0
0

Banks pay no property tax on foreclosures?


 invite response                
2008 Jun 23, 6:56am   27,411 views  320 comments

by Patrick   ➕follow (55)   💰tip   ignore  

On Jun 23, 2008, at 11:49 AM, A Guy wrote:

Long time reader...and, luckily, a renter here. I would like to bounce an idea off of you. I hear that foreclosed properties don't pay prop taxes. Is that true? If yes, then is there any way you can use your contacts/site to support the idea that municipalities impose regular prop taxes on empty houses. This would:

  • increase holding costs, forcing trustee to sell more quickly, driving home values to normalized pricing levels more quickly
  • help neighborhoods by 're-populating' them more quickly
  • reduce the unfair concept that only owner-occupied houses bear the tax burden
  • ultimately deter speculation
  • reduce likelihood of municipalities facing bankruptcy

Your thoughts would be appreciated.

Phil

Thanks Phil,
I've heard that as well, but it's hard to believe, since it would be so unfair that banks pay no taxes while everyone else has to.

The idea of using property tax to keep things fair (and eliminating income tax and sales tax entirely) is an old one, but not yet tried anywhere. Henry George proposed it more than 100 years ago:

http://en.wikipedia.org/wiki/Georgism

I'll make a post out of this.

Patrick

#housing

Comments 1 - 40 of 320       Last »     Search these comments

1   Paul189   2008 Jun 23, 7:18am  

I don't know about the specific question but I do see that developers get a huge reduction in the order of 90% off and pay only 10% of normal when they knock down and build new in Chicago.

2   Peter P   2008 Jun 23, 7:33am  

Since the right to property is a basic human right in my book, I am philosophically against property tax.

Instead residents should pay fees for services like firefighting, police, etc.

3   Chuck Ponzi   2008 Jun 23, 8:39am  

Categorically false in California.

Everyone pays property taxes, some more than others.

It's all part of the escrow process. Banks don't normally hold houses long enough to get the property tax bills coming.

4   Peter P   2008 Jun 23, 9:26am  

Insurance is required of all drivers. Do we pay taxes to insurance companies?

5   Peter P   2008 Jun 23, 10:04am  

I am not exactly a Libertarian. I am a Free Market Conservative.

6   northernvirginiarenter   2008 Jun 23, 10:05am  

This is silly topic, the legal owner of the house is responsible for the same property taxes as if a resident owner in all states of which I am aware.

In many cases, governments are having difficulty collecting property taxes on foreclosed homes due to issues associated with foreclosure process. Determining the actual owner is in many cases difficult, with notes be sold and resold down the line. Likewise, ambiguity on actual change in ownership date in cases of walkaways ect., as all parties associated endeavor to stick each other with the taxman to the extent possible.

7   DennisN   2008 Jun 23, 10:48am  

Insurance is required of all drivers. Do we pay taxes to insurance companies?

There are many services paid for via non-taxes. Here in Idaho you pay an annual fee to your local irrigation district for irrigation water (about $20 for an average household for UNLIMITED irrigation water). It's not a tax although the irrigation district can slap a lien on your house for non-payment. Only really stupid people would quibble at such a bargain but then it takes all kinds I suppose.

Are bridge tolls a tax or a fee? :?

8   Peter P   2008 Jun 23, 11:09am  

Are bridge tolls a tax or a fee?

A fee. It is obvious.

I smell like a libertarian because I embrace individual freedom as a conservative.

9   Peter P   2008 Jun 23, 11:15am  

I would even propose privatizing the sidewalks. Perhaps this will solve the homeless problem as a side benefit.

10   Peter P   2008 Jun 23, 1:12pm  

but how will people be able to shop at my free enterprise?

How do people drive to your free enterprise anyway? Don't they need to pay for gas?

11   Peter P   2008 Jun 23, 1:13pm  

Bap, how many of them are even licensed?

12   Zephyr   2008 Jun 23, 2:43pm  

I have never heard of vacant properties paying a lower tax. Generally owner occupied properties do get a small tax break -- so non-occupied properties are paying a higher tax rate.

So Phil's proposal to charge vacant properties the same tax rate would be a tax reduction in most cases.

13   Zephyr   2008 Jun 23, 2:55pm  

If we are going to let owners of vacant property pay the same (lower) tax rate that owner occupants pay, then I want that same tax rate for my rental properties.

14   surfer-x   2008 Jun 23, 4:11pm  

Chavez had hoped to help pay the bill by getting a high-paying job. But the economic downturn sabotaged her plan, and she finally took a job as an assistant manager at a Domino's Pizza.

suck it fucking long, suck it fucking hard my friend.

Yeah, I "hoped" to pay the bills by getting a higher paying job also. But then again, as the Catholics say, hope is not a method.

15   Lost Cause   2008 Jun 23, 5:10pm  

FU PP.

16   Duke   2008 Jun 23, 10:03pm  

In CA, and I suspect everywhere else as well, taxes stick to the property. So, even if municipalities are having a tough time collecting frm banks or bond-holders, the taxes form a lien. When the home is sold, backtaxes simply must be paid. Period.
Now, whomever buys the house may propose a work-out with the city/county. For example, if a house was empty for 3 years while the banks tried to figure out how to foreclose on behalf of a tranch, then a buyer stepped in and bought for well under appraised value; they could argue thus:
1. Home apprised at $600k for 3 years. Home unoccupied, taxes unpaid.
2. Home sells for $250k.
3. New owner states home was always only worth $250k. Tax assessment board hears the case, agree, and charges new owner that amount.
(Note that the seller, the bank, makes certain the tax bill is pushed to the new owner).

Note that counties cannot push the sale of a home, they can only lien the home. This can leave them cash poor for potentially a very long time. An interesting new law would be to allow for forced sale of non-owner occupied homes.

17   DennisN   2008 Jun 24, 12:11am  

Zephyr,

In CA that owner-occupied break is a joke. It's a $7,000 exemption taken off the assessed value, so that's maybe 1% of a typical Bay Aryan house. I'm guessing it was put in place in the 1950s and never indexed for inflation.

18   DennisN   2008 Jun 24, 12:35am  

In many cases, governments are having difficulty collecting property taxes on foreclosed homes due to issues associated with foreclosure process. Determining the actual owner is in many cases difficult

I think NOVArenter got it right. Property taxes may not be paid on foreclosed properties, but they are not exempt from such taxes. It's getting the right warm body with a checkbook that's difficult.

A more interesting topic would be "who actually is the owner of a foreclosed property?"

What we loosely call a "mortgage" is actually two parts. (1) A security instrument called a "mortgage" or (in CA especially) a "trust deed" (2) A "note", aka an IOU. While FBs may send checks to BofA or WAMU, they merely service the note and aren't the real owners. I'm guessing that people who own shares of an MBS have an "undivided property interest" in any given foreclosed property. How in heck would an assessor send a bill to hundreds of owners of these MBS shares? :?

19   Richmond   2008 Jun 24, 12:58am  

Duke,

Are you sure that the counties cannot force a sale? I know that some counties have tax lien sales. Is that the selling of the lien or the property with the lien?

20   MST   2008 Jun 24, 1:07am  

Patrick:

When you are making your Georgism post, please takes this into consideration: Currently the US Budget is $2.6 Trillion (Give or take another runaway Congress/President). The land area of the United States is 9.2 Million Square Kilometers, or about 2.3 billion acres. Realize that the Feds, the States, Native Americans or some other non-taxable official entity owns about half of that (remember Alaska is mostly Federally owned, and nearly half the West is as well) and you come up with figures along the line of yearly taxes of about $2,300 an acre, which is, for most of the land in the US, around twice what it is worth. "What it is worth" is, for ag land, something like ten times net annual revenue.

Ever hear of "Farming"? Georgism just put American Agriculture out of business. Or else that loaf of bread is gonna cost $10.

Oh, and Manhattan ($$$$$$/Sq Ft of economic activity) should be taxed at the same rate as Nevada dry rangeland (1 cow per 80 acres, maybe)?

I look forward to your essay.

21   Richmond   2008 Jun 24, 1:21am  

California doesn't have ag land anymore. We have "Urban Reserve" upon which we grow stuff. :)

22   Richmond   2008 Jun 24, 1:47am  

But at least in California, we do have the Williamson Act. If you are truely ag, it does provide some relief.

23   Patrick   2008 Jun 24, 1:51am  

Hi MST,
nowhere does Georgism say that all land should be taxed at the same rate. It definitely should not be. Farmers should pay much less than Manhattanites.

As for setting the "right" rate, one proposal is simply to let people pay what they want and make that payment a legally binding offer to sell for 50X that amount. So the tax rate would be 2%. But then of course people would be upset that richer people could buy their land.

If you want to own the property for a long time, you could perhaps try to pay the tax in advance.

Maybe you have a better suggestion for how to set the land-tax rate?

24   MST   2008 Jun 24, 2:28am  

Richmond:

Yeah, I didn't even mention State and Local taxes being "Georged" Converting that extra burden to a "flat" land tax would push a much higher local burden onto ag than it carries now in property taxes. Just multiply my above statement by another factor of two or so.

What folks don't realize because most of their time is spent inside "Urban" areas (I'm in Backbay Boston), is that only 3% of the US land area is urbanized. This figure is based on the US Census defiition of "urban" as incorporated entities having a population of more than 2,500 people, so it is not talking about Manhattan and L.A. vs. the rest of us; it amazingly captures the majority of people's residences in the US. Most of the rest of that area is either exempt, or ag or fallow. Under a "pure" Georgist tax burden, that fallow and ag land would very quickly revert to Government ownership because nobody could afford to pay the taxes, and therefore nobody would buy the land after the government repoed it for non-payment of taxes. You can work out the consequences to the "fair" land tax for the remaining private land ownership.

I don't think even the Sandinistas planned that radical of a land-redistribution scheme.

Don't get me wrong, I think Georgists have some great arguments, and if the country had been Georgist in the beginning, we would probably be better off, all other things being equal. Which is a huge assumption.

But we live in this world, not Oz: to be workable (meaning we don't starve), Government could only raise an amount of revenue from that ag land that gives the owner a reasonable chance of making a profit, therefore, a strict Georgist plan would require at least a 90% cut of overall government tax burden, eliminating entitlements, reverting to a pre-Civil War Government size, and implicitly meaning a complete retirement of the National Debt, and therefore a complete reconstitution of money. All of which tells you where the real problems are.

I may be all for all the above, but it's not going to happen in this reality.

Flat Tax, baby!

25   justme   2008 Jun 24, 2:31am  

TOB,

Yes, I think we can rename taxes as "citizenship fees". That ought to do the trick.

26   Duke   2008 Jun 24, 2:38am  

I think there are some cricumstances where they can have a tax lien sale. For example, the IRS comes after you, wins, and starts tacking stuff.

Or in porbate, I think? A person passes away, they have no will, their property has back taxes. Then I think the county can sell the assett to cover their taxes.

But force you out of your home as a tax lien? Or sell a home owned by a bank (or a tranch) to collect taxes? I am 99.99% positive they cannot do that.

27   MST   2008 Jun 24, 2:45am  

Ah, Patrick. Missed that last post before I punched the button.

OK, so how does one determine what rate the land would be taxed at? There might be different formulas, but it would strike me that all must have something to do with the economic productivity that land is supporting, which as I see it, logically rolls right back into a property tax regime. That's how local taxes on ag land work, at least the ones with which I'm familiar. That's what a housing PT is, being based on "market" value of the house. And much the same with Business PT, based on the market value of the street frontage, or the value of the equipment, which has a correlation with how economically profitable that equipment can be.

Georgism taxes at "unimproved" rates, but doesn't that simply shift designation of where the tax is assessed? The value of Manhattan "unimproved" land is directly tied to the economic activity that can flow from the improvements that can be put upon it, ne pas? i.e., it has no economic value unless the improvements are put on it, or someone anticipates putting them on it, yes? Same thing with ag land, as that cow on the Neveada range land leads to tax rates of maybe $10 an acre a year, if that, which again is property tax, not a land tax.

Of course, Manhattan "raw land" is not unimproved in the first place, as the vast supporting infrastructure is already there, ostensibly already paid for.

Sorry, I'm obviously not an economist, so some of the subtleties escape me.

28   Peter P   2008 Jun 24, 3:12am  

Yes, I think we can rename taxes as “citizenship fees”. That ought to do the trick.

Sure, let's have a per-head fee. This is way more extreme and "regressive against the poor" than the flat-tax I support.

29   Peter P   2008 Jun 24, 3:19am  

Fees are charged according to needs. Taxes are charged according to abilities.

It is easy to see why Marx would want highly progressive taxes instead of fees.

30   EBGuy   2008 Jun 24, 4:11am  

It's only a flesh wound... the April Case/Shiller numbers (PDF) are out. Miami is burnining, Cleveland is turning, and the SF Bay Area continues to slide downward.

31   FuzzyMath   2008 Jun 24, 4:48am  

TOB,

I'm sure the government would be happy to accept extra taxes from you slotted for over-regulation. You should contact them to work out an arrangement.

32   FuzzyMath   2008 Jun 24, 4:54am  

what is wrong with having all roads as toll roads? You're paying more now for roads in your taxes than you would paying for toll roads.

Also, what is wrong with paying a subscription to police and firemen? Those who choose not to have coverage can decline the offer.

I can't really see a problem with that scenario. Again, TOB, if you feel that this causes injustice on the poor who cannot afford some of these things, then you are more than welcome to pony up their fees for them.

33   FuzzyMath   2008 Jun 24, 5:18am  

Is your point on where to draw the line of voluntary versus required payments? If so, then military protection is a good place to start.

As for basic individual human rights, such as ownership of property, libertarians happen to regard those in the highest manner.

34   Peter P   2008 Jun 24, 5:19am  

why not have

Good ideas!

We need to have platinum and diamond levels too! :)

35   Peter P   2008 Jun 24, 5:23am  

Re: subscription-based military

How about this...

All future wars will be fought on computer war games. The losing side is to execute a number of its citizens. The probability of being selected for liquidation will be according to your subscription level. The more you pay, the less likely you will be picked.

The integrity of the whole system can be backed by MAD.

Is this just Star Trek (A Taste of Armageddon) with a twist? :)

36   FuzzyMath   2008 Jun 24, 5:24am  

I personally vouch to pay for TOB's Bronze level subscription.

37   FuzzyMath   2008 Jun 24, 5:27am  

"really? is a judicial system a subscription service too????"

of course not. You need to pay someone with all that human right subscription money coming in.

38   FuzzyMath   2008 Jun 24, 5:30am  

TOB, out of curiousity, what are your feelings on health care?

Is that a basic human right? Should the government be paying for it?

39   Peter P   2008 Jun 24, 5:35am  

Abolish all socialized health care in this country and costs will come down in no time.

40   Peter P   2008 Jun 24, 5:38am  

Gimme me the country club membership, which I don't already have, and we will talk again.

Comments 1 - 40 of 320       Last »     Search these comments

Please register to comment:

api   best comments   contact   latest images   memes   one year ago   random   suggestions