Faced with evidence that fraudulent property transactions in sections of East Baltimore were inflating real estate taxes for the average homeowner, the state announced yesterday a reduction in tax assessments for more than 3,700 properties.
The average tax values for those owners will fall more than 23 percent Jan. 1, saving each about $265 in taxes for next year, said Ronald W. Wineholt, director of the state Department of Assessments and Taxation. For the city, the cost will be nearly $1 million in lost revenue for the fiscal year beginning July 1.
"Ouch," responded Mayor Martin O'Malley. "You always wince when you see the city lose that much money. But the fraud that's been perpetrated on a lot of innocent people in this flipping scandal is a bigger problem."
He said his administration would work with the state attorney general's office to combat flipping.
Ken Strong, executive director of the Southeast Community Organization, who has been leading an effort to fight the problem, said, "I'm ecstatic that a correction has been made to a situation where taxpayers are paying more than their fair share due to flipping, mortgage fraud and scams."
The move by Wineholt's agency was its second attempt in a year to make sure that rampant flipping in the area north of Patterson Park did not distort tax values.
Last year, when properties in the area were routinely reassessed -- an event that occurs every three years -- state assessors eliminated more than 300 flipped properties from their calculations on the grounds that the inflated prices did not reflect market value.
Wineholt decided last month to take another look at last year's work in the Patterson Park area in response to articles in The Sun and a report by Andre Weitzman, a Baltimore attorney who represents dozens of buyers of flipped properties.
"It became clear that this was something we had to check out," he said. "We want people to pay their fair share of property taxes and not any more."
In the latest review, said Rick Sause, an official in the state's Baltimore assessments office, another 50 inflated property sales were eliminated. In addition, he said, 100 to 150 low-price sales -- many of them the first transaction in the flip -- that had been eliminated last year were included in the new calculation. They had been dropped last year in the belief that they didn't reflect market value. Those additions reduced the average sales price, thus reducing tax assessments.
The average value of the 3,728 houses was reduced from $46,973 to $35,950.
For owner-occupied homes, the key factor in determining its value for tax purposes is sales prices in the area.
In scores of cases north of Patterson Park, houses were being sold for $80,000 to $85,000 shortly after being purchased for prices in the $15,000 to $20,000 range. The sales were accompanied by inflated appraisals and falsified documents designed to make low-income buyers appear eligible for the loans.
"Flipping created a false impression of high tax revenues," said Weitzman. "With so much focus on the individual victims, people have lost sight of the collateral fallout from this."
Notification that their tax assessments are being reduced will be mailed to the 3,728 property owners Dec. 27, said Wineholt. Notices will go out that same day to 670,000 owners statewide whose properties were reassessed this year.
The latest reassessment included the southern third of Baltimore, where assessors say property flipping has not been as rampant as it has been in other areas.
"We eliminated dozens of sales" in this year's reassessment, said Sause. He said flipping in the southern part of the city is not as widespread because high-value areas such as Canton and Fells Point allow for wide differences in prices when a property is sold twice in a short period of time.
But some areas are suspect, he said, mentioning Brooklyn and Curtis Bay. "There's a good deal of flipping going on down there," he said. "We caught a lot of it."
Wineholt acknowledged that flipping has occurred in other areas that were reassessed last year -- such as West Baltimore. But, he said, those areas are dominated by rental properties. The tax value of rental properties is based on the income they can produce and, he said, is not affected by inflated sales prices.
He said that property owners who are not being reassessed this year can appeal their assessments if they think they are unfair. A written appeal must be mailed to the local assessment office by Jan. 3. The city assessment office is on the 11th floor at 6 St. Paul St. The zip code is 21202.
The news was good for East Baltimore taxpayers but unwelcome -- though not catastrophic -- for the city, which faces a looming deficit of $153 million over four years.
"It's $1 million we won't be able to spend on something," said William R. Brown Jr., the outgoing finance director. It amounts to a little more than a penny on the city's property tax rate of $5.82 for every $100 of assessment.
But, in the overall scheme, he said, its significance was minimal.
Property assessments for 3,728 houses in these areas will be reduced an average of 23.4 percent because state officials concluded that they had been unfairly inflated by property flipping.
(AREAS RECEIVING SPECIAL REASSESSMENT)
Current Adjusted Number of
average value average value accounts adjusted
1. $42, 354 $ 34,475 492
2. $45, 024 $ 36,732 982
3. $45,271 $ 34,879 1,033
4. $46,768 $ 35,991 648
5. $50,018 $ 37,695 573
Average: $46,973 $ 35,950 Total: 3,728
Source: Md. Dept. of Assessment and Taxation
SHIRDELL MCDONALD: SUN STAFF