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Ohio Land Title Association (OLTA) "Title Topics Briefs"
February 27, 2017
Are you or your customers paying too much in real property taxes? Has the property’s true value been depressed since the downturn in the housing market? Are foreclosure/REO properties in the surrounding location a factor? Have rental properties remained stale and vacancies high? Have property improvements been delayed?
Most property owners have likely not reviewed their tax bill because the tax payment is bundled with their mortgage payment. Individuals who have recently purchased real property should go to their county auditor’s website to review their tax bill (market value column) in comparison to the purchase price. If there is a discrepancy in market value to purchase price, property owners have until March 31, 2017 in which to file a tax valuation complaint. The results could lead to a sizable cost savings.
If you purchased a condominium for $120,000 in 2015, the county will continue to assess tax on the current market value. Let’s say the current market value is listed at $172,500. Filing a complaint against the valuation of the real property would achieve a tax reduction of approximately $1,170 per annum (the actual tax savings depends on the effective tax rate in the community where the property is located, and is also impacted by other reductions). Rates are expressed in dollars and cents on each one thousand dollars of tax value. In this example, the owner was receiving the homestead reduction and other reductions1.
Property owners interested in filing an immediate tax valuation complaint should seek the assistance of a real estate attorney. The procedure and evidence which establishes a lower value must be considered at the outset, and the owner/complainant carries the burden of proof. An example of competent and probative evidence in today’s housing market may be a recent sale (within three (3) years) supported by the purchase agreement, closing statement and Real Property Conveyance Fee Statement of Value and Receipt (Form DTE 100). Note that R.C. 5713.03, as of September 10, 2012, provides that a county auditor may consider the recent sale price.
Evidence to support the valuation complaint should be submitted to the county board of revision according to local rules. Evidence can also include the appraisal report if the property was appraised by a professional, certified appraiser within at least six (6) months of the lien date or January 1, 2016. If an appraisal report is not available, property owners may submit current leases and rent roll and/or a broker opinion with comparables to support their claim.
The board of revision may oppose the complaint by filing an answer. Complainants should be aware that there are rules governing the complaint process as well as a hearing where proper evidence and testimony must be given. This is another good reason to have a real estate attorney involved. Further, the board of revision may or may not agree with the supporting evidence. If it does agree and the property value is decreased, property owners will need to contact and inform their mortgage lender/servicer (which may result in a lower monthly escrow payment). If the board of revision does not agree, the complainant has the right to appeal the decision. There is strict timing on appeal and the R.C. should be carefully considered. Appeals can be made to either the Board of Tax Appeals or the Common Pleas Court of the county in which the property is located.
Ohio Real Property Taxes - commonly referred to as "real property taxes" - are collected by the County Treasurer twice a year, and based on the assessment of value made by the County Fiscal Officer. Real property tax collections take place in December/ January (called the "first half" collection) and June/July (called the "second half" collection). The exact dates change from year to year - the due date is noted on your tax bill. In accordance with state law, real property taxes are billed at the end of the year in which they are assessed. Thus the taxes billed in December 2016 (and due in January 2017) are the taxes assessed for the first half of 2016. Although property owners are normally billed for real property taxes twice a year, they do have the option to pay once per year or in convenient monthly installments, and have payments automatically withdrawn from their checking or savings account.
If the true value alleged in the valuation complaint is based on a recent sale, the sale must be considered an arms-length transaction. There are generally three characteristics to an arms-length transaction: (1) the sale is voluntary; that is, without compulsion or duress; (2) the sale generally takes place in an open market; and (3) the parties to the transaction act in their own self-interest. (A good analysis of what qualifies for an arms-length transaction was employed by the 10th District Court of Appeals in Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, 2016-Ohio-4554 (10th Dist., Franklin Cty.) (June 23, 2016).)
The motivations of the parties to a foreclosure sale do not qualify as the typical motivations of persons in the market place, in particular the seller who generally wants to liquidate as soon as possible. In Cincinnati School District Bd. of Edn. v. Hamilton Cty. Bd. of Revision, 127 Ohio St. 3d 63, 2010-Ohio-4907 (Oh. Sup. Ct.) (October 12, 2010), the Ohio Supreme Court determined that R.C. 5713.04 prohibits the use of the foreclosure auction price as fair-market value and cannot be used as the basis of true value. (The essence of the opinion was that the sale falls under the rubric of “forced sale” as it relates to the voluntary nature of the transaction.)
The Ohio Supreme Court further examined an “absolute auction” in which the seller was required to sell to the highest bidder without a reserve price. The Court determined that although it was a recent sale, which generally would be presumptive evidence of true value, it was not an arms-length transaction. The parties to the sale were not typically motivated and the presumption of value established by the sale was rebutted. Brecksville-Broadview Hts. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 146 Ohio St. 3d, 2016-Ohio-3166 (Oh. Sup. Ct.) (November 9, 2016).
In August 2016, Cuyahoga County revised its Real Property Conveyance Fee Statement of Value and Receipt (Form DTE 100). Unless a transfer is exempt under R.C. 319.54, this form must be completed by both the seller and the buyer, and filed with the county auditor at the time which a parcel of real property is transferred. The standard is the “best of their knowledge.” Although most of the questions would best be answered by the seller, there are questions directed to the buyer, such as “Does the Buyer hold title to any adjoining property?” The first page of the form requires the signature of the seller; however, either of the seller or the buyer must sign the second page.
What is the purpose of this new questionnaire? I see it as two-fold. First, the questions are directly related to determining if the transaction was an “arms-length, market-based sale.” The form uses this exacting language. I would expect going forward that the Board of Revision will be equipped with a copy of this questionnaire, certified by the parties, at the Board of Revision hearings. A second reason may be that the mandate to report R.C. 5713.17 which many property owners are not aware. To enable the county auditor to determine property value, any building constructed or improvement made upon any lot or land costing more than $2,000 requires the owner to notify the county auditor. Such notification must be made in writing and contain a description of the property and estimate of the cost, and served upon the county auditor not later than sixty (60) days after construction or the improvement has commenced. If notification is not given to the county auditor, owners may be penalized up to fifty percent (50%) of the amount of taxes that would have been charged against the improvement.
1Although not the subject of this article, if you are 65 years or older by December 31 of the year for which the exemption is sought or determined to have been permanently and totally disabled and own and occupy your home as your principal place of residence on January 1 of the year in which you file the complaint, or a surviving spouse at least 59 years of age on date of death, Form DTE105A should be filed with the county auditor in which the property is located.