Economist warns rise in non-escrowed tax delinquencies could be worsened by increased unemployment
With a recent jobs report that was softer than experts anticipated, economists are keeping an eye on the secondary effects of job layoffs. One area where this is evident is the increase in delinquent property taxes, particularly in non-escrowed loans.
According to a new report from Cotality, the national tax delinquency rate on non-escrowed loans has increased to 5.1% in 2025 year to date. This is a 0.6% increase from 2024, and the first time it has been above 5.0% since 2017.
Molly Boesel (pictured top), senior economist at Cotality, said after several years of very low tax delinquency rates, this year’s increase could be a sign of trouble on the horizon.
“You had this long period of great economies and low stress in the mortgage market in general,” Boesel told Mortgage Professional America. “You had tax delinquencies really coming down, but with rates starting to edge back up, we may be getting into a little period of distress.”
Overall, according to Cotality, property taxes have increased 27% nationwide from 2019 to 2024. Some states have seen larger increases. Colorado’s taxes have increased by 52.9% in that time frame, Georgia is up 51.5%, and Florida is up 47.5%.
Unemployment impacts
The report shows that the four lowest states in tax delinquency all have unemployment rates of 3.3% or lower. Those states are Wisconsin (3.3%), North Dakota (2.5%), Wyoming (3.3%) and Minnesota (3.3%).
On the flip side, five of the top six states or districts have unemployment over 4.0%. Only West Virginia, with a tie for the second highest average tax delinquency rate in 2024, had unemployment below 4.0% at 3.8%. The others are Mississippi (4.0%), New Jersey (4.8%), Washington, D.C. (5.9%), New Mexico (4.2%), and Delaware (4.0%).
“If you start to add in unemployment, it shows that employment is softening a bit,” Boesel said. “So if these borrowers are unfortunate enough to lose their jobs, they may be in this situation.”
Kristi Hardy, an executive vice president at Atlantic Coast Mortgage, notes that many homeowners in the Washington, DC area are fearful of job loss. https://t.co/sAnYdCDLe5
— Mortgage Professional America Magazine (@MPAMagazineUS) August 12, 2025
Boesel said not only is unemployment a major problem, but two of the states on the list are among the lowest in terms of median household income.
“It’s always the same players, and it’s the unemployment numbers causing delinquency,” Boesel said. “In addition, West Virginia and Mississippi are among the poorest states.”
Tax lien versus tax deed
The type of action taken on a mortgage with delinquent property taxes appears to influence the amount of delinquency reported.
States that are tax deed states are reporting an average tax delinquency of 4.9%, compared to tax lien states, which have a delinquency rate of 6.2%.
“If you’re not paying your taxes in a tax lien state, you have a little more time to make that up,” Boesel said. “Tax deed states have a more aggressive timeline for foreclosing and auctioning the property. In Michigan, it’s three years from the start of not paying your taxes, the property is gone. It’s two years before it is foreclosed, and one year to get it on the auction block and sold.”
She noted that the aggressive nature of the Michigan foreclosure market means that when properties are sold for as little as $500, it distorts the statistics for average home prices.
“In Wayne County, Michigan, where Detroit is, their tax auction would throw our numbers off,” she said. “Properties would literally sell for $500, although you would also have to pay the delinquent taxes. It’s just a stepped-up, aggressive timeline for selling the property if you’re not paying your taxes.”
She reminds brokers and loan originators that it is critical to make sure that not only do customers understand the effects of property taxes and insurance on mortgage costs, but also to make sure reserves are in place to cover those costs. She said this is especially critical for non-escrowed mortgages.
“They have a fixed rate mortgage, but those other two costs, taxes and insurance, are not going to be fixed,” Boesel said. “They have to make sure customers understand that. Underwriting is really important as well, to make sure the customer has enough months of reserves as needed. The customer might need those reserves for their taxes next year.”
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