Tuesday, Dec. 18, 2007 | As banks resell homes they’ve repossessed in San Diego County, some sidelined buyers and investors are beginning to sniff out deals. Some are finding homes or condos for prices dramatically lower than a couple of years ago — in some cases, 30 or 40 percent lower.

But even though bargain-hunters may land a deal when they purchase a repossessed property from the bank, their property taxes may be calculated using a higher price than they paid. The policy fits county assessors’ mandate to assess properties at their market value, not just at sales price. And so appraisers analyze the regular comparable sales between individual sellers and buyers to determine if the lender’s desperation to unload the property actually represents a unit’s worth under these market conditions.

The staff under Greg Smith, the county’s assessor/recorder/clerk, conducts these kinds of value investigations in any market, most commonly when family members sell properties to each other. In those cases, property taxes are calculated on a fair market value for the property, not necessarily the good deal granted by a brother-in-law.

That means a buyer who pays $350,000 for a bank-owned condo could ostensibly be taxed on $450,000, or whatever the assessed market value of the unit is. In that case, the annual difference for the buyer would be about $1,000 in property taxes.

“Any sale that happens, it’s our job to determine if it’s fair market value,” said David Butler, assistant county assessor. “And most of the cases, it’s obviously going to be fair market value. … Just like anything else, just like a sale between brother and sister, or between relatives or anything else, our appraisers look at that.”

As the county is doused daily by the wave of foreclosures claiming homes and condos and the region spends another holiday season in the throes of a housing slump, the work of Smith’s office shifts. Fewer new residential and commercial projects are being completed and submitted for tax assessment, lowering the office’s workload in that realm by about 10 percent, Butler estimated.

But thousands of homeowners have applied for reductions in their property taxes due to falling values. And municipalities and other government agencies confront new — and in some cases, bleak — realities for their coffers in the years following a superheated market.

Owners of houses or condos that are now worth less than they paid are sending requests to the Assessor’s Office in droves, hoping to garner a lower property tax assessment, thereby saving at least a little bit. The owners of a house bought for $700,000 in 2006 but now worth $600,000 would save about $1,000 a year on their taxes — a small consolation for making mortgage payments on homes that are, in some cases, worth less than the owners owe the bank.

Close to 13,500 county homeowners filed a formal appeal for a review of their property tax assessments between July 2 and Nov. 30, according to an initial count for the Assessor’s Office this week by the county’s Clerk of the Board office. That’s a sizable gain over the 3,300 requests filed in the entire year between July 2006 and June 2007. And the new appeals don’t count the 11,500 properties the staff already lowered taxes for preemptively because of dropping values before July, Butler said.

San Diegans have grown aware of the slow market signs, and the Assessor’s Office is no exception.

“We kind of knew that was coming,” Butler said. “We try to be very proactive.”

But Butler drew a sharp divide between the influx of downward assessment appeals and a larger flood of similar requests in the 1990s. We’re not there yet, he said.

“The ’90s is where we got hit the hardest,” he said. “We were getting 28,000 appeals some years.”

The state Board of Equalization set the Nov. 30 deadline for San Diego County homeowners to submit their appeal for lower taxes. In California, under Proposition 13, a 1978 ballot measure, property taxes are levied at 1 percent of the property’s assessed value at the time of purchase, and can only increase by up to 2 percent every year regardless of how high the value of the home goes. Property taxes for all homeowners were due Monday.

And even though foreclosures are combining to drag prices down in some neighborhoods, in others they are still the aberration in the market. If there’s a $100,000 buffer between what the bank was owed on the mortgage and what the house could sell for now, the lender could list the house for sale at a price that is $100,000 lower than the neighboring homes and still not lose any money.

That’s why Butler said the bank-owned transactions are not technically considered arms-length transactions, the jargon for the kind of willing-buyer, willing-seller transaction that typifies real estate deals.

“[The lenders] may be dumping them for lower than the market value,” he said. “We’re asking, ‘Does this represent the market?’”

Some real estate professionals say the independent assessment helps illuminate the shadowy corners where fraud might otherwise take root. Jim Abbott, a downtown real estate broker, imagined shrewd buyers working out all kinds of deals with sellers to cut down their property taxes.

“Without this, you would have contriving sales prices all over the place — you’d have people saying, ‘I’ll give ya $500,000 for the property and $200,000 for your really nice furniture,’” he said.

Abbott has personal experience with a condo he purchased several years ago while prices were rising seemingly daily. The transaction hit a couple of snags, plus he renovated it, and nine months after he’d agreed to a price with the seller, the comparable sales had risen about $100,000. His tax bill reflected a higher assessed value than he’d paid for the unit.

But with foreclosures, though the potential for higher property taxes may prove a deterrent to a buyer with more houses on the market to choose from than just about ever, the savings on the sales price usually makes up for the tax bill, Abbott said.

“You would be grateful to be buying for a discount $100,000,” he said. “In the objective and subjective view, you should be saying, “Hey, I’m getting a great deal.”

Please contact Kelly Bennett directly with your thoughts, ideas, personal stories or tips. Or send a letter to the editor.

Leave a comment

We expect all commenters to be constructive and civil. We reserve the right to delete comments without explanation. You are welcome to flag comments to us. You are welcome to submit an opinion piece for our editors to review.

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.