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Hot New Biz
North of NYC, in Westchester County, some lawyers are working a new
hustle. From what I hear the phones are ringing off the hook.
It’s pretty simple. A significant number of homes that were either built
or reappraised from 2003 on are paying a property tax based on a value
that in many cases no longer exists. There has always been a statutory
process where inequities in values/tax rates can be addressed and
resolved. But values were always rising so there were very few cases.
Until last year.
So here is the deal, and it is pretty compelling. The legal fee is 75%
of the first year savings payable on the day the taxes are officially
lowered. You pay nothing if no relief is granted. Call that a “win
win”.
The process is not a slam-dunk. The proof required to determine that a
property has a current value meaningfully below the tax-appraised rate
has to be compelling. I saw a case recently where a house was on the
market and got sold at $1.1mm. There were contracts signed. Because
there were clear documents showing a willing buyer and seller at $1.1mm
there was no need for appraisals. The tax liability was based on a value
of $1.6mm. The result? A $15,000 reduction in annual taxes. $12k for
the lawyer. Next case.
There is a part to this that just makes me laugh. Most people don't have
the ‘smoking gun’ of contracts to establish value. They have to have
the property professionally appraised. So the same guys who a few short
years ago were over appraising every property they looked at so
the borrowers could over leverage are now finding (and documenting)
every which way to drop the current value as low as possible.
There is always a hustle someplace.
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I am beginning to wonder if we'll get a summer of
discontent. All those out of work teens will listen
to the demagogues and start to torch the excess
inventory. That'll prepare the way for a housing
boom a few years down the pike. Only this time
they'll all be 1000 sq ft cracker boxes, because
thats all they can afford( like after WWII)
What demagogues are encouraging torching?
Not sure I grasp the scam aspect of this. It is pretty typical for lawyers to appeal assessments on a contingency fee basis, for starters. At least in Pennsylvania, the required appraisal can be conducted by any realtor (think, "drive by"), but it does require "comps," or comparative properties at their sale prices. If you have 2 properties down the road that just changed hands for $300,000, and you have the same house assessed at $350,000, bingo, you should get a reduction. And, I'd point out at least in PA, now that I've explained that, you don't even need a lawyer, just a filing form, the fee, an appraisal, three chords and the truth. Well, leave the guitar at home.
Personally, I have seen in SE PA a wave of this sort of thing - I heard of a home in a $1.2 MM neighborhood changed hands at $900K, and the whole neighborhood is lined up to appeal. This is being done all over the place here as sale prices drop like stones. Dumb old me hasn't bothered.
Bruce, between Liz Warren and this post, you sound cranky, and I am ardent fan of your posts and articles!
I am cranky. Yes the ability to drop RE taxes is an old story. What is new here is the pace of it. Where I am, like you everyone is trying to do it.
Now connect the dots. Where does it go? Municipal BK, State BK.
The game of appraisers cheating on their appraisals so that they wouldn't be ostracized and black-balled by crooked mortgage brokers (who would refuse to send them any more appraisal business unless they "cooperated") has been documented extensively....and yes was a contributor to the housing bubble. Absolutely.
Appraisers just have some new dance partners now.
I've appealed my own property assessment successfully twice, both times before the roller coaster ride up and back down. It ain't rocket surgery, ya know. But then again, I'm not in Westchester County, and I don't have people to take care of that stuff for me.
75% is way to high. But I guess they are paying. Only takes about a day to complete the "due diligence" for an appeal. More money in commercial appeals, but not 75% money.
Bruce you find the big ones and the little ones don't you? I bet you are a good fisherman.
Caught a 5 lb large mouth bass in my pond last night. That is a big fish for these parts. Quite a fight at this time of years. Better than sex......
Having your own pond makes me jealous, but 5lbs makes me think you should hit lake Fork some time. :) Huge fan of the drop shot rig. It's the only way to go. Braid with a solid fluoro leader. I've nearly given up on the TX rig and Carolina rig b/c the DS is frigg'n sweet. Try it some time if you haven't. Good times.
Of course, now that the government has stepped in to regulate the appraisers and inspectors, here comes the other side of the centralized control coin.
Whereas a realtor used to find a friendly appraiser and pay him a couple hun fiat dollars to inflate the appraisal, the new system supposedly won't allow that. Instead appraisers are chosen by a central authority who "randomly" selects the next appraiser, just like the police call the next tow service down the line when they impound.
Sounds like they "fixed" that problem, except for the one they created: You try to sell your house, and the next inspector drives two hours to get to your house, and he knows nothing about your community. He turns in a low appraisal because he lives on the right side of the tracks and you on the wrong side, or maybe you're a redneck and he's a Haaaavaad man.
So, the contract you accepted from the buyer is now muddled, because the buyer can't get a loan for the agreed contract price, which is the value he initially put on your property. But now, the appraiser gets in the way, and devalues your hood, the loan won't go through, the contract has to be renegotiated, and the seller who is already probably selling at less than par gets hosed once again.
Does anyone want this loser government making health decisions for them?
Or maybe the buyer gets an honest appraisal, and it's the buyer who doesn't get hosed, and it's the depositors in the bank who makes the loan who don't get hosed by lending above market so that a mortgage broker, RE agent, and cooperating appraiser can line their pockets.
Could go either way.
I'll take random assignment over systematic cheating any day of the week.
Bruce,
EXCELLENT! I really loved reading this one!
And let's not forget the rating agencies.
And let's not forget the rating agencies.
Hey Bruce. Always love your posts. Good stuff.
You want another hustle?
I look at 40-80 mortgages a work day, and I can tell you that nearly every one of them has had year over year over year of increases on their homeowners insurance. I repeat nearly every one, day in day out.
The value of the properties hasn't risen? (Mostly fallen of course.) The cost of reconstruction has fallen? The contents haven't increased in value?
What gives?
Rape of people required to carry insurance, that's what gives. Probably fewer insurees, and a spreading of cost over fewer consumers. What a racket.
I seriously am waiting to see alot of people accidentally leave their gas stoves on with a candle lit in the bathroom as they head out for a movie. Whoops.
How much is the increase in percentage? If you can get reappraised lower could you also lower your insurance rate? Just curious.
Geez, you don't need a lawyer to challenge the appraised value/get the appraised value for the property tax lowered. I can see Westchester folks that own million dollar homes are too busy to attend to such activities--and dealing with the town or county assessors office might be a little below their station in life...
It's not about station. This can backfire. The County hates this process so much that they have actually increased taxes for some poor bastards who made a request for a drop. With this in mind most filks have got the lawers involved. At that point the downsid risk is eliminated. You can't lose. So the lawyers win.
Common where I live. Usually, if you bring the case (1st time) they give you an automatic 10% reduction (if your paperwork is in order)... just to get you off the docket.
This isn't a new hustle. It has been going on at least 40 years as markets cycle.
very common practice in southern california. you see them come out of the woodwork as values drop. been going on for several cycles.
Then there were those house 'stagers' who came in and made your home look better to fetch a higher sales price. They can now return and make your home look like a 'crackhouse' to help on the property taxes... for a fee of course.
My nephew and his friends will trash your house for free.
+777
hustlers are everywhere
If you have to pay property taxes, you don't own the property, the King does.
Smart man, you. Nobody in the US owns real property. It is all owned by a government. You pay rent, yearly, for the privilege of using it.
Try not paying your rent sometime.
I took this very side of the debate with my real property professor in law school, quite heated, during class. Star pupil. I aced the mid-term and final.
Result, C+.
Still bitter.
I'm sure there were some appraisers that were crooked. However the implication in this article is that the appraisers were intentionally raising values for some reason. It is nonsense. All they are ever supposed to do is to render an Opinion of Value at the Time of the Appraisal. And that Opinion is based upon relative prices of sales of comparable properties. Perhaps the author believes that appraisers should use values of houses in Houston, Texas as comparables because those are of a lesser price.
Its called groupthink. Check out the wikipedia on it...
http://en.wikipedia.org/wiki/Groupthink
Yes, there were appraisers that were crooked.
Yes, they were in the pocket of the mortgage broker/bank, to make sure the property appraised out to do the loan.
The vaunted "Opinion of Value" is, was, and always will be, BS. In fact, the entire appraisal business as it was, and is, currently consisted, is BS.
The value of a property is what it sells for, in a NONFRAUDULENT MARKET. Appraisers were the equivalent of the child of an alcoholic - enablers.
Nonsense? Please. How do you think all those HELOCs got done? It was all about stretched appraisals. You can buy performing HELOCs today for 58% of par.
Yes, HELOCS can be purchased cheaply now. That does not mean the home was not valued properly when appraised three years ago. If six houses on the street sold for $500,000 each, whould you expect that the appraiser would decide that yours, with the same sf, is only worth $250,000 next month? Buyers have always set the market price, appraisers just offer a confirmation that it is not complete nonsense on the DAY of the Appraisal.
it is a case of hating the player instead of the game.. what can they do when all those fools are bidding up homes??? Stomp their feet and declare they are all insane while every other player in the debacle from Moody's to Goldman are cooking the books into a river of lava