Is It Even Possible to Lower Property Assessments "Improperly"?

A strange political scandal in Los Angeles raises a tough question about real estate and taxes. 

L.A. County District Attorney Steve Cooley is investigating corruption in the office of County Assessor John Noguez. There is some reason to believe that Noguez has made the most of his power to decide how much property owners must pay in taxes. 

Earlier this week, former Noguez underling Scott Schenter was arrested up in Oregon on charges of falsifying documents and unlawfully lowering property values. According to the L.A. Times' Ruben Vives and Jack Dolan, Schenter is accused of "improperly slashing the value on more than 100 Westside" properties, resulting in a tax break of "$172 million for multimillion-dollar homes and businesses." Property owners reportedly contributed to Noguez' campaign in payment for the reduced assessments. 

Schenter left office in January 2011 after a supervisor got wind of his alleged activities. In the intervening time he spilled the beans to Vives and Dolan, which had the immediate effect of expanding the story to include a local consultant named Ramin Salari who, again allegedly, acted as a middleman/fixer for property owners seeking relief on their tax bills. Schenter also may have incriminated himself with this loose talk, though I have no idea whether his statements to the paper had any impact on his own case. Most recently, Schenter relocated to the Beaver State and was, at age 49, living back in his dad's house when he was arrested. 

Noguez has his own saga, including credible reports of threats and physical harassment against opponents during a 2007 mayoral race in the suburb of Huntington Park. These threats apparently resulted from questions about whether the then-mayor's real name was John Noguez. It may be Juan Rodriguez or Juan Noguez or Dick Whitman. 

The grownup thing might be to say "Hey, even Jesus hung out with corrupt tax collectors," and leave it at that. But it's illustrative of how far from a free market real estate has wandered that you have to bribe public officials to get a lower assessment in a county where 30 percent of all mortgages are underwater. It's true that the West Side, where Noguez' office is said to have done much of its business, has less negative equity than other parts of L.A. County. But this interactive map from the L.A. Times (a fine national newspaper), shows Santa Monica's beachfront zip code with 20 percent negative equity, Brentwood with 11 percent, Malibu with 16 percent and Marina del Rey with 21 percent. 

Here in the land of the million-dollar starter home and the half-million-dollar teardown, in an era that has given us the deathless phrase "repenetrated bottom," the idea that real estate can only go up remains so stubborn that we don't even have language to describe the decline. Predictably, local pols are agitating for re-assessments, and I'm guessing they don't expect those assessments to be lower than Schenter's.

Nationwide, housing will mark its sixth straight year of deflation next month. Yet to this day you only get in trouble if you say a house has lost value. If you pretend the price is still inflated, nobody will bother you. 

Comments

[MP]

to get a lower assessment in a county where 30 percent of all mortgages are underwater

I have a big problem with a statement like that. It assumes that all assessment processes are identical. They are not. They vary wildly.

In general, when done properly, the relationship between assessed value and market value is irrelevant at any particular point in time. It is only relevant when the aggregate tax base is reassessed.

That's because ultimately, assessment is about relative valuation. It's not about absolute valuation. It's does matter if my house drops in market value by 30% if everyone else's also does. And you can't simply reassess individual properties. It has to be done en masse to keep the relative nature of assessments consistent.

So yes, assessments done right will always lag the market. Suck it up.

[niobiumstudio]

Yes, assessments only matter relatively, but when there is no baseline for that relativity, you get an awesome racket. For example, say on 1/1/07 FMV for house a. is $100,000 and house b. is $500,000. And the assessor correctly assess each house. Now, today comes along and FMV on house a. is only $35,000 and house b. is $175,000 and the assessor decides to reassess.

The people in house a. didn't contribute to his campaign, so he leaves their assessment alone, but the people in house b. (and many people in their neighborhood) contributed to his campaign. He goes and correctly assesses their houses. Now, the assessment isn't based on a relative scale anymore.

It is not uncommon for the town to not reassess a house for 5 or 10 years - so timing the assessments with political kickbacks in mind you can do one hell of a job.

[Episiarch]

It is not uncommon for the town to not reassess a house for 5 or 10 years

I don't know where you came up with this bullshit, but most counties (towns in New England) reassess (technically) every year. I've seen reassessment cycles as long as 8 years (such as Wake County, NC), but that's very rare.

[niobiumstudio]

I live in Orange County, NC so I was using counties around us looking for long ones (Orange, Durham, Alamance, Chatham, and Wake all surround me). I remember where my parents lived up in NJ (Union Beach, Monmouth County, NJ) it remember it being quite a while between assessments. It took the town 3 years to reassess our house after we did our addition.

[Episiarch]

New Jersey won't actually reassess for some time, but what they do is set an "assessment ratio" to deal with the fact that the market has changed, and also use the ratio to confuse homeowners. The ratios can vary wildly from town to town, for instance one town's ratio might be 1.03%, whereas another's might be 47%.

Assessment ratios are a common practice by assessors to fool homeowners into thinking their assessment is "lower" than it really is. So they market assess your house at $500,000, but then apply the 25% assessment ratio, and now your tax bill says your "assessment" is $125,000. Stupid people go "hey, that's way lower than the value of my house! Awesome!" and don't realize the tax rate is much higher to compensate.

Property tax is absolute, complete thievery and bullshit.

[niobiumstudio]

Yeah it was completely retarded up in NJ. I remember on a house initially assessed at ~$50,000 for YEARS, we were paying like $4,000 a year in property taxes. They reassessed it up to around $125,000 and the taxes jumped up to ~$6,000/year. After the addition (more than doubling the size of the house, massive improvements) they assessed it at $320,000 yet taxes only went up around $1500. I am using nice, rounded numbers and this all took place over years, but you get the idea. The assessed value of the house really didn't effect property taxes all that much.

[mr simple]

You don't own property, you rent it from the government.

[mr simple]

Oh, I hadn't read you comment below yet.

[Paul.]

New Jersey won't actually reassess for some time, but what they do is set an "assessment ratio" to deal with the fact that the market has changed, and also use the ratio to confuse homeowners. The ratios can vary wildly from town to town, for instance one town's ratio might be 1.03%, whereas another's might be 47%.

Epi, see my post below.

What I didn't say in my post was that the formula is complicated on purpose. It allows for up assessments in down markets. Need more money, tweak the formula. When your assessment goes up in a down market, they use the fig leaf of a formulat to obfuscate how it really works.

"Oh shit, Tony V's gonna be pissed if we don't make this week's tribute... tweak the formula so the protection fee goes up."

[EDG reppin' LBC]

In CA, LA county specifically, they only assess the value when title is transferred (value = sales price). They will reassess the property value if significant improvements have been made to the land or structure. You can also apply for a reassessment that may or may not be approved by the assessors office. When the market turned bad in 2007, they started to reassess every property in the county. By law, the county cannot reassess your property and raise your tax bill, but they will reduce it if the reassessed value is lower. They will not raise your tax bill, except in the case where the land or the structure have had significant improvements. Other wise, if you purchased your home in 1994, and your tax bill was say, $1000, you are still paying that annual amount in 2012.

[robc]

That isnt necessarily true.

If houses drop 30% and cars stay flat, and no assessments change, then the housing owners are going to be paying more per "real" dollar than the car owners.

[MP]

In the Property Tax systems I'm more familiar with (Northeast US), other assets are irrelevant. Towns determine how much tax they need to collect, and then send you a bill based on your relative assessment.

Car registration revenue is dictated by statute, not my revenue requirements.

[robc]

In KY, the same rate is paid for both, and the money split the same way. Property is property.

Car registration is entirely different. Its a flat fee and the property tax is paid at the same time as the registration, but they are two separate line items.

[niobiumstudio]

I can't believe this is the first time we are hearing about this. Great racket. This must be going on elsewhere - especially in places where property taxed are through the roof and people are paying $10k a year on places worth like $150-$200k...

[Mensan]

Nice overpriced house you have there. Be a shame if somebody lowered your tax assessment ...

wait, what?

[Peter L]

Went more like this: "Nice overpriced house you have there. I'm sure if you contribute to my campaign fund I could get somebody to check into that assesment."

[Episiarch]

Let's discuss the fact that property tax appraisal is also complete and utter bullshit, pure smoke and mirrors. What's your property worth? Well, we can't know until you sell it, right? What will someone pay for it? So let's look at what similar properties have sold for. Then we'll set your appraisal at...whatever the fuck we think it should be.

Wait, your property is a ranch and that comparable house (similar square footage, same bedrooms, same baths) that sold for $50,000 less is a Cape Cod? Oh, no, you can't use that as a comparable. Sorry. Oh, you're in different neighborhoods? Sorry.

Property tax is the biggest scam I've ever seen. It essentially means no one owns their property, you just rent it from the government, because if you don't pay, the landlord (government) evicts you. There is no private property as long as there is property tax.

[sarcasmic]

Considering that you need to go ask "Mommy may I?" whenever you do anything to "your" property, you don't own it.
The person who may deny you permission does.

[A Serious Man]

It's basically feudalism since the property tax is ostesnsibly used to pay for local police and fire and education. The serfs need the protection of their lords!

[Episiarch]

Ha, that's awesome. And actually sort of accurate.

[Lord at War]

"...since the property tax is ostesnsibly(sic) used to pay for local police and fire and education."

I almost missed that 'education' at the end. I pay $3200/yr- 70% of which goes to babysit someone's child.

[Brett L]

I have to say that one of the two officials I have never had cause to rant about in the eight years I've lived in FL is the tax assessor. The fact that he valued my home $30k under the price I paid for it (at the top of the market) helped. And the assessment never increased and has fallen for the last four years. It really is valued at about what I would get for it.

[Episiarch]

Amazingly, not all assessors are the abject scum you would expect. Some, however, are. It seems you got lucky.

[Brett L]

Shit, if only I'd insisted on paying his valuation for my house, I wouldn't be upside down on it.

[Brett L]

Of course the fact that the city and county government jointly own the water and utilities and can fuck us through that method instead probably accounts for some of the fairness. Fucking $3/month "fire services integration" fee bullshit. Fuck them with a rusty pitchfork.

[Proprietist]

I'd say "discriminate administration of the tax code based on quid pro quo" should be a crime. The crime being that they didn't lower it for everyone else.

[BakedPenguin]

...that has given us the deathless phrase "repenetrated bottom"...

Hmm. Here's a song about that subject.

[Almanian's Evil Twin]

nice

[The Sego Sago Kid]

Fun, unrelated fact: Steve Cooley is Patrick Frey's (Patterico) boss, and he is being sued by Brett Kimberlin.

Kind of weird seeing more than one Patterico reference in one day.

[johnl]

This story is also related to JD Tucille's about California Assembly voting to mask upper caste names in property records. Every story is blurring together.

[Voros McCracken]

I actually worked for a lawyer in my 20s where this was his entire practice: going down to the assessor's office and coming up with a list of "comparable" properties that would allow his clients to get their property taxes lowered. Then he and his clients split the proceeds.

In that case it was all perfectly legal, though it was also a laughable process. It was a system designed by lawyers for lawyers.

[Paul.]

But it's illustrative of how far from a free market real estate has wandered that you have to bribe public officials to get a lower assessment in a county where 30 percent of all mortgages are underwater.

Here in Washington, property taxes aren't tied to real estate markets or prices. You could argue they're loosely tied to market value, but only loosely.

After years of people bitching that taxes kept going up during down real estate years. After hemming and hawing about one-year moving averages, then switching to three-year moving averages, then your tax assessment having to do with aggregate value of the seven surrounding homes based on highest-sold value, the assessor finally unzipped his fly: Taxes are assessed based on "fuck you, that's why".

Here's how it works.

The county comes to the tax assessor and says, "Based on our upcoming 2013 budget, we need eleventy billion dollars, go find it in property taxes".

The tax assessor is in essence a mob "collector". He goes out on the street and makes assessments of all the properties in the taxing district until he comes up with eleventy billion dollars. If your assessment has to go up to meet that need, then it goes up, fuck the market.

[Episiarch]

Paul is correct. The only way to deal with this as an individual homeowner is to appeal your assessment. Then they use the sales of comparable homes to "prove" that their assessment is correct, and you have to submit comparable homes that have sold recently for less that your home.

As I said above: smoke and mirrors.

[Voros McCracken]

And that process (in Cook County) was what that lawyer I worked for specialized in.

[John Thacker]

Yes.

This is also why no one should really care about the actual assessed value (except insofar as it's fair compared to others in the same district), just the amount of money taxed.

If if a county has artificially low assessments but a high rate, that's the same as high assessments but a low rate.

Most of the time the county lets a ratchet effect go-- taxes go up (rate stays the same) when property values climb, but when values go down, rates go up to keep tax money the same.

[Paul.]

This is also why no one should really care about the actual assessed value (except insofar as it's fair compared to others in the same district), just the amount of money taxed.

The washington assessor put it essentially thusly: It's about what you're piece of the pie is.

That was the crucial words. There's a pie that's baked by the county, and it weighs eleventy billion pounds. Here's how much you have to eat.

The 'value' assessment is merely there to make sure Bill Gates eats more of that pie than I do. That's the only place value comes in.

[Paul.]

You're - your. Work is distracting me from my time wasting.

[jdgalt]

We've been waiting 5+ years for Reason to mention the true reason the government, at all levels, is pretending real-estate values haven't fallen, and it's not about property taxes: it's the banking system.

ALL of America's big banks hold huge numbers of mortgages for which they haven't received a payment in a year or more. But whenever they foreclose on a loan, it stops counting as an asset on their books and is replaced by a home, which they can't sell soon, and probably not for anywhere near the amount that was owed on the mortgage.

More importantly, though, if any bank forecloses on all or most of its bad loans, it becomes legally insolvent and the FDIC is required to close the bank and pay claims. The FDIC doesn't have anywhere near enough to do this, even if it uses its (limited) authority to draw on the Federal Reserve system. Indeed, what we're talking about amounts to closing ALL banks, and that much cash doesn't exist in the world. By at least a factor of 10.

So the banks have to drag their feet, and the government has to let them.

I'm astounded that the bank run now going on in the Euro countries hasn't already spread to us. It will, and soon.

[sweeterjan]

where Noguez' office is said to have done much of its business, has less negative http://www.vendreshox.com/nike-shox-r2-c-7.html equity than other parts of L.A. County. But this interactive map from the L.A. Times (a fine national newspaper), shows Santa Monica's beachfront zip code with 20 percent negative equity, Bren

[jason]

Its a scandal and its a sure thing now in the la government, the police is behind in this case.