Reversal of fortunes

Sinking home values call for property tax reassessments

By Eva Rosenberg, MarketWatch
March 20, 2008

LOS ANGELES (MarketWatch) -- With home prices dropping dramatically in the past year, are you paying too much property tax?
According to Standard and Poor's Case-Shiller index, home prices have dropped an average of 14% since March 2007. And perhaps as much as 20% since the peak values in June 2006. When was the last time your home was assessed?
Sue, a reader in New York, brought up the issue by asking: "Now that home prices are falling shouldn't we all be getting our homes reassessed so that we pay less property tax?"

You bet it's time. Since it doesn't look as if there will be an immediate let-up in the price decline, this is a good time to take steps to determine the current value of your real estate, whether it's home or investment property.
There is no single procedure to outline. Property valuations are handled differently in each state. Sometimes even in each county or municipality.
New York State's Office of Real Property Services, for instance, reports that communities in New York State have two different ways of valuing real estate: 100% of current market value or a percentage of market value.
The assessed values are spelled out on the tentative assessment roll, which is released on May 1 of each year in most communities. You have the opportunity to look up your property. If you decide the value is no longer correct, you can follow the instructions in the ORPS pamphlet entitled "What to Do If You Disagree with Your Assessment." Check the pamphlet.
California's unique situation
California has a unique situation. On June 6, 1978, California voters passed Proposition 13, tying property taxes to purchase price instead of current market value. It was a revolutionary concept, spearheaded by Howard Jarvis and Paul Gann, two private individuals who'd had enough of soaring property taxes as the market prices rose along with California's fortunes.
Now, 30 years later, homeowners who bought their homes at the height of the market are undoubtedly paying property taxes on phantom home values. Are they locked into the purchase valuations?
No. According to Christina Sciupac, the Property Owners Advocate for Los Angeles County, there is a special provision, called Proposition 8. It allows homeowners to file a request for a temporary decline in value after a market crash, earthquake, disaster or any other valid reason.
You can file the application between July and November. You will find the new application for 2008/2009 on the assessor's site this summer. Visit the site.
Sciupac cautions applicants that this is not a permanent reduction in your property taxes. Your property's market value will be reviewed each year. If there's an increase in value, your property taxes will increase.
For some folks, especially those homeowners who got the benefit of the Proposition 8 reduction after the Northridge earthquake or other earthquakes, it has seemed as if their property taxes were rising outrageously -- and quickly -- over the last few years. One woman wrote to AARP The Magazine recently, saying she wished she had never asked for the reduction. It caused her to lose the protection of Proposition 13.
Not so, says Sciupac. The valuation only rises until it reaches the original, purchase valuation. Then it locks back in. After a sharp cut in taxes, the annual increases can feel like painful hits. So, even in California, it's worth getting your property's value downgraded.
What do you do, in general?
First, find your state or locality's assessor's Web site to get specific instructions. Look for the application or instructions for the procedure to challenge your assessment. If you can't find the site easily on your own, drop by Assessor.com to find a link to your state assessor's Web site. See the site.
Just in case you're expecting an argument, get some objective proof that your home declined in value. If you've recently refinanced, your lender insisted on an appraisal. That would help. Some homeowners with long-term equity lines have just gotten letters from their lenders cutting the amount of the equity line. One homeowner in Dana Point, Calif., was just notified by Washington Mutual that his home equity line was cut from $225,000 to $72,500.
If you have know a local real estate agent, you can ask for a printout of comparable home sales for you.
In a market like this, you probably won't have to fight much. Your assessor already knows the values have declined. The question is, will you agree with the amount of the decline proposed by your assessor.?
If you don't, there is always an appeals process. The whole process of revaluation can take months -- or years, depending on the volume of applications. In the meantime, property tax payments are coming due. What should you do? Pay the taxes, then challenge.
When you file your request for revaluation, ask the assessor to look back for as many years as you think the market has been declining in your area. And file a claim for refund, or overpayment, for the excess property taxes you paid in the past.
The Los Angeles County application, for example, includes a box to check asking the Los Angeles County Assessor's office to treat it as a claim for refund as well. Perhaps your assessor's office has similar foresight. And, like Los Angeles, it may also have an in-house advocate or ombudsman to help you.