“It’s a new class of loans designed for the most vulnerable homeowners,” says Angela Martin, a lobbyist for Economic Fairness Oregon.
The newest wrinkle in what Martin and other consumer advocates call predatory lending is a concept the loan industry, led by Encore Capital, calls “tax-lien transfers.”
The concept, like many financial products, is at least superficially attractive, because it promises relief for struggling property owners and also for cash-strapped county governments.
Here’s how it works: People who are delinquent on their property taxes borrow money from Encore to pay their taxes.
Encore says it can structure more flexible payment terms than county governments can.
“What we offer is a longer time,” says Lisa Hough, government affairs director for San Diego-based Encore and its subsidiary, Propel Financial Services. “We can design a payment plan that works for the consumer.”
Encore would contact property owners who are in arrears. After Encore and a property owner agreed to loan terms, the property owner would use the loan to pay the delinquent taxes and the county would transfer the tax lien to Encore.
For its services, Encore would collect a $400 fee, then charge 16 percent interest on the loan and could levy penalties and fees for late payments. Encore would also jump to the front of the line, getting paid even before an existing mortgage-holder in the event of foreclosure.
Economic Fairness Oregon’s Martin notes that although $400 may not sound like much, it can amount to a big percentage of the taxes owed. And as for the penalties and fees, the only limitation is that they be “reasonable”—a term undefined in the proposed legislation.
Although counties would get their money under such an arrangement, Martin notes, property owners who are already unable to pay their taxes would now find themselves beholden to the nation’s largest debt-collection company.
Hough acknowledges that her company’s fees may add up to more than counties charge, but unlike counties, which can foreclose after three years of unpaid taxes, Encore can stretch out the payment period for much longer, she says.
Encore persuaded legislators to introduce House Bill 4112 in the current session in Salem. It would allow tax-lien loans.
An Encore subsidiary, Propel, pioneered tax-lien loans in Texas in 2007, and last year, Nevada lawmakers passed a law allowing tax-lien loans there. Those are the only two states in which the company is making such loans.
Hough says Oregon is an attractive market.
“We are looking at states that charge a high interest rate on delinquent taxes,” Hough says. (The rate here is 16 percent.)
Rep. Tobias Read (D-Beaverton), chairman of the House Transportation and Economic Development Committee, introduced Encore’s bill.
“My interest in it was to give a property owner an option other than foreclosure,” Read says. “And it would help solve a problem for counties in terms of tax collection.”
Although Encore began hiring Oregon lobbyists last September and has contributed nearly $10,000 to various lawmakers’ campaign coffers.
Gil Riddell, a lobbyist for the Association of Oregon Counties, says his group opposes Encore’s idea because delinquent property owners can get a better financial deal by arranging a payment plan with county assessors. “There isn’t any benefit to taxpayers,” Riddell says.
Also, Riddell says, taxing jurisdictions currently benefit from delinquent taxpayers because they pay interest and more than 99 percent of them eventually pay their taxes.
Read says critics are being closed-minded—but have stopped the bill for now. He says with more time, however, the concept might work.
“I think there’s interest out there,” Read says. “I think it’s got a lot of potential.”
Hough says her company is not deterred. She says Encore knew building support in the short February session would be difficult.
“It’s a new concept,” Hough says. “We’ve been able to educate quite a few stakeholders so far. We will continue to do that in the coming months.”