Tuesday, November 23, 2010

Weighing the Merits of the Minneapolis Property Tax Lawsuit

Post by the Hawthorne Hawkman, image from Texas Property Tax Consultants.

Yesterday we wondered if the price was right for assessed values in north Minneapolis and Phillips.  For anyone who hadn't already guessed, in each example listed in that post, the properties in the affected areas had the lower sales price but the higher assessed value and higher taxes as a result.

This blog was fortunate enough to be able to post the lawsuit documents before anyone else did, and today we get to break down what they contain.  These are only my impressions after reading through, so others are encouraged to offer their thoughts on this matter as well.  But mark my words, this could be huge.  We're talking potentially in the tens of billions of dollars in assessed values for single-family homes citywide.  Out of those tens of billions, it's not yet clear how much assessed values are incorrect (assuming the suit is found to have some degree of merit, obviously).  But then you start to think about multifamily, commercial, and industrial on top of THAT, and the financial implications are staggering.

The lawsuit that could rock the foundations of those finances starts with...

...a paragraph that a previous commenter felt was out of place, and perhaps too reminiscent of a college thesis paper.  I happen to agree.  This statement, if included at all, feels like a better fit at the end of the complaint, where it would have been a fitting coda to the presentation before it.

I'm also disappointed to see the Camden area - essentially the neighborhoods in NoMi north of Lowry - be the only community included for now.  Certainly we've seen similar issues in the Near North community as well.  The complaint does, however, go on to state that other affected individuals and communities may be added later.  If you or someone you know of might fall into that category, you can email info@fairmpls.org.

Aside from those two minor complaints, there's a lot of interesting points being made.  And I should state for the record that I'm not even sure what my position is on this suit other than I believe the assessed values being used to calculate our taxes should be calculated fairly and evenly across the board.  The complaint alleges this has not been happening.  We'll see if they're right.

They are correct, though, that often the difference in the yearly taxes one would save by contesting the values can be lower than the filing fees.  Even when it's not, the net savings may be so low as to make the process not worth one's time.  Furthermore, if properties are indeed being assessed unfairly and inaccurately, then the systemic issues won't go away simply through a series of re-assessments.

Ed Kohler broke down Plaintiff Odunlade's portion of the complaint, that a property she purchased was on the market for 159 days at $59,000 before she bought it at $22,000.  It's currently taxed at a value of $90,100 and a 2004 sale at $124,000 is a primary factor in the city and county assessment.

Plaintiff Jose Llangari bought a duplex in Phillips for $167,000 back in 2004.  It continues to be assessed at a higher rate than similar properties in other neighborhoods.  In 2008 (payable in '09), it had an assessed value of $225,000.  While that's dropped to $191,500, the property is allegedly still assessed at far higher than what it could sell for.

Plaintiff Andrea Kral picked up her Phillips neighborhood property in 2009 for $34,000 after it had been listed for a few weeks at $44,900.  Its current assessed value is $138,000.

The complaint goes on to assert that the city and county assessors did not do their job right, and their employers failed to train them properly in this capacity.  The plaintiffs were not made aware of the different assessed rates or tax policies, and "No rational basis exists for the illegal and unqual property tax assessments."  As a result of disparate treatment and a lack of an ability to adequately contest such treatment, the plaintiffs' rights to due process and equal protection have been violated.

The bulk of the legal document here is comprised of assertions that the assessors in their various capacities, as well as the city and county, violated the plaintiffs' federal and state constitutional rights.  This goes on for thirty counts, spanning about 40-50 pages as it lists EV-ER-Y item and entity involved.  (Note to self:  When around attorneys like the ones in this lawsuit, do NOT start singing the song "99 Bottles of Beer on the Wall."  They will make you sing the WHOLE DAMN THING.  And to make it even worse, you'll have to start every verse with "I reassert there were 99 bottles of beer on the wall, now there's 54 bottles of beer on the wall, 54 bottles of beer...")

From what I gather, the city and county assessors may be excluding bank sales to individuals from their calculations, deeming them to be "forced sales."  A forced sale, I believe, is one where the seller is in some way compelled to sell - such as a sheriff's sale where the house is legally sold back to the bank from the seller.  But in that case, the seller does not get to set the price, date, or other terms of the sale, and you could easily argue that the seller would not have sold the house to the bank if not for being forced to do so through the foreclosure process.

State law says that forced sales are not to be used in determining market values, and that's definitely the right call.  However, my reading of the applicable law seems to indicate that a bank sale to a new individual owner does NOT constitute a forced sale.  Now, one of the assessors said in the initial Strib article, "One sale does not a market make."  That's true, but the other unfortunate truth about real estate transactions throughout much of north Minneapolis in 2008-09 is that many of those transactions were bank-to-individual sales.

So the crux of the matter seems to be what is and is not legally considered a "forced sale."  What does our state statute say about that?  I've posed the question on the Issues Forum.  If it's answered there, it will be reposted here since many NXNS readers may not be on that listserv.  If the question of what is and is not a forced sale is NOT answered there or in comments here, I'm sure we can track it down.

Reactions to the suit so far are mixed or somewhat hesitant.  A few NoMi residents I've spoken to seem to take the Justice Oliver Wendell Holmes approach of "I like paying taxes.  With them I purchase civilization."  I'm not so sure I LIKE paying taxes, but I do appreciate their general benefit to society.  On the other hand, we've got folks who look at local government, or government in general, as a grossly unfair, inefficient pig.  This lawsuit will impact ONLY whether city government becomes a fair pig; it may still be gross or inefficient.  If the suit is victorious, there will almost certainly be very serious impacts on what the city can afford.  Perhaps assessors should have thought about that before coming in ridiculously off-target in too many communities.

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