June 4, 2009

Local Governmental Relations Committee
 
This material is for discussion purposes only and has not been approved by the LGR or Executive Committees or the Board of Directors.

Issue:   What do REALTORS® need to know about property reassessments in a down market?

Action: None Required.  For background only

Options:  Not applicable.

Status/Summary:
A number of issues impact REALTORS® and their clients concerning the assessment of property taxes in a declining market.  Proposition 13 requires that properties be reassessed at their current market value whenever a change in ownership occurs.  Proposition 8, which was passed by California voters in 1978 gives homeowners the right to file for a temporary reassessment of their property if they feel its current market value has declined below its assessed value.  Applications are submitted to the county assessor’s office, which reviews all applications.  It has been reported that in some instances where buyers have purchased bank owned properties, county assessors have not reassessed the property to reflect the current (lower) market value.  Instead, the assessor has maintained the (considerably higher) assessed valuation that was assigned to the property before it went into foreclosure.  Likewise, homeowners who have applied for a reassessment under the provisions of Prop 8 have had their application denied on the basis that a decline in neighborhood values is a result of foreclosures which are not considered an “arms length transaction.”  Many homeowners are unaware of their rights under Proposition 8.  At the same time, many county assessors are battling a backlog of requests for reassessment.  Recently, the California Attorney General issued a warning to property owners about private companies that charge fees to help them lower their property taxes.  Property owners do not realize that this is a free public service offered by county government.

Discussion:
A number of issues impact REALTORS® and their clients concerning the assessment of property taxes in a declining market.  Most homeowners know that Proposition 13 limits assessed valuations on property to two percent of the market value of the home in 1975 or when it was sold any time after that.  When a change of ownership occurs, the property is to be reassessed at its current market value.

In the current market, REO sales predominate in many communities.  Potential buyers of these properties are attracted to the prospects of acquiring a home at a drastically reduced price.  The expectation is that property taxes on these properties will also be considerably lower.

Along the same lines, many existing homeowners in today’s market are looking for relief in the form of lower property taxes.  Proposition 8 was passed by California voters in 1978.  It allows homeowners to apply to their local county assessor for a temporary reassessment of their property if they feel its current market value has declined below its assessed value. 

Recently, C.A.R. has received reports that in both scenarios, county assessors have not honored the value of an REO sale when looking at the assessed valuation of a property.  In the case of those who bought a bank-owned property, assessors are not lowering the assessed value of the home to reflect the most recent purchase price, and instead are maintaining the assessed value that was assigned to the property before it went into foreclosure.

In the second scenario, assessors are declining applications for a Prop 8 reassessment, arguing that a decline in neighborhood values has been the result of a preponderance of foreclosures, which do not represent typical market sales.

In both instances, assessors are asserting that REO sales do not represent an “arms length” transaction, which is the legal standard for a legitimate transaction in which neither party has taken advantage of the other.  These assessors have reasoned that in the case of an REO sale, the property is in distress, and therefore, the seller has been taken advantage of.

Many homeowners are not aware of their rights under Proposition 8.  Many of those who are suffering from a decline in value would benefit greatly from a reduction in property taxes.  In some extreme cases, it might even help them avoid going into a foreclosure situation.  REALTORS® can perform a great service to their clients by educating them about the process for applying for a Proposition 8 reassessment.

Many county assessors are experiencing a backlog of Prop 8 applications as a result of the current market.  Others have been surprisingly proactive by pushing out information to the home owning public about Proposition 8, and in some cases, proactively evaluating every property on the county tax rolls for a possible lowering of their assessment.

In February, the California Attorney General issued a warning to property owners about private companies that charge fees to help them lower their property taxes.  Companies are sending deceptive mailers to homeowners offering help in reducing property tax assessments, if the homeowner pays the company hundreds of dollars in fees. The companies use official-sounding names such as "Tax Adjusters," "Tax Readjustment" or "Tax Review" to make victims believe the company is a government agency.

Property tax reassessment is a free service provided by county tax assessors. If homeowners believe their property value has declined and they are paying too much in property taxes, the local tax assessor will review the property value for free for a possible downward assessment.   This month, the AG filed a suit in San Diego to stop one company from conducting these scams.  Some local district attorneys have filed similar lawsuits.

For more information, please see the following FAQ from the Board of Equalization:
http://www.boe.ca.gov/proptaxes/faqs/prop8.htm