What Happens if You Miss a Property Tax Payment?
Key Takeaways
- Failing to pay property taxes is a direct violation of your mortgage contract.
- The servicer will pay the taxes on your behalf and charge your line of credit.
- If your line of credit is empty, the lender will begin foreclosure proceedings.
The greatest myth surrounding reverse mortgages is that "the bank pays your taxes." This is entirely false.
When you take out a reverse mortgage, you remain the owner of the home. Therefore, you are strictly responsible for paying your county property taxes. Failing to do so is the single most common reason seniors lose their homes to foreclosure.
Here is exactly what happens if you miss a payment.
1. The County Notifies the Servicer
Your loan servicer actively monitors the public tax records in your county. If the deadline passes and you have not paid your property taxes, the county will flag your parcel as delinquent. The servicer will see this flag within a few weeks.
2. The Warning Letter
The servicer will immediately send you a severe warning letter demanding proof of payment. They will give you a short grace period (usually 30 days) to pay the county and send the receipt to the servicer.
3. The Servicer Pays the Tax (Corporate Advance)
If you ignore the letter, the servicer cannot let the property go to a tax sale (because a county tax lien would wipe out the FHA's mortgage lien).
To protect the collateral, the servicer will write a check to the county to pay your taxes.
How do they get their money back? - If you have money left in your Line of Credit: They simply deduct the tax amount from your available funds. You are now paying compounding interest on that tax bill. - If your Line of Credit is empty: The servicer issues a "Corporate Advance." This means they paid the bill out of their own pocket, and you are now in default of your loan.
4. The Foreclosure Process
If a Corporate Advance is issued, you will receive a Demand Letter. You must repay the servicer immediately.
If you cannot repay them, the servicer will notify HUD that the loan is in default. The FHA will instruct the servicer to begin foreclosure proceedings. Depending on the state laws where you live, the servicer will file a Notice of Default and ultimately sell your home at a public auction to recoup their money.
If you ever struggle to pay your property taxes, call your servicer immediately. They can often help you set up a repayment plan before initiating foreclosure.