The Housing Crash and Property Taxes
While the collapse of the housing market has been viewed universally as a negative development, there is a silver lining: property taxes. All else being equal, lower property valuations translate into lower property taxes. Of course, the reality is much more complex.
Generally, the burden is on the homeowner/taxpayer to prove that the current valuation is inaccurate. Given that housing prices have fallen across-the-board, chances are that many homeowners will find themselves facing such a problem. In most cases, it seems state and local governments are amenable to adjusting the valuation:”Once a petition is filed, the county Value Adjustment Board sets the case for hearing in front of a special magistrate. Should the magistrate rule to reduce the contested tax assessment, owners who have already paid their taxes will receive a refund.”
Other areas are being overwhelmed with appeals and finding it difficult to process them before the tax bills are sent out. For that reason, one jurisdiction is moving to give homeowners the benefit of the doubt: “If their assessed value jumps five-percent or more in a year, the new law shifts the burden to assessors to prove they got it right.”
Some homeowners will see their tax bills fall doubly, both as a result of a lower valuation and lower tax rates. There are stories of local governments that are contemplating lowering property taxes as a type of economic stimulus. And lowering taxes never hurt politically, either. Unfortunately, it appears that lower rates appears to be the exception. Most state and local governments are facing record budget deficits, and are using property taxes to plug the holes. By tweaking rates upward, they can at least compensate for the revenue that would otherwise have been lost to lower valuations.
A new strategy, practiced by governments most desperately in need, is to sell “their delinquent tax bills to the highest bidder….Private investors step in and buy tax liens, paying governments upfront all or part of the value of the taxes. The investors then get the right to foreclose on the properties, taking priority over mortgage lenders, and to charge interest rates as high as 18 percent on the unpaid taxes.” While a win-win scenario for governments and investors, both of whom stand to reap huge cash windfalls, the program can be extremely detrimental to homeowners, which can see their tax bills (as a result of interest) skyrocket.
Unfortunately, there’s no law protecting homeowners in such situations, since the investors function as collection agencies, only going after back-taxes instead of credit card debt. In the end, if you don’t pay your property taxes (whether to the government or to a legally entitled third party) the result is the same as if you didn’t pay your mortgage on time; you lose your house.