Two fairly recent actions taken by state legislatures have “addressed” (I use the term very loosely) the effects of foreclosures on property tax assessments. 

Tennessee recently enacted H.B. 2175, which states: 

“In a year of reappraisal, if the number of foreclosures is of a significant number in any area or neighborhood, the assessor of property may recognize the effects of such foreclosures on the values of other properties located within the affected area or neighborhood.” 

Texas passed H.B.1038 stating: 

“Notwithstanding Section 1.04(7)(C), in determining the market value of a residence homestead, the chief appraiser may not exclude from consideration the value of other residential property that is in the same neighborhood as the residence homestead being appraised and would otherwise be considered in appraising the residence homestead because the other residential property: (1) was sold at a foreclosure sale conducted in any of the three years preceding the tax year in which the residence homestead is being appraised and was comparable at the time of sale based on relevant characteristics with other residence homesteads in the same neighborhood; or (2) has a market value that has declined because of a declining economy.” 

I bring these up because, although I think they are fairly weak statements when it comes to addressing the current economy’s effects on assessments and property taxes, I think that they are examples of tools to keep in our pockets when it comes to protesting excessive tax assessments. 

The way I see it is that, even though both of these bills specifically address foreclosures and the TX bill specifically addresses resident homesteads, taxpayers should apply these bills to virtually any property type. It’s not as though the residential sector is the only sector of real estate that is in turmoil. If foreclosures are going to be addressed, then it is only reasonable to address distressed assets, bankruptcies, etc. Just about every type of real estate is feeling pain these days and tax assessments should be addressed accordingly.

Don’t be surprised if the assessor’s office doesn’t welcome you with open arms when you file an appeal this year. Times are tough all around and taxing jurisdictions are no exception. Sales and income tax revenues are down and everyone knows that property taxes are in for a beating. When exactly the beating will take place seems to be a point of contention. If the volume of appeals being filed is any indication, taxpayers are claiming that the decline in values should be recognized now. Whereas, it appears as though assessor’s offices are claiming that value declines have not yet been reflected in the market. In other words, they seem to be taking the position that taxpayers will need to prove a decline in value. I discussed this issue in my earlier post Quantification Is King. 

So, what can we expect for 2009 appeals? 

• Due to assessor’s offices throughout the country receiving appeals near or at record numbers, large backlogs will be the norm. 
• Taxing jurisdictions may be reluctant or unwilling to settle cases due to budgetary concerns or time constraints.
• Assessor’s offices will, most likely, rely on the fact that a taxpayer carries the burden of proof in an appeal and proving values may be difficult due to the lack of recent transactions. 

For these and other reasons diligence and creativity will, no doubt, prove to play a very important role in 2009 property tax appeals.

Why we need to be diligent in conducting property tax assessment reviews. 

There are situations where, because of the ridiculous run up on property values over the past few years, a property’s assessment may have lagged behind the market and may have been under assessed. Even with the recent dramatic declines in property values the property may still be equitably or under assessed. 

Let’s say that you receive your 2009 assessment notice indicating the assessment of a property to be $1,000,000. The property was assessed at $1,000,000 for the 2008 tax year as well. Some might immediately say that there is no way the property is worth the same amount in 2009 as it was in 2008 and an appeal needs to be filed. However, let’s say that in 2008 the actual market value of the property was closer to $1,500,000, not the $1,000,000 that it was assessed at. If the value of the property has decreased by 30% between 2008 and now, the property might still be fairly assessed at $1,000,000. 

Without a proper review of the current and past market values of the property you might find yourself trapped into an unwarranted appeal. At best, money and resources are dedicated to an appeal with no savings potential and, at worst, you could find yourself fighting an increase. 

There are many savings opportunities out there and, of course, we need to be aggressive in discovering and pursuing them. However, we also must maintain a rational and diligent approach.

This is the first of a few posts I will make over the next few days to share my thoughts on a few issues that I think are worth consideration as we work our way through the 2009 appeal season. 

The 2009 property tax appeal frenzy is well underway. It’s sure to be one of busiest years in recent memory. There’s also no reason why it shouldn’t prove to be one of the most productive years in a long time. However, I think that there may be some misconceptions about what to expect and, perhaps as important, what not to expect.

 I think we all agree that values have declined. It’s close to impossible to argue otherwise. That said, we are not going to find ourselves ”shooting fish in a barrel”. 

There’s more to it than simply raising our arms and saying, “we all read the papers, we all watch the news…” Of course values have declined in virtually every sector. Companies and entire industries are facing double-digit loses. Closures and layoffs are rampant. Need I go on? 

So, why isn’t it as simple as filing an appeal and waiting for a refund check?

Quantification is king! 

Probably the most important issue that must be taken into consideration for tax appeals in 2009 can be summed up in one word: 

PROOF

Taxpayers carry the burden of proof in a tax appeal. They must prove that the assessment is excessive and in order to do that they must present evidence. However, thanks to the chaos in the capital markets and the resulting credit freeze, transactions are scarce, to say the least. An excerpt from a recent CoStar article reads:

“with the capital markets in disarray and few comparable transactions upon which to build a foundation, buyers and sellers can’t agree on pricing. 

In fact, one widely watched transaction-based index published at the MIT Center for Real Estate couldn’t even produce a retail index for the fourth quarter due to the dearth of transactions. The overall sample size for various other property markets was “scarily low,” acknowledged David Geltner, director of research at the MIT Center for Real Estate. ”

So, although we may all agree that values have declined, proving values for the 2009 tax year becomes more challenging due to the lack of reliable market information. 

2009 presents a great opportunity for companies to significantly reduce their property tax liabilities. However, It is not realistic to think that appeals will be a walk in the park simply because of the current economic conditions. If anything, 2009 tax appeals will require more work, diligence and creativity than in the past. The good news is that it will be worth it.