I recently contributed an entry to CoreLogic’s Insights blog. The blog entry provided a brief overview of property taxes and summarized national property tax delinquency trends over time. The entry wasn’t overly technical, but property tax delinquency is an interesting topic for analysis. We’ve found that property tax delinquency can be used to predict future mortgage delinquency. An inability to pay property taxes can indicate financial stress by the homeowner, which could carry over to difficulty meeting mortgage payment obligations. However, it is important to account for the fact that property tax penalties vary by municipality. Tax penalties include interest on delinquent taxes and, eventually, possible foreclosure on the property. In some cases, the interest penalty may be very low and the time period until foreclosure is initiated may be very long. In such instances, homeowners may strategically elect to enter into some period of delinquency (for example, investors who choose to use funds elsewhere). In such cases, the correlation between tax delinquency and future mortgage delinquency would be weak. Analysis that examines the link between tax and mortgage delinquency should account for municipality specific penalty factors.
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