Posts Tagged ‘taxes’

Banks are in a hurry to sell off repossessed houses that are nothing but white elephants. In the process the buyer might be lucky to pick up a bargain at 30% to 40% less than the price of few years ago. But that gain is cancelled when the tax is calculated not at the rate of purchase but by its current market value.

Greg Smith is the assessor and conducts valuation with the help of his staff. He is on the alert when family members sell to each other. The market value determines the assessment and not the good will of selling easy to a favourite brother. In terms of hard cash a buyer who has paid $350,000 for a bank owned condo would have to pay taxes for the unit being valued at $450,000. So at the end of the story it does not turn out to be much of a bargain!

The assessors are a strict lot – determined to scrutinize the market and not emotions. But of late there is hardly any work. With foreclosures on the march there are more and more foreclosures and fewer buyers. So who will assess what? The workload of assessment offices has gone down by 10%.
On the other hand innumerable house owners have applied for reduction of property taxes because real estate value is falling. The result is that municipalities and state government collections boxes are sounding empty. There are no sales and values are falling in a superheated real estate market. The owners of houses are pressing the tax agencies to lower house taxes to allow them elbowroom. A house purchased for $700,000 a year ago is now worth $60,000. This means that in a year $1,000 should be saved in taxes. In many cases the loaned amount is more than the worth of the house. This is causing many investors to just walk away from the proverbial bad loan.

About 13,500 house owners in the county appealed between July and November for a review of property tax. Last year there had been 3,300 requests filed during the entire twelve months ranging from July 2006 to July 2007. These fresh appeals are exclusive of 11,500 units whose taxes have already been lowered. The question that pops up is that banks repossessed houses are going for a song but does it or does it not determine the parameter of valuation?

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It is a three-pronged attack that will pin down house owners as foreclosures march relentlessly on. Taxes will rise, value of houses will fall together in shrinkage in services. These three curses will hibernate but sprout in spring. It is inevitable – the seeds having been sown by foreclosures.

To take few examples – Oakland County will see three consecutive years of decline in property tax amounting to $27.5 million; in Wayne County the fiscal year that ended on 30th September the value of property declined in all the 43 municipalities. Thus more and more communities are apprehending reduced collection of property tax during 2008 because of foreclosures. Michigan State will be lighter by $27.5 million in taxes in the forthcoming year. This reduction will tell upon less of funds for public schools, parks, jails and community colleges.

Oakland community personnel are gearing up to face a barrage of questions from house owners contesting tax assessments and demanding more community services. The only way the government can provide services is to raise taxes somehow. But there will be angry reactions to imposition of increased house taxes. Why should the common man pay more when the real estate price has gone down?

Those who have recently bought houses will not be affected. House owners who are residing for quite a number of years and have taken advantage of the state law that gave protection from rise even during the housing boom are not going to be spared now. The same law will now fix their taxes at par with the actual market value – means a rise from what it was before. Oakland will see tax collection shrink to 0.4% after many years of growth. The State government is fumbling to manage with state aid and skyrocketing health coverage costs for employees. The outcome is that 1,600 police personnel, more than 2,000 in the fire services have lost their jobs since the turn of this century. In each community there are more plans about layoffs.

Some city officials have already started to reschedule their finances. Decision will have to be taken about what to snip off. A revenue loss might be equivalent to funds required to keep streetlights on! In Warren, Detroit’s second largest city, two thirds of the budget rolls in from property taxes. It will be difficult to prune and trim a deficit of 1.5%.

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It is hard logical reality that in some way or the other foreclosures are affecting all of us. For instance let us first take the case of the elderly lady Jones who suddenly finds that she has to lose the house she has lived in for many years because of failure to meet enhanced mortgage dues for quite some months. Despite tears on her part and efforts on the part of rescue teams nothing could be done. She was evicted.

But where did she or many other Jones like her go? Nine times out of ten the only alternative is a public house or a federally subsidized rental unit. It is the ordinary citizen who pays for the subsidy and the upkeep of these shelters. It comes from the taxes – from the pockets of Tom, Dick, Mary and Jane.

Jones could leave nothing behind for her heirs despite years of hard work. Her heirs being her kith and kin are also low-income folks who further fall into the quagmire of poverty. This intensifies the polarization of wealth and divides society dangerously.

The sub-prime market with sharp rises in rates is the prime accused for this situation. It is not just the mortgage industry but the entire financial zone has become sore and infected. It is a scene out of a horror movie. There is no ready quick surgical solution for the gangrene that has set in. It does not mean however that one should sit back. Immediately clear and effective legal steps must be taken to stop once and for all such infamous mortgage deals. But it should not victimize the mortgage industry as a whole and throw away the baby with the bathtub in its zeal. Well thought out legal and official action is the call of the hour.

The next step is making the public financially literate so as to prevent them ahead from taking false steps. Here three questions arise. Who will advice? Is it compulsory? Who will pay for it?

Whatever the answer, the ball that has been set rolling regarding internal policing within the mortgage world and interacting with the borrowers must not be allowed to stop but rather it should be kicked to pick up more speed. Other venues of approach and suggestions should be tapped. The welfare of Jones and our interests are identical.

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Mortgage disclosures keep many clauses carefully confused. This is the opinion of Federal Trade commission’s Bureau of Economics. With changes here and there borrowers could get a much better deal.

A serious study was made of 800 mortgages covering 12 areas across the country. Half were given current mortgage disclosure forms and half given other forms, which were easier to understand. Participants were queried on two hypothetical fixed rate mortgage loans regarding costs, terms and comparison. Approximately a 5^th of those who took the first set of forms could not pinpoint the annual percentage rate of the loan. This being the cornerstone of the issue how was it possible for them to compare? Another 5^th could not calculate the exact amount of cash due at the time of closing or even the monthly instalments. Questions about escrowing for taxes and insurances remained unanswered. About a quarter couldn’t be definite about the settlement amount charges and a third was confused about interest rates. A third of the participants remained ignorant that the loan was inclusive of a huge inflated payment or that the loaned amount also carried with it settlement charges. As many as half failed to spot the loan amount itself in the current forms. In the other set of forms mortgage costs were clearly outlined while less important or confusing trivialities were left out. The language was easy and borrowers were able to distinguish clearly the various segments in costing.
The results were electrifying and hopeful of a fresh start. It was an eye-opener into the endemic confusion reigning in both the prime and sub-prime borrowers. Only 61% could give a correct answer to those questions related to the current form. But 80% were successful in those connected with the prototype forms. In every way the second lot looked pointed to a hopeful future in the world of loans.

This survey apart, 36 interviews were taken of customers who had recently undertaken mortgages. Most of them were not clear about costs and terms. The scenario is not surprising considering the fact that forms in circulation had been introduced as far back as 30 ago! No wonder even simple loans are not understandable! These forms do not take into account the modern complexities of mortgages. Better forms might not totally solve the problem of frauds but it will go a long way to forewarn the borrowers about the pitfalls.

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The housing market is stuck in the mud. Numerous condos are crowding the stalls Prices are tumbling. Buyers are ready to strike the fallen and grab big bites.

Florida Legislature plans to consider lowering taxes on property in its next session, starting next week. The vultures are afraid that this might put a stop to clinching low cost deals. Who are these vultures? They are individuals as well as giant investor groups prowling around the regions for the right kill.

At the peak of the housing boom stretching from 2001 to 2005 everyone crowded into the real estate jamboree hoping for plump profits. But another class among them waited and watched from the sidelines knowing that the market would not be able to keep its toehold on such lofty peaks. Their plan was to chip in when the fall would start then ride up the hill at the next bend of the curve. The time factor was of most importance to these speculators. Some say that the market has not struck rock bottom as yet.

The coming session of the Legislature is causing hiccups. Some want to strike while the iron is hot while others are confident that the law would not be able to give much relief to the borrowers. If legislation takes place the sick market will be given a dose of medicine. But they do not want that – they want the patient to bleed a little more.

Not all are confident that the medicine will work. Compared to last year, 26,000 more homes have been listed for sale in two counties of Broward and Miami-Dade. Over the next one and a half year new condo units are expected to join the ranks in one county alone. Then there is the underhand game of unsold inventory as some units are put back into the market as resale. Insurance rates however are the same.

The big bully groups of vultures are not worried about the tax matter as by going in for bulk buying they can spread out costs across their many portfolios.

The market is too sick to respond to single dose of tax reduction alone. A big cut in property taxes might kick off a buying spree but effectively the bottom would be a false one. The prediction is that by 2010 the market will be standing up again – hale and hearty.

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