September 2019
Ask The Experts
SBA 504 Q&A: Servicing: Delinquent Property Taxes

Q: Small Business Administration (SBA) 504 loan borrowers are responsible for payment of their real estate property taxes each year, but sometimes a borrower doesn’t have the money to pay the taxes when they are due, so they often just pay them when they can.  Why is that such a huge concern to Florida First Capital and the SBA?

Ask the SBA 504 Loan ExpertsA: Timely payment of real estate and personal property taxes not only meet the terms of a borrower’s loan agreement, but it is a requirement of their loan authorization and is critical to ensuring that the liens held by both the first mortgage lender as well as the SBA are not compromised.  It also guarantees that the borrower’s ownership of the property is not put at risk.

Outlined in the loan authorization are the ongoing conditions and terms that are required of the borrower, some of which are as follows:

Section E. ADDITIONAL CONDITIONS:

7. Certifications and Agreements:

b. At or prior to 504 loan closing, CDC (Certified Development Company – Florida First Capital) must require the borrower and operating company to certify that they will:

(5) Taxes – Pay all federal, state, and local taxes, including income, payroll, real estate and sales taxes of the business when they come due.

c. Prior to 504 loan closing, the CDC must require the borrower and operating company to certify that they will not, without prior written consent of the CDC and SBA:

(3) Transfer of Assets – Sell, lease, pledge, encumber (except by purchase money liens on property acquired after the date of the note), or otherwise dispose of any of the borrower’s property or assets, except in the ordinary course of business.

Florida statute requires payment of property taxes by Nov. 1 of each year or as soon thereafter as the certified tax roll is received by the tax collector.  Taxes become delinquent on April 1 following the year in which they are assessed or immediately after 60 days have expired from the mailing of the original tax notice, whichever comes first; if not paid in full.

The statute also clearly states that all taxes imposed pursuant to the state constitution and laws of the state of Florida shall be a first lien, superior to all other liens, on any property against which the taxes have been assessed.  Therefore, if real estate property taxes go unpaid, and a tax certificate is issued against the 504 loan project property, which results in the subsequent issuance of a tax deed, that lien is superior to both the first mortgage lender and SBA lien(s).  This will result in the immediate default of the SBA 504 loan.

Therefore, Florida First Capital encourages all 504 loan borrowers to:

  Maintain current property taxes on their 504 project properties;
  Familiarize themselves with the terms of their 504 loan authorization for debenture guarantee as well as their 504 note and all other loan documentation; and
  Reach out to Florida First Capital with any questions.

If you have a question you’d like our SBA 504 loan experts to answer, email us at info@FloridaFirst.com or call 850.681.3601 or toll-free at 800.504.LOAN.