Thursday, November 25, 2010

Taking a Peek at Assessment Statutes

Post by the Hawthorne Hawkman, image from the Miscellany 101 blog.

As the Minneapolis property tax lawsuit moves forward, people have wondered what our state statute has to say about assessed values.  The question has been raised here and on the Minneapolis Issues Forum, although no definitive answer has been given.  Well, here is what our state law has to say:

Minnesota Statute 273.11 (sub 1) begins:  "Except as provided in this section or section 273.17, subdivision 1, all property shall be valued at its market value."

Okay, so what is "market value?"

"Subd. 8.  Market value.  'Market value' means the usual selling price at the place where the property to which the term is applied shall be at the time of assessment; being the price which could be obtained at a private sale or an auction sale, if it is determined by the assessor that the price from the auction sale represents an arm's-length transaction.  The price obtained at a forced sale shall not be considered."  (emphasis mine)

What isn't yet clear from statute or other cases, is what exactly constitutes a "forced sale."  I would contend that a forced sale is a sheriff's sale or other court- or lender-ordered sale in which the entity selling may not have sold at the time, price, or other terms unless compelled to do so.  Post-foreclosure, a bank may be highly motivated to sell, just as an owner who has to relocate due to a new job might be, but the transaction is an arm's-length transaction at that time, and I do not see it as "forced."

We'll see if either the assessment policy, state law, or any ruling from this lawsuit interprets "forced sales" in the same way.  If so, it would seem that the lawsuit has merit.  And if it does, then it could seriously change the financial landscape for Minneapolis.  Even for someone who just wants to see fairness applied in tax policies, that's a daunting proposition.  That's because the map in a previous post encompasses 7,767 single-family parcels, and the total amount of over-assessed values is...
...10.1 million dollars per year.  The city of Minneapolis has approximately 75,000 single-family parcels, meaning that we could be looking at roughly $100 million in over-assessed values per year citywide.  That's just single-family units, mind you.  If assessments are indeed found to be inaccurate in the affected areas, we might need to take a look at multifamily, commercial, and industrial parcels as well.

Let's take those numbers down to a more local level.  In the Near North community, there were 766 valid sales in 2008.  Eighty-two of them are paying 110% or less of the market value as their assessed value - or what the lawsuit contends is the legal range.  The other 684 are paying more, and the average for this sample is over 300%.  The cumulative difference between assessed value and market value for this set of sales is nearly $40 million.  Based on what we pay in property taxes from the assessed value, these Near North purchasers paid about $609,000 more than their share for that tax year.  That comes out to $890 on average for each of those 684 owners.

And that's just for one year and one part of the city.  Now we start to get a sense of how much of an impact this could have for Minneapolis.


  1. Great post!

    In light of the current lawsuits faced by the City, an explanation and interpretation is due to the public. What is more important - Fairness or Financial benefit?

    I might contend that the authors of this legislation never envisioned the magnitude of economic woes currently facing property owners. The intent of the last line seemed to be included to weed out contentious irregularities in the policy rather than exclude a wide swath of sampling data.

    When foreclosures and sheriffs sales enter the norm in a particular geographic area (such as ours) the interpretation of this statute should certainly be questioned.

    If the interpretation by the County Attorney supports the exclusion of foreclosed property in the assessment of property tax; It will be up to the City Council to modify the statute to better reflect current market conditions that are more fair. It will be interesting to see if they have the fortitude to make that call in light of budgetary shortfalls.

  2. I'd be interested to know what, precisely, the folks who filed the lawsuit are saying about this issue of "forced sale" in the statutory wording.

  3. The people who filed the lawsuit or those who are parties to the lawsuit most likely should not comment either publicly or anonymously on this or other blogs about that topic while the lawsuit is ongoing. However, one could assume that the belief of those parties is that a sale from a bank to another investoer is not a forced sale. I would personally make that assumption from the standpoint that if bank sales post-foreclosure were considered forced sales, the case may not have merit.

  4. Wouldn't this information be in the lawsuit documents? Like, the ones that HH linked in a previous blog post?

  5. I didn't see the specific statutes referenced in the lawsuit documents, or at least in the same way as they were here. And the detailed information about the financial aspect was separate, and based on the image that's been circulating around regarding property assessment disparities. And anyway, anon 11:46, what's your point?


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