Buy a home in this troubled market and the property tax may shock you

TALLAHASSEE, Fla. – Oct. 9, 2008 – Real estate ads these days include listing after listing of bargain-basement prices. But those who buy a home in a foreclosure or a pre-foreclosure sale should know that future property bills may be no bargain.

Just because someone snags a home at a low price doesn’t mean the tax bill will tumble. Property taxes could be as high as ever.

Foreclosures and short sales – in which lenders take less than what is owed on the mortgage and forgive part or all of the remaining debt to avoid foreclosure – represent a large share of the real estate market in Broward and Palm Beach counties as more owners are unable to keep up with mortgage payments. But that doesn’t matter when local property appraiser offices draw up the tax rolls.

In fact, state regulations bar counties from factoring in foreclosures and other distressed sales in which the seller is forced to accept less money than the market price. Appraisers and some real estate agents worry unsuspecting buyers will expect a tax windfall.

“If you buy a home for $250,000, then you should pay taxes on $250,000,” Fort Lauderdale-based real estate agent Steve Cook said. “That’s what the buyer expects is going to happen. The average person is working so hard to get by, and they don’t understand the legalities of something like this.”

Buyers traditionally can expect their new home will be assessed at roughly 85 percent of the purchase price for property taxes, the difference being closing fees and other transaction expenses. When a home is purchased as a distressed sale, the property is assessed based on regular sales of similar homes in the area.

The tax ramifications of distressed sales were once an arcane corner of the law that interested few homeowners. Not any more.

The most recent data shows Broward County has the third-highest foreclosure rate in the state. There were 7,104 homeowners in some stage of foreclosure in August, up 5 percent from 6,782 a year earlier. Foreclosure filings in Palm Beach County have declined to 1,976 from 2,499 a year ago. Short sales are harder to track. However, a recent study by the Sun Sentinel showed 23 percent of sellers in Broward and 27 percent of sellers in Palm Beach unloaded their homes at a loss during the first half of the year.

The tax difference can add up.

Say someone pays $200,000 for a home. The home likely would be assessed at $170,000 so the property taxes would be about $2,700 after homestead exemptions are deducted.

Then assume this wasn’t a standard transaction, but rather a foreclosure or short sale. Similar homes in the neighborhood are valued at $300,000. That tax bill could top $5,400.

State law is specific that foreclosures can’t be used in setting property values. Short sales aren’t mentioned by name, but property appraisers consider them financially distressed sales and do not use them to set tax values. Assessors across Florida have asked the state Department of Revenue for a clear ruling on how to handle short sales.

Broward County Property Appraiser Lori Parrish has received so many questions that she’s posted a warning about taxes and short sales on her Web site. She said she should be allowed to consider short sales.

“In a down market, I should have discretion,” she said. “When these sales make up half the sales of a neighborhood, how do you not factor it in when they have become the market?”

Palm Beach County officials also do not consider short sales in setting a home’s value. However, the head of residential appraisals in Palm Beach County notes that a short sale can have an indirect effect.

In neighborhoods where there are numerous short sales, all property values can end up being driven down. With homes available at discounted prices in short sales, buyers are not willing to pay as much for other property. The lower prices fetched in standard sales then lowers the taxable value of the neighborhood when the appraiser’s office sets the next tax roll.

“It’s a tricky widget,” said John Thomas, assistant director for residential appraisal services in Palm Beach County. “If the home is in neighborhood that is so soft, the short sales will impact the market.”