Property Valuation is Being Distorted by Foreclosures as Well as Fraud

May 4th, 2009 | Tags: Foreclosures

August is the time for getting property tax notices. This time the bite will hurt because property valuation is being distorted by foreclosures as well as fraud. At the root of the problem is dubitable appraisals done during the time of the housing boom.

In South Florida Stephen Czuchta was stunned to learn that the value of his condo has spiked by 20% from what it was a year ago – at least that is the reading of the tax notice. In 2008 the tax notice valued the unit at $447,310 from the previous reading of $372,760. It seems same pattern of increase is going to be followed again defying all logic. Czuchta faces a particular problem. His unit being an investment property is not protected under Save Our Homes scheme and therefore the tax will increase.

The real estate market in South Florida is in chaos. The appraisers and the review boards are struggling hard to make a fair reading. It is proving to be a difficult task. A string of foreclosures and short sales combined with a good dose of mortgage fraud are making the waters murkier making clear vision impossible. All these factors are twisting reality and making it difficult to pen down the actual value of the unit – and those surrounding it.

Britt Rosen of Rosen Tax Appeal said, “There is a lot of confusion over foreclosures and short sales. And fraudulent sales are a real problem.”

The valuation of property is based on the sale price of other similar units – often in the same complex as in the case of condos. But the appraiser tends to overlook distressed sales where the sale price has been artificially lowered. The valuers have failed to sniff out fraud wherein the property is sold at an increased price and then it slips into foreclosure. In these instances the sale price has been artificially increased.

The building in which Czuchta resides was formerly a rental unit. Later in 2005 it was converted to be a condo. There are innumerable instances of mortgage fraud. This is strongly suspected by the condo association and many of the residents. Czuchta loudly protests, “\’\'It\’s absolutely ludicrous. Nobody in their right mind would have paid those prices for those units at the end of 2007.”

The condo association took the matter to the FBI. Others went to the office of the property appraiser but to no avail – they were “flatly turned down.” Czuchta bid to reduce the value with the Value Adjustment Board was also denied.