Friday, March 14, 2014

another unintended consequence of Act 93 of 2013

As we have discussed in previous posts, PA Act 93 of 2013 creates a system by which municipalities can file personal judgments against property owners who also have in rem delinquent property tax liens. I have been arguing that this new law will set in motion a whole lot of unintended consequences never envisioned by lawmakers.


Google that and you'll find that personal judgments are found in the FICO process and impact FICO scores, even when the judgment has been paid.  If you have a bad debt and a judgment related to one incident, they both impact the FICO score so theoretically if FICO has the ability to see an in rem property tax lien - possible in some counties - and also sees the Act 93 personal judgment, the property tax obligation has a two stage punch on the property owner's FICO score.

Judgments, whether satisfied or not, impact FICO and sit on a credit report for up to 7 years.

QUESTION:  How will lawmakers react when constituents start calling to say they can't get a new mortgage because Act 93 judgments - even if paid - are sitting out there lowering their credit scores?

Thus far most of my arguments against Act 93 of 2013 have been on behalf of consumers who own more than one property.  This FICO angle is a concern for EVERY property owner who gets into temporary financial difficulty.  Who doesn't know someone who had a bad financial set back beyond their control?  If a consumer gets behind on their property taxes for more than one year in PA, even if they pay the tax in the second year, their FICO credit score moving forward for the next SEVEN years will be lower.

Lower FICO credit scores .... what are the long term consequences?

Act 93 of 2013 was born in good intentions but the more we think about it the worse it looks, eh?

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