Texas Property Tax Loans: Lien Priority, Costs, and Timing

A Texas property tax loan — technically an ad valorem tax lien transfer — is a private loan that pays off a delinquent county tax bill, after which the lender steps into the county’s lien position. That position sits ahead of the IRS, the first mortgage, the HOA, and recorded abstracts of judgment, which is why the product exists at all and why it is tightly regulated.

Andy Moon is an attorney in San Antonio who originates these loans through Panacea Lending and runs Talon Legal. His team’s business is reaching tax-delinquent owners before the county’s collection firms and the courthouse auction do. If you have ever pulled a foreclosure list and found half the properties gone by sale day, this is a large part of why.

What follows: where the lien actually sits, the Texas penalty calendar month by month, loan terms and underwriting thresholds, when an over-65 deferral beats a loan outright, and how investors use tax-delinquent data to turn a seller’s “no” into a tracked pipeline.

From the Real Estate Pros Show

This article draws on an interview with Andy Moon of Panacea Lending / Talon Legal on the Real Estate Pros Show, hosted by Issa Hanna.
Watch or listen to the full interview.

What a Texas Tax Lien Transfer Loan Actually Is

A private lender pays the county’s ad valorem taxes on an owner’s behalf and, by statute, takes assignment of the county’s tax lien. The owner now owes the lender instead of the taxing unit. The county gets paid, the delinquency clears, and the property comes off the collection firm’s suit list.

This is not tax lien investing and it is not bidding at a tax foreclosure sale. Moon is specific about the distinction: “You’re a tax foreclosure investor. That is actually not what we do.” When investors show up at the Bexar County auction and half their researched list never gets called, it is often because someone transferred the lien first.

Texas and Nevada are the only two states with this type of lending rule, per Moon. Nevada’s market is thin — meaningful property sits in only a couple of counties — so Texas is effectively the entire business. Moon’s read on why it matters: the state lets private capital fund the government’s shortfall. If the county does not collect the ad valorem taxes, it has to raise them somewhere else.

Compare that with a state like Georgia, where buying delinquent tax debt means bidding $10 to $20 million for a pool. That structure locks out every small investor and forces the buyer to take the good with the bad — including deferred accounts that will never perform. The Texas model lets a lender underwrite a single $12,000 loan on its own merits.

Moon’s five-year goal is advocating for the same framework elsewhere. Florida and New York have come closest to passing comparable legislation.

Where the Lien Sits: Ahead of the IRS, the First Mortgage, and the HOA

The ad valorem tax lien is a superior lien in Texas, and the transfer carries that priority to the private lender. Moon’s description of what happens when you originate one: “You step in front of everybody. You step in front of the IRS. You step in front of the first lien mortgage holders. You step in front of the HOA. You step in front of all those stupid abstracts of judgment.”

If the borrower defaults and the lender forecloses on the transferred lien, those junior positions are wiped out. That is the structural reality. It is also where most of the enthusiasm about this product gets ahead of itself.

Moon’s own qualifier, in the same breath: “Easier said than done. It’s not an easy process.” Texas moved tax foreclosures from non-judicial to judicial around 2013, which means a sheriff’s sale and a court file, not a trustee standing in the corner of the square calling off sales. The timeline and cost are not comparable to a deed-of-trust foreclosure.

Where the priority genuinely changes an owner’s math is on a property buried in debt. Moon’s example: an owner with roughly $3 million in other liens stacked against the property. A $22,000 ad valorem transfer puts the lender first in line regardless of what sits behind it. For that owner, the practical advice is to take the transfer, stay in the house as long as possible, and let the superior lien do what it does.

Priority is a legal position, not a business plan. Treat it as the reason the loan can be written at high LTV against equity-poor collateral — not as a shortcut to the deed.

What I’ve learned about people that are tax delinquent is they don’t make good decisions. They make easy decisions. And you’ve got to make it easy for them too — not just easy for yourself.

— Andy Moon, Panacea Lending / Talon Legal

The Texas Penalty Calendar: October 1, February, and the July Attorney-Fee Hit

Texas property taxes come due October 1 and are past due October 2. Most owners — and plenty of investors — believe delinquency starts February 1. It does not. February is when the first penalty attaches, which is a different thing.

Moon’s team treats October 1 as the start of their year: “Our Super Bowl starts October 1. Because now I’m trying to get to everybody.” From October 2 forward, the account is past due and a transfer can be arranged, even though no penalty has hit yet.

The sequence that matters:

• October 1: taxes due. October 2, past due.
• February: first penalty attaches.
• July 1: the big one. This is when the county’s collection law firms — Linebarger, McCreary Veselka, Perdue Brandon are the three largest — can add their fees. They do not get paid until the account is delinquent to July 1.

That July date explains the behaviour Moon sees every year. Owners sit through April and May without being sued and conclude they are fine. They are not. The suit is coming the moment the firms can bill for it.

By code the total can run up to 42.3%. And in a county like Harris, collection is not centralised — a school district, a water district, and a MUD may each collect separately, each sue separately, and each stack its own fees. Moon also notes a court ruling limiting the firms to either the statutory penalty or their normal attorney fees, not both.

These are his statements based on his practice, not legal advice. Verify the current code and local district practice before relying on any figure in a deal.

Loan Terms, Underwriting, and When a Deferral Beats a Loan

Most Texas property tax loans close with zero money down and no closing costs to the borrower. Down payment requirements exist but are rare, reserved for the worst files. Origination fees are capped by law — Moon’s point is that the cap is precisely why so few lenders operate here. There is not much margin in it.

The term is where the product earns its keep. A county payment arrangement typically spreads the balance over 8 to 12 months. A transfer loan can amortize up to 10 years, with no prepayment penalty. An owner who can clear it in eight months pays nothing extra for the optionality.

On the credit side, Moon underwrites to no more than 50% of CAD value. Every file gets looked at individually, even a $12,000 loan, which is the opposite of the pool-bid model in other states.

That individual underwriting surfaces a better answer for some owners. A Texas owner over 65 or disabled, on a primary residence, can file a deferral. That stops the taxing unit from foreclosing and locks interest and penalties at 5% a year. No loan, no lender. Moon’s firm files these for free when someone qualifies — he drove to Beeville to walk into the appraisal district office in person, filed a plea in abatement in court, and charged $750.

The deferral is also a live income opportunity. A homeless man who saw the Boots on the Ground app being demoed asked to try it, learned the deferral rule, and knocked doors looking for owners who qualified. He had no real estate experience. He made $18,000 in six weeks.

Using Tax-Delinquent Data as an Investor: The Second Exit on a ‘No’

Tax-delinquent data is a strong lead source for one unglamorous reason: the universe is enormous and almost nobody can work it. Moon’s partner was generating roughly 2 million leads a month and could realistically market to about 120,000 of them. Mail return rates on that file run about three times the normal rate, which burns marketing dollars fast.

Two structural fixes address that. First, allocation: when an investor takes a lead, it comes out of the pool for everyone else. Nobody knocks the same door twice. Second, freshness. The data refreshes every seven days, so an account that got paid off or bought out drops off the board instead of absorbing four more weeks of mail. Skip tracing can be refreshed every 30 days and the file is scrubbed against the do-not-call list.

The operational point for an acquisitions team is what happens after the seller says no. A “no for now” on a purchase can still be converted into a tax loan, a listing referred to an agent for a referral fee, or a title problem sent to counsel. Once a loan is in place, the borrower stays visible — if they fall 60 days behind, the originating investor gets notified and can work the file again.

Two things worth recalibrating. A $2,500 delinquency owner is often more motivated than a $25,000 one; stress is not proportional to balance. And Moon’s observation about how these conversations actually close: delinquent owners “don’t make good decisions, they make easy decisions.” Make the easy decision the right one.

Frequently asked questions

When do Texas property taxes actually become delinquent, and when do the collection attorney fees get added?

Texas property taxes come due October 1 and are past due as of October 2. The common belief that delinquency starts February 1 is wrong — February is when the first penalty attaches, not when the account goes past due.

The collection law firms that work for taxing units, principally Linebarger, McCreary Veselka, and Perdue Brandon, cannot bill their fee until the account is delinquent to July 1. That is why owners who have not been sued by April or May often assume they are safe. According to Moon, the suit comes once the firms can add their fee.

Does a tax lien transfer loan really take priority over an existing mortgage and IRS liens?

Yes. The ad valorem tax lien is superior in Texas, and the transfer carries that priority to the private lender — ahead of the IRS, the first lien mortgage holder, the HOA, and recorded abstracts of judgment. Foreclosing on the transferred lien wipes those junior positions out.

Moon’s caveat matters as much as the rule: “Easier said than done. It’s not an easy process.” Texas tax foreclosures became judicial around 2013, so the process runs through court with a sheriff’s sale. Treat the priority as credit protection, not as a fast path to title. Confirm specifics with counsel on any individual file.

Who qualifies for a Texas over-65 or disability tax deferral instead of a loan, and what does it cost?

Texas owners who are over 65 or disabled and occupy the property as a primary residence can file a deferral. It stops the taxing unit from foreclosing and locks interest and penalties at 5% a year, which is far below what the penalty calendar produces.

Moon’s firm files deferrals for free when someone qualifies, and does them almost daily. The exception he gave was a Beeville owner whose exemption had been denied, requiring an in-person trip to the district office and a plea in abatement filed in court — $750 for the whole thing. If an owner qualifies, the deferral usually beats a loan.

How long can a Texas property tax loan be amortized compared with a county payment plan?

Up to 10 years on a transfer loan, versus roughly 8 to 12 months for a typical county payment arrangement. That difference in monthly payment is the main reason owners take the loan.

There is no prepayment penalty, so an owner who recovers financially and clears the balance in eight months pays nothing for having had the longer term available. Most of these loans close with zero down and no closing costs; down payment requirements exist but are rare.

Why are tax lien transfer loans only available in Texas and Nevada?

Those are the only two states with a statutory rule allowing a private lender to pay a property owner’s ad valorem taxes and take assignment of the county’s lien position, according to Moon. Nevada’s market is small — meaningful property concentrates in only a couple of counties — so Texas is where the volume is.

Other states handle delinquent tax debt through pool sales. In Georgia, for instance, participating means bidding $10 to $20 million for a block of accounts, which excludes small-dollar investors and forces buyers to take non-performing and deferred accounts along with the good ones. Florida and New York have come closest to passing Texas-style legislation.

The bottom line

If you are working tax-delinquent leads in Texas, build your calendar around October 2 and July 1 rather than February — and before you pitch a loan to anyone, check whether they are over 65 or disabled on a homestead, because the deferral at 5% a year beats anything a lender can write.