myself some money as well.
The good news is that the threat has been a wake up call I've used to get her to organize her paperwork and financial situation. She's filed a new w-4 with the exempt status she qualifies for. She's done the calls and due dilligence to cut her car insurance bill in half. She went to the state unclaimed property website for money (found a few bucks and a bunch of dead family members). We cleaned out dresser drawers and closets to organize her bank statements, legal paperwork and general finances, and found a few hundred in a 401k with a former employer. I had her do some research on the terms of her loan and her current interest rates. We worked out a budget that was unsurprisingly negative, and I think it's turned around to roughly a few hundred positive, and we've got more ideas down the road.
But all this is just freeing up cash flow today, which might amount to perhaps 10 percent of the total bill by the time the foreclosure proceedings start. She's come to me take out a loan in my name for her debt, which I'm uncomfortable with, but the situation is dire enough that I should at least consider the options*. All advice on the situation is welcome, but what I'd particularly like to ask is, what options are out there to finance a tax bill?
*Options that come to my mind, but I'm not sure about their feasibility:
1. Local Bank loans
2. Credit Union loans
3. Work out something with Citibank, the HELOC issuer.
4. Family loans
5. Foreclosure
6. Payment plan with the county (they're not willing yet, but that may change with time)
7. More options welcomed!
(Post anonymous to protect her privacy. She hasn't told her parents or family other than me, her child, about this notice.).
The good part of the answer is "Yes, lenders are generally willing to lend money for these sorts of things. . ."
The bad part is ". . .depending on her financial situation and credit score, plus she's going to have to pay an unpleasant amount of interest."
This is going to be an unsecured loan. Credit unions are far more likely than commercial banks to issue such loans, and due to the lack of collateral, interest isn't cheap. It's way better than a credit card, but you'll be lucky to get away with 8-9%, and depending on her situation it could easily be in the 12-13% range.
Such loans are generally for 3-5 years--any longer on unsecured debt tends to be a bad bet--so I'd guess she's looking at a monthly payment between $20 and $34 per thousand of principal, or about $200/month (8% for 5 years) and $350/month (13% for 3 years). That ain't chump change for most people.
But to get this thing going, all she really needs to do is to go down to a local credit union and talk to them. They'll probably want to pay the tax bill directly, but it's entirely possible that this could be made to work.
posted by valkyryn at 6:12 AM on April 23, 2010
The bad part is ". . .depending on her financial situation and credit score, plus she's going to have to pay an unpleasant amount of interest."
This is going to be an unsecured loan. Credit unions are far more likely than commercial banks to issue such loans, and due to the lack of collateral, interest isn't cheap. It's way better than a credit card, but you'll be lucky to get away with 8-9%, and depending on her situation it could easily be in the 12-13% range.
Such loans are generally for 3-5 years--any longer on unsecured debt tends to be a bad bet--so I'd guess she's looking at a monthly payment between $20 and $34 per thousand of principal, or about $200/month (8% for 5 years) and $350/month (13% for 3 years). That ain't chump change for most people.
But to get this thing going, all she really needs to do is to go down to a local credit union and talk to them. They'll probably want to pay the tax bill directly, but it's entirely possible that this could be made to work.
posted by valkyryn at 6:12 AM on April 23, 2010
She could try a peer-to-peer lending site such as Prosper or Lending Club.
posted by drdanger at 6:22 AM on April 23, 2010
posted by drdanger at 6:22 AM on April 23, 2010
There are "lenders" who specialize in property tax loans. At least in Texas, they are among the most predatory lenders around. Their m.o. is to lend the money in exchange for a lien on the home. Because the loan is on taxes, they get priority on their loan. Payments get behind, they foreclose on the home, and, in the process, make a killing on fees and other associated expenses. Avoid these folks at all costs (they're the ones who actively solicit for these type of loans).
posted by seventyfour at 7:17 AM on April 23, 2010
posted by seventyfour at 7:17 AM on April 23, 2010
You say that your mother took out a HELOC (a home equity line of credit). Did your mother draw down on the entire HELOC when she opened it, and, if not, is the draw period on the HELOC still open? There may be "room" the the HELOC to take out more money at the HELOC rate (which is really quite good for now, all things considered).
Even though you say she has equity in the house, it seems that any loans using the house as collateral would require an examination of your mother's credit rating, which would make the loan very expensive. It may be possible for your mother to add YOU to the deed on the house (which may or may not trigger the due on sale clause in the HELOC, and which may have significant estate planning and tax consequences) and then have YOU apply as the primary borrower for a secured loan -- but that loan would have to be subordinate to the existing HELOC (or otherwise negotiate with the HELOC lender). I've heard that many banks are still spooked on any lending that smacks of "creative financing" so while this sort of stuff worked great five years ago, YMMV greatly right now.
posted by QuantumMeruit at 7:20 AM on April 23, 2010
Even though you say she has equity in the house, it seems that any loans using the house as collateral would require an examination of your mother's credit rating, which would make the loan very expensive. It may be possible for your mother to add YOU to the deed on the house (which may or may not trigger the due on sale clause in the HELOC, and which may have significant estate planning and tax consequences) and then have YOU apply as the primary borrower for a secured loan -- but that loan would have to be subordinate to the existing HELOC (or otherwise negotiate with the HELOC lender). I've heard that many banks are still spooked on any lending that smacks of "creative financing" so while this sort of stuff worked great five years ago, YMMV greatly right now.
posted by QuantumMeruit at 7:20 AM on April 23, 2010
As an aside to drdanger's comment, Prosper requires a 640 credit score to qualify for a loan, so depending on the severity of the credit damage, it might not be an option.
posted by Zophi at 8:19 AM on April 23, 2010
posted by Zophi at 8:19 AM on April 23, 2010
The county where I live recently did a fairly big public information campaign about homes that were at risk of foreclosure for property tax liens. It was basically all about how very very much they do not want to foreclose on properties, encouraging people to contact them to make arrangements. I understand your mother got a notice, but have either of you actually talked to someone at the county about options? It's entirely possible the county doesn't actually want to take possession of her property, or, if it's like here where there have been so many foreclosures, is actively trying to prevent additional foreclosures.
posted by not that girl at 8:55 AM on April 23, 2010
posted by not that girl at 8:55 AM on April 23, 2010
Ignore me; you said they weren't willing to do a payment plan so my idea is just wrong.
posted by not that girl at 8:55 AM on April 23, 2010
posted by not that girl at 8:55 AM on April 23, 2010
Given the other constraints your mother faces, she may need to consider Chapter 13 bankruptcy. It sets up a 36-to-60 month repayment plan for her debts, and creates an automatic stay of any mortgage or tax foreclosure actions. Consult a BK attorney in your area.
The beauty of bankruptcy is that it ultimately forces a repayment plan on creditors who may have been unwilling to accept one. Her personal residence will also be exempt under most bankruptcy rules (although it's important to note that she could still lose it to foreclosure, especially if she doesn't keep up on the ongoing taxes). Again, an attorney will be able to give detailed advice.
The other beauty of bankruptcy is that it permanently wipes out (discharges) debts that are above the limit of what your mother is forced to repay. The HELOC is secured against her house, but the credit card debt could be substantially reduced.
posted by dhartung at 6:00 PM on April 23, 2010
The beauty of bankruptcy is that it ultimately forces a repayment plan on creditors who may have been unwilling to accept one. Her personal residence will also be exempt under most bankruptcy rules (although it's important to note that she could still lose it to foreclosure, especially if she doesn't keep up on the ongoing taxes). Again, an attorney will be able to give detailed advice.
The other beauty of bankruptcy is that it permanently wipes out (discharges) debts that are above the limit of what your mother is forced to repay. The HELOC is secured against her house, but the credit card debt could be substantially reduced.
posted by dhartung at 6:00 PM on April 23, 2010
This thread is closed to new comments.
posted by Hiker at 6:01 AM on April 23, 2010