It has been relatively well-known that many municipalities do not consider the sale prices on foreclosures when calculating property values, for the purpose of taxation. The position of assessors in often that these transactions are “distress sales”, and do not represent the true nature of an arms-length exchange.
Recently, foreclosures have come to represent a much larger share of the volume of recorded transactions. In some cases, “foreclosure” properties sustain more than half of all sales in a municipality. When this happens, are they still “outlier” numbers, which should be discarded? It is easy to agree that a run-down, damaged property sold at a courthouse-steps auction may not bring a price representative of the true market.
However, the common practice is now that a property is taken back by a lender, reviewed by a property manager, cleaned and repaired, and then marketed through the traditional Realtor/MLS system. Not only are most foreclosure properties marketed professionally, they can come with perks that even “normal” listings don’t have. Freddie Mac offers a 2 year home warranty on the homes it offers for sale, as part of its SmartBuy Sales Promotion. People purchasing single family homes as a primary residence will receive a comprehensive two-year home warranty paid for by Freddie Mac as part of HomeSteps’ SmartBuy sales promotion. In addition, Freddie Mac will pay up to 3.5 percent of the sales price in buyer’s closing costs, potentially saving qualified buyers of HomeSteps homes thousands of dollars in transaction costs. I’d like to hear opinions as to whether you think a property sold in this scenario should still be rejected as a market indicator for taxes.
I also just became aware of a procedure in some counties where the sale of a foreclosure property is listed in the “online” records using the historical transaction price of the original foreclosed borrower. Consider this scenario:
Joe Spender buys a property in 2005 for $495,000. He defaults on the mortgage, and is foreclosed.
The lender sells the property in 2008 to Sally Saver for $292,000.
When the property is researched using the online records, the sale shows up as Sally Saver, September 2008, $495,000. This would be so misleading to potential buyers in the area and other interested parties that you might not believe it could happen. Believe it. According to this Miami Herald article, the buyer even went to the trouble of contacting the records office for clarification. The article describes the event:
Assuming it was a simple data-entry mistake, she called the county Property Appraiser’s Office. It wasn’t an error, she was told. Because the sale was a foreclosure, and the Property Appraiser’s Office isn’t recognizing foreclosure sales, the new sales price wasn’t listed and the old, previous price and date remained — with her name attached to it.
There are several issues for the title professionals to weigh in on here. First, the approach taken by the assessor. Not to be overlooked is how this affects the accuracy of the online records. I’d like to hear opinions from readers, as well as other examples of this you may have seen in your area.
