FHA APPRAISERS

What’s an REO?
REO stands for “Real Estate Owned”.  These are properties that have gone through foreclosure and are now owned by the bank or mortgage company.  This is not the same as a property up for foreclosure auction.  When buying a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process.  You must also be prepared to pay with cash in hand.  And on top of all that, you’ll receive the property 100% “as is”.  That could include existing liens and even current occupants that need to be evicted.  A REO, by contrast, is a much “cleaner” and attractive transaction.  The REO property did not find a buyer during foreclosure auction.  The bank now owns it.  The bank will see to the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing.  Do be aware that REO’s may be exempt from normal disclosure requirements. 

Is it a bargain?
It’s commonly assumed that any REO must be a bargain and an opportunity for easy money.  This simply isn’t true.  You have to be very careful about buying a REO if your intent is to make money off of it.  While it’s true that the bank is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it.  When considering the value of a REO, we will need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale.  The bargains with money making potential exist, and many people do very well buying foreclosures.  But there are also many REO’s that are not good buys and not likely to turn a profit. However, they might be excellent for buyers that want to live in the property, fix it up themselves, and sustain instant equity.

Ready to make an offer?
Since banks almost always sell REO properties “as is”, we'll want to be sure and include an inspection contingency in your offer that gives you time to check for hidden damage and terminate the offer if you find it.  As with making any offer on real estate, you’ll make your offer more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender.  In most cases, this is actually a necessity. After we present your offer, you can expect the bank to make a counter offer.  Then it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer.  It’s not unusual for the process of offers and counter offers to take days or even weeks when it comes to REO properties

In order for an assessment to be deemed excessive or discriminatory, a taxpayer must prove an assessment does not fairly represent one of the two standards:

• Following a revaluation, all assessments must represent 100% of true market value as of the previous October 1. The October 1 pre-tax date is called the annual "assessment date". All evidence submitted in a tax appeal must be on or near the assessment date, especially property sales used as comparables.
• The other standard is the "common level" or common level range established in your municipality. To explain the common level range you must consider what happens following a revaluation. or reassessment. Once a revaluation or reassessment is completed, external factors such as inflation, appreciation, and depreciation may cause values to increase or decrease at varying rates.

Other factors such as physical deterioration may contribute to changes in property values. Obviously, if assessments are not adjusted annually, a deviation from 100% of true market value will occur.

The State Division of Taxation annually conducts a fiscal year sales survey, investigating most property transfers that occur in your community, with your local assessor assisting. Every sale is compared individually to every assessment to determine an average level of assessment in a municipality. An average ratio is developed from a sampling of property sales to represent the assessment level in your community. In any year, except the year a revaluation or reassessment is implemented, the common level of assessment is the average ratio of the district in which your property is situated and is used by the Tax Board to determine the fairness of your assessment. The sales ratios are reviewed inter and intra for each municipality

WAYNE FAMULAR  JR

GARDEN STATE APPRAISALS

27 BURNHAM CT

SCOTCH PLAINS NEW JERSEY 07076

(732) 939 3770

Recently, many municipalities have performed revaluations in order to make certain that all their assessments reflect the current market value of the properties located in their municipality. When a property owner files a tax appeal to challenge a tax assessment after a revaluation, who bears the burden of proving whether the new assessment is correct - the tax assessor or the property owner? The answer is the property owner by virtue of the “presumption of correctness”.

When appealing a tax assessment, it is very important to understand how the presumption of correctness works. Once a tax assessor imposes an assessment, the County Tax Board and Tax Court are required to presume that the tax assessment is valid and the taxpayer is required to rebut the presumption by cogent evidence. The New Jersey Tax Court has held that in order to overcome the presumption, the taxpayer must produce evidence that is “definite, positive and certain in quality and quantity.” This is a difficult standard to comprehend, but clearly requires a good showing by the property owner.

WAYNE FAMULAR

GARDEN STATE APPRAISAL

27 BURNHAM CT

SCOTCH PLAINS NEW JERSEY 07076

(732) 939 3770

The presumption of correctness permits a tax assessor to win a tax appeal without producing any evidence at all, a tactic used by many revaluation companies in defending tax appeals. For example, if a taxpayer presents sales that are not very comparable because they are too old, not in the same town, or otherwise not very similar to the property under appeal, the tax assessor or revaluation company can merely argue that the presumption of correctness has not been overcome and the assessment cannot be changed. If the taxpayer produces “pretty good” comparable sales, the tax assessor or revaluation company can but merely challenge the comparability of the sales offered by the property owner and argue that once again the taxpayer has not produced sufficient evidence to overcome the presumption. This is very frustrating to property owners because they end up losing a tax appeal without the tax assessor or revaluation company submitting any evidence of value.

It is very important to understand that the tax assessor and revaluation company have no obligation to come forward with comparable sales and can merely rely upon the presumption of correctness in defending a tax appeal. Since the presumption is a hurdle that is somewhat difficult to overcome, it is a good idea to appear before the Tax Board or Tax Court with a competent appraiser. However, depending upon the size of the tax assessment, it may not be cost effective to pay for an appraisal. If a property owner chooses to proceed without an appraiser, it must come armed with very good evidence in order to over come the presumption of validity. 

Taxpayers with assessments in excess of $750,000 are allowed to file an appeal for direct review of their property’s assessed valuation by the Tax Court of New Jersey, without first filing an appeal with the local county tax board. This not only saves on filing fees and costs, but also expedites the appeal process. A complaint for direct review may include - in separate counts, separately assessed - contiguous properties in common ownership, in the same or different taxing districts, providing that the assessed valuation of one of the separately assessed, contiguous properties exceeds $750,000. Tax appeals on assessments of less than $750,000 must first be filed with the county tax board.

If the taxpayer prevails in securing a tax appeal judgment reducing its assessment, the so-called "Freeze Act" binds the municipality for the years covered by the tax appeal plus two additional years, subject to two exceptions. The first exception is a complete revaluation of all real property in the municipality, while the second exception is proof by the municipality of a substantial increase in the property’s value (such as an addition qualifying as an added assessment, a condominium or cooperative conversion, a subdivision or a zoning change). These exceptions aside, the assessment is frozen at the reduced level, at the taxpayer’s sole option. Thus, if a taxpayer wishes to appeal for a further reduction during the freeze period, he or she is free to do so.

The foregoing points are merely intended to scratch the surface of this area of the law. However, it should be clear that there is a tax for the informed and a separate higher tax for the uninformed. This should also help to explain why the sophisticated property owner should have his tax assessment reviewed by competent counsel every year to determine whether a tax appeal is warranted.

The filing deadline for tax appeals each year is April 1^st.

One obvious reason for filing a real estate tax appeal is to obtain a lower assessment on your real property and thereby save significant tax dollars. An equally important reason to keep taxes low is to help maintain the value of the property making it more saleable in the event that the tax appeal is successful.

It would be wise to review the assessment on the property each and every year to see whether a tax appeal is warranted. The problem is that most owners of industrial, commercial and apartment properties, as well as tenants under a net lease, are not aware that they may be prime candidates for successful tax appeals even after looking at their new assessment.

For obvious political reasons, many tax assessors discriminate against non-residential properties. Studies published each year by the New Jersey Division of Taxation prove this point clearly. Furthermore, although all municipalities in the state are supposed to assess real property at 100 percent of fair market value, these studies show that only a handful, in fact, do. Indeed, few property owners are even aware of the actual assessment/true value ratio in their municipality.

Property owners often feel that their property is worth an amount equal to the assessment on the property. This misconception leads owners to overlook the different ratios of assessed value to true value applicable in each of the assessing districts of New Jersey and to overlook the fact that these ratios generally decline each year. For example, if a property worth one million dollars this year is located in a municipality with a 60 percent ratio, it should be assessed at $600,000 this year. If that ratio drops to 54 percent next year, its assessment should be $540,000. If the ratio drops, but the assessment remains high, it may be time for an appeal

THANK YOU ,

WAYNE FAMULAR JR

GARDEN STATE APPRAISAL  SERVICES

27 BURNHAM CT SCOTCH PLAINS

NEW JERSEY  07076

(732) 939 3770