Sunday, March 25, 2012

The Record: More tax appeals denied as North Jersey towns reject data on low-priced homes

North Jersey homeowners already squeezed by declining values and high taxes are facing more financial fallout from the housing bust: Towns are making it harder to win a tax appeal, at times with scant justification.
'My takeaway is that I think their intent was to frustrate me and make me go away,' says Bob Traitz of Wyckoff. 'The (tax appeal) process is very unfair.'
'My takeaway is that I think their intent was to frustrate me and make me go away,' says Bob Traitz of Wyckoff. 'The (tax appeal) process is very unfair.'
In growing numbers, municipalities across Bergen and Passaic counties are restricting the pool of “comparable” sales homeowners can cite to contest their property assessments — the key to a successful appeal and the tax relief that comes with it.
Specifically, the evidence suggests that some local tax assessors are overusing a section of the state tax code that allows them to selectively disqualify properties they believe were sold under financial duress.
The assessors say it’s their job to review all sales and exclude those that do not reflect true market value. But lawyers and appraisers contend that some assessors are unfairly eliminating transactions that simply reflect the downward trend in housing prices, and not just those influenced by the threat of foreclosure or some other clear evidence of duress.
The issue has caught the attention of authorities in Trenton. The state reversed 15 percent of these so-called Code 26 exclusions made by assessors in Bergen and Passaic counties from 2009 through mid-2011, after reversing none in 2007 and 2008. Statewide, 11 percent were reversed in the more recent time period, compared with 3 percent in 2007 and 2008.
Beyond that, The Record interviewed a handful of sellers in transactions that had been excluded by local assessors. In most cases, they said that their sales reflected neither duress nor any of the other unusual circumstances that fall under Code 26.
The more aggressive stance by assessors comes as municipalities in Bergen and Passaic battle an appeal caseload that has soared from about 5,400 in 2005, to nearly 18,000 last year in the two counties, and at a time when town and school budgets are getting ever tighter. Close to 14,000 appeals have come in so far this year, a week before the April 2 filing deadline.
Local property taxes are among the highest in the nation. Bergen County’s median residential property tax topped $9,200 last year, while Passaic’s passed $8,600. Under the right circumstances, an appeal can provide some relief — especially for homeowners in towns where assessments have not kept pace with the declining market. But for each appeal a property owner wins, towns must make up the difference elsewhere — usually from other taxpayers.
The assessors tactics have frustrated people like Bob Traitz of Wyckoff who have seen their appeals be dismissed before county tax boards, decisions that have cost them hundreds, if not, thousands of dollars. He appealed the $922,400 assessment on his circa-1950s five-bedroom, split-level house on the grounds that similar homes are selling for $685,000 to $800,000.
“My takeaway is that I think their intent was to frustrate me and make me go away,” said Traitz, who lost in 2010 and 2011 after the Wyckoff assessor ruled out most of his comparable sales under Code 26. “The process is very unfair.”
Wyckoff Assessor Pamela Steele did not return several messages seeking comment on her exclusions, which state officials have reversed about 70 percent of the time in recent years.
Wyckoff Mayor Christopher DePhillips said he knew there were concerns about Steele’s decisions.
“I have certainly heard from residents who have complained about this issue, I would say on and off for about 18 months,” he said. “I do think their complaints are justified.”
He added that officials were considering a townwide update of property assessments to try to head off the need for appeals.
Impact of short sales
Elsewhere, assessors defend the practice as part of their legal obligation to accurately define the real-estate market from town to town.
Property sales are recorded in 34 state-mandated codes that categorize them according to whether they reflect true values or have special conditions. Transactions involving relatives, estate liquidations, bankruptcies, homes under renovation or foreclosed properties are among those most often tagged as not reflecting the market.
But when a sale fails to fit neatly into a specific category, assessors turn to Code 26, which serves as a catch-all for excluding a sale. Many going in that category are short sales — transactions in which banks accept less than the value of the mortgage on a property in exchange for not foreclosing on the owner. State officials say such sales are properly excluded.
Beyond that, assessors have the discretion to eliminate sales for other kinds of duress that could affect the price. And assessors say they research sales before deciding if they represent the market.
“We are doing what the state tells us to do,” said George Reggo, an assessor in 10 Bergen municipalities, a majority of them with relatively high rates of transactions barred from appeals. “I research every sale as I am supposed to do. I am doing my job.”
But lawyers, appraisers and homeowners, with some support from a state monitoring agency, say some assessors go too far — improperly excluding, for instance, sales that stem from divorces or retirements, or those not listed through real estate agencies.
In some towns, “if the assessor gets the slightest whiff” that a home might have been sold under duress, they remove it from contention, said Jim Bogris, a Fair Lawn appraiser. “I don’t know how many times I’m at tax board hearings, and I see people going in to appeal … and the assessors just blow them out of the water. I believe [the code] is overused.”
They further contend that short sales should be allowed in appeals because they do indeed represent the true market in distressed neighborhoods where property values have fallen most and many owners owe more than their homes are worth.
An analysis of property sales data by The Record and interviews with home sellers revealed that assessors use the catch-all category inconsistently and sometimes without apparent cause. The analysis further found that the percentage of home sales declared off limits in appeals ranges widely in communities with similar economics.
Varities by town
For example, in a row of middle- and lower-income Bergen and Passaic towns running from Ridgefield to Paterson, 17 percent to 33 percent of sales were eliminated as Code 26s in 2010 and the first half of 2011. But less than 5 percent were eliminated in East Rutherford, Carlstadt, Lyndhurst and Saddle Brook.
Similar variability was found in more upscale areas, with 38 percent of sales taken out of contention in Wyckoff in that period, compared with less than 5 percent in Franklin Lakes and Midland Park.
Overall in Bergen and Passaic counties, the percentage of home sales kicked out of the mix has risen from about one in 50 in 2005-06 to one in 13 for 2010 and the first half of 2011.
Assessors said the variability could be because of varying levels of short sales, though one, Jack Whiting of Clifton, noted that the figures “should be somewhat consistent. There should be a normal pattern to it.”
Moreover, in interviews with 13 people who sold homes in Wyckoff in 2010-11 that were filed as Code 26 sales, all said they believed they got fair prices for their homes and were not short sales. In a random survey of another six such sellers in other towns, four said their transactions had no special conditions.
“No, no, no. Nothing like that,” declared William Recant of Tuxedo, N.Y., whose sale of a five-bedroom colonial in Wyckoff in 2010 for $820,000 was used in the unsuccessful appeal for a home assessed at $966,700.
“There was nothing unusual, in the sense that it was a willing buyer and willing seller,” he said.
Peter Mortimer of Wyckoff, whose former home was used in the same appeal, said he and his wife got “a fair price” when they sold the five-bedroom contemporary-style house in 2010 for $815,000.
“It was not a fire sale,” he said.
The office in the state Division of Taxation that monitors the sales-recording process is reversing a growing number of decisions after finding that assessors misunderstand or misuse the law, the head of the office said.
When sales are improperly recorded, “we will change it”, said Thomas Reilly, chief of valuation and mapping for the office. “Ninety percent of assessors do the right thing, but sometimes there are gray areas. Assessors sometimes misclassify things.” Staff was added to the office in 2009 partly to address the issue and “educate” officials, he said.
In Wyckoff, where the 70 percent reversal rate for 2009 through the first half of 2011 was among the most severe in North Jersey, Reilly said Steele, the assessor, “may have been a little aggressive” in classifying sales. In some cases, he said, she wrongly eliminated sales simply because they were not marketed sufficiently through real estate agents.
In other cases, investigators talked to home sellers and agents, as The Record did. “We are finding what you are finding, that they were indeed arms-length sales. So we are doing our job and putting them back in.”
At a disadvantage
In trying to determine which transactions represent the market, assessors say they talk to lawyers, realtors and sellers.
“I’ll reach out with whatever means I have,” said Stuart Stolarz, the assessor in five municipalities with relatively low exclusion rates.
Despite the exclusions, Reggo, the assessor for 10 Bergen towns, said that “plenty of sales” remained for owners to use in appeals.
But the increasingly limited pool of comparable sales puts property owners “at a distinct disadvantage,” especially if they proceed without a lawyer who knows legal arguments that can rebut the exclusions, said Richard Hubschman, a real estate attorney based in Palisades Park. Assessors “are very liberal about assigning non-usable to almost anything. It’s a defensive tactic that they need to put forward to try to defeat the appeals.”
Even when a homeowner goes in armed with evidence to get around the problem, he can lose, as Traitz discovered in his appeal. He said he told the tax board that Steele had eliminated comparable sales, even though sellers had told him that their sales had no special conditions.
The board still sided with the town, and Traitz is now taking his case to state tax court.
To Traitz, who became something of a tax-law expert as he researched his case, the long-term answer is more regular municipal property revaluations that keep assessments up to date, maintain equity in the system and eliminate the need for many appeals.
Beyond his own appeal, he said, “I’m interested in seeing a more fair system.”
John Lloyd, a lawyer who advises Wyckoff on tax issues, noted that property owners are permitted to challenge an assessor's decision to exclude a sale before the county tax board and in state Tax Court.
A growing limitation
Selected municipalities are making greater use of a discretionary element of state tax law to eliminate property sales from a potential pool that can be used in property tax appeals. Data represent percentage of all residential sales excluded under this provision of the law.
MunicipalityPercent 2005-2006Percent 2010 - 1st half of 2011
Bergenfield 116
Englewood Cliffs116
Little Ferry133
LodiLess than 124
New Milford616
South Hackensack724
PassaicLess than 113
Source: New Jersey Division of Taxation
Staff analysis by Dave Sheingold

No longer comparable?

These homes in Wyckoff were sold in 2010 and the transactions were cited as "comparable" sales in a subsequent tax appeal filed by a third party. The assessor recorded them as not reflecting the true market value; both sellers told The Record there was nothing unusual about the transactions.
Two-story, five-bedroom colonial sold August 2010 for $820,000

Two-story, five-bedroom contemporary sold July 2010 for $815,000

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