Watch out for creative property assessment

July 8, 2011

We just received our annual notice of assessment from the county tax collector. The current value has remained the same as last year, but the “building value” decreased by $34,000 and the “land value” increased by $34,000. How will that affect my ability to sell it in the future? My house was built in 1964 but is in very good condition.

Local county governments are desperate for revenue. Property values keep falling, and more homeowners are challenging their property tax assessments. If everyone gets a break, county governments and other taxing bodies will see a reduction in their revenue and could run out of money.

What seems to be happening is that counties across the country are getting creative with how they assess property. In your case, the county has recognized that your building has fallen in value (by $34,000) but that the land has mysteriously increased in value by the exact same amount.

Tah-dah! Your total value is the same, and you may now have the exact same property tax bill, or perhaps one that is higher if your county has raised the tax rates.

It’s ridiculous to think that your land value has gone up this year but the building has decreased in value, unless you live in one of a few blessed counties across the country. In most places, property values fell again. You should consider fighting the current valuation.

It’s hard to know how this might affect your ability to sell. No one likes to pay high property taxes, but we all enjoy the services those taxes pay for, such as good schools, firefighters, police, water, and garbage pickup. And, if your neighbors suffered the same fate you did, buyers looking at your neighborhood should see similar real estate taxes for similar homes.

I am in the process of a property tax appeal. What are some good Web sites I can use to see how much property values in my area have dropped?

There aren’t really any good Web sites that have up-to-date information you can rely on for a home value. There are a handful of sites that profess to offer a guess as to a home’s value (on Zillow.com, it’s called a “Zestimate”), but they can’t be relied upon for accuracy. (In some markets, they’re very accurate, but not so much in others.) BlockShopper.com lists sales prices of property in the area, but it isn’t national and doesn’t always include every sale. It doesn’t claim to know what your property is worth.

The best thing you can do is to contact a local real estate agent and ask for help in determining the recent sales prices of houses that are similar to yours. You can also glean this information by going to your local public recorder of deeds office and pulling up information for specific addresses.

Some counties offer better information than others. On some county Web sites, you can actually compile information on sales in a particular area over a specific period. You can then see whether some of the property values in your neighborhood have dropped significantly, and you can use the information to contest the valuation assigned to your residence by the local taxing authority.

About three years ago, my neighbor abandoned her home. Now I find that the house will be auctioned off for tax delinquency. The starting bid is very low.

I would like to bid on this house and use it as a rental property. I know about laws requiring me to wait one year before foreclosing on the owner, but I am unsure if the house was paid for, or if the lender has just decided it won’t get its money back. (You would think that after three years with the house abandoned, the bank would have foreclosed already.)

I am really nervous about the whole idea because I have never invested in real estate before.

I have money put aside to pay for the property and for repairs needed to make it habitable. I am just worried about legal issues that might come back and bite me.

Buying and renting this property seems like a win-win proposition, but is there any way someone can take the property away from me, forcing me to lose my money?

Here’s what happens when you bid on property at a tax sale: You can purchase the tax delinquency, but you will probably have some competition. If the bank finds out that the property is being sold for back taxes, it might jump into the fray and pay the taxes owed.

In some parts of the country, when you buy a house for the real estate taxes that are owed, you don’t get title to the house. You get the right to start the process of owning the house, but the current owner has the right to redeem herself and become current with the taxes. That’s the one-year period you are referring to. If you made improvements to the house, you might not get that money back.

Depending on the process in your jurisdiction, the homeowner or the lender can pay the real estate taxes that are owed, with penalties, fines and other costs, and the tax sale would be canceled.

On the other hand, if the homeowner doesn’t pay and the lender decides not to pay either, you, as the tax buyer, have the right to wipe the slate clean and become the owner of the house. There are certain steps you may have to take to make sure that the slate is clean when the final tax deed is issued to you, and for that reason you’d better make sure you know the rules in your jurisdiction and understand what you are doing.

Why don’t you hire a lawyer who has experience in tax sales to walk you through the process for the first time? I often recommend that wannabe investors hire a team of people who can help them achieve their real-estate-investing goals. You’ll want to chat with a tax preparer (an accountant or enrolled agent), a contractor (who can advise you on how much money you’ll have to spend to get the property into habitable condition), a mortgage lender (if you decide to finance part of the purchase) and a real estate attorney to draft the paperwork and make sure you’re protected.

You’ll pay a little bit of money but will have peace of mind that you understand your risks.

If you get the house, what I like about your plan is that you will live next door. You’ll always be able to keep an eye on your investment.

Ilyce R. Glink is an author and nationally syndicated columnist. Her latest book is “Buy, Close, Move In!” If you have questions, write to Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022, or contact her through www.thinkglink.com.

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