Homeowners- Will Foreclosure Sales Affect Your Property Taxes?
There are numerous types of foreclosure sales. Such a sale may consist of the typical auction by the lender, a short sale by the owner trying to avoid foreclosure, or a bank sale. A bank sale usually contains properties from an inventory of homes owned by the bank from previous auctions where the properties failed to sell or were acquired by other means.
Each type of foreclosure sale may be given various weight by the taxing authorities (assessors and boards of equalization) in considering the value of your property for assessment and tax purposes. Also, the authorities may elect to not consider any type of foreclosure sales.
Historically, the taxing authorities throughout the Country would simply ignore foreclosure sales. The authorities always had plenty of other sales and foreclosure sales were not prevalent. If you purchased a property at foreclosure and expected the authorities to honor that sale as an indication of its value, you would be disappointed.
In seeking market value, the authorities were correct in their position at that time. Foreclosure sales did not meet the test of the definition of market value which requires a willing buyer and seller, no duress, and a reasonable marketing period. The authorities had plenty of sales at higher prices that did meet the market value test.
The market is very different now. Foreclosure sales are found even in the best of neighborhoods. In some neighborhoods they dominate the market and it may be difficult to locate a market value transaction. If a market sale is located, it will probably be at a greatly reduced price because of the effect of foreclosure prices.
Therefore, it will be difficult for the authorities to entirely escape recognizing foreclosure sales in the market value test. Foreclosure sales in many cases are the market.
It is certain that taxpayers will meet resistance in using foreclosure sales in the assessment appeal process. The various local governments are already envisioning large revenue losses from this situation. They will resist the effect of these sales, some jurisdictions more than others. The assessors claim, and may be correct, that they are not permitted to consider foreclosure sales in making a reappraisal of an entire county. There are current statutes and rules that do appear to block the assessors, but we believe boards of equalization may overrule these barriers on a case by case basis.
To ensure that the assessor has the right to consider foreclosure sales, we have introduced legislation which would permit the assessor such a right if foreclosure sales are of a significant number to affect the values of non-foreclosed homes. We will keep you advised of the progress of this legislation. Due to difficulty in passage of such legislation, we have limited its application at this time to only Shelby County.
Most auction and bank sale foreclosures are purchased by investors and these sales will be the most difficult to convince the authorities that they represent real market value. Other homeowners, who have not suffered the foreclosure process, are still definitely affected by the drop in prices. Their job in convincing the authorities of lower values may be less difficult. In addition to all the sales available to these homeowners as evidence, frequent national and local news reports on the drop in values and new construction also back up their position.
Foreclosure sales can cause neighborhood values to go down for other reasons such as Homeowner Associations becoming neglectful of the appearance of the neighborhood. This is because they receive less funds, if any, from the foreclosed properties. Additionally, numerous vacancies and properties for sale in a neighborhood can affect values. Some foreclosed homes have been vandalized and their bad appearances also reduce values in the neighborhood.
You have some good arguments in working with the authorities, but do not expect to be met with open arms. Stick with it and if turned down, APPEAL!