Tax appeals soar amid falling home prices

March 15, 2009|By Larry Carson | Larry Carson,

It's a rite of winter: Tax assessment notices hit Maryland mailboxes in December, and thousands of homeowners rush to file appeals within the 45-day window.

Now, however, property appraisers from the state report a new phenomenon: a drove of challenges to assessments recorded a year or more ago.

Two years ago, fewer than 900 "petitions for review" were filed. But with the slump in home values showing no sign of abating, more than 15,000 Maryland homeowners exercised their appeal rights last year.

"It's unique in my experience," said C. John Sullivan, director of the state Department of Assessments and Taxation. "I've never seen anything like that."

A successful appeal eventually could save some residents hundreds of dollars. But most will realize no reduction on their tax bill because of the complicated equation that dictates an individual homeowner's bill, including how long they've owned the home, and the tax rate and assessment cap that varies from jurisdiction to jurisdiction.

For many homeowners, it's less about a windfall and more about the idea of fighting what they see as an economic injustice being imposed by government, experts say.

"Some people will have a desire to combat that even if it doesn't mean their tax burden will change," said Anirban Basu, an economist and CEO of the Sage Policy Group. "It's the combative nature of a republic."

Christopher Bittner and Faith Courville bought their Columbia townhouse nearly three years ago when area housing prices were near their peak. The $409,900 price was in line with the slightly lower value that state assessors attached to their home, an end-unit home with a garage.

But they say they could never sell their house for that much now. So they petitioned to have their assessment knocked down.

"With everything going on right now, over the next three years we'll be higher than the current value," Bittner said.

The system is complex. The state assesses one-third of the homes in Maryland each year and the value sticks for three years. To guard against drastic tax bill increases triggered by market spikes, a higher assessment is phased in over the three years.

Then another protection against price swings - the Homestead Tax Credit program or assessment cap - comes into play, limiting how much of a home's increased value can be taxed each year. In Howard, for example, only 5 percent of the rise can be included in the tax equation. The tax rate formula in the jurisdiction where the homeowner lives is the final factor in the tax bill calculation.

As a result, many homeowners see their property tax bills rise gradually each July, still catching up with substantial price increases before 2007, while current values fall. And yet even with a successful appeal, a homeowner likely won't see tax bill savings because of the effect of the assessment cap.

"One of the most difficult concepts to explain to people is that," Sullivan said.

The petition for review process can take months, and a homeowner could pursue up to three stages of appeal. The petitions are handled by state assessors assigned to each jurisdiction. State officials are still working through the appeals that were submitted in 2008 and said they do not have data on what percentage have been successful so far.

Any effect on the tax bill won't kick in until 2010 for a winning appeal filed in 2008.

Though challenges to assessments from previous years shot up, appeals of assessments mailed at the end of 2008 were down markedly, dropping to 38,296 from 49,353 the year before. State officials attribute the fall to the fact that half the 731,000 notices reflected reductions or no change in values. In the last assessment round, the average increase for the same homes over the three-year period was 56.1 percent. This time the average value dropped 3.4 percent.

Some tax advocates believe the assessment system is too complicated, inequitable at times, and ripe for overhaul.

"The system is broken. It needs fixing," said H. Leroy Whiteley, who heads a new group, Marylanders for Fair Property Taxation. "We're not getting fair and equal assessments."

Many of the people who attended the group's first meeting last month have no idea how the system works, Whiteley said.

"[Tax officials] always talk about how there are so few appeals," said Whiteley, of Harford County. "My belief is people don't understand the system and it's overwhelming for them, and that's why they don't appeal."

Dee Hodges, who chairs the Parkville-based Maryland Taxpayers Association, said the system can lag behind the reality of the market.

"My property taxes shouldn't be any higher than they were last year, because [my house's] market value hasn't gone up," she said.

Whiteley and others are backing efforts by some General Assembly members to create a task force to study the assessment system and reform the appeals process. But Harford state Sen. Barry Glassman, a sponsor of that bill, isn't holding out much hope for the measure.

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