Final answer:
Lenders commonly include property taxes in the mortgage payment to prevent default by ensuring that property taxes are paid, maintaining the value of their investment and preventing legal complications such as tax liens or foreclosure.
Step-by-step explanation:
A borrower on a residential property loan is seldom found in default for nonpayment of property taxes because lenders often include property taxes in the borrower's monthly mortgage payment, a process known as escrowing. This ensures that the taxes are paid on time, safeguarding the lender's investment in the property.
Additionally, if the borrower does not pay their property taxes, local governments can place a tax lien on the property, which takes precedence over the mortgage. Lenders want to avoid this scenario because it can lead to foreclosure and loss of the property, hence the inclusion of taxes in the mortgage payment.
Municipal governments in the U.S. usually collect property taxes to raise revenue. These taxes are based on the value of real estate held by an individual or corporation. To protect their interests, mortgage lenders prefer managing the payment of these taxes rather than trusting the homeowner to pay large lump sums directly.
By doing so, they maintain the property's good standing and prevent potential legal issues that could arise from the homeowner's failure to pay taxes.