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If there's another real estate crash, property values could fall below the accumulated property tax debt, leaving people who thought they owned their home outri

by kd5bjo 8y ago

If there's another real estate crash, property values could fall below the accumulated property tax debt, leaving people who thought they owned their home outright underwater and unable to sell.

ScottBurson 8y ago
As I said, you should try working out a scenario with actual numbers. The lien balance will just never get that large. Prop. 13 limited the tax rate to 1%. So to see how much the lien can increase by in a single year, you take 1% of the amount the property value increased, less 2% of the previous year's tax bill. Let's take, by way of example, a scenario where values have been flat (so the payment has been equal to the assessment, so there's no lien yet) and then jump 10% in a year. What happens? Let's say V is the property's value before the 10% jump. The assessment, after the jump, is for 1.1% of V; the tax bill is for 1.02% of V, creating a lien for 0.08% of V. If values plateau again, in the following year, the assessment will again be for 1.1% of V, but the bill will be about 1.04%, adding about 0.06% to the lien. It will take 5 years for the bill to catch up with the assessment, at which point the lien will total about 0.2% of V. 0.2% is just not a scary number; compare it to the 6% that an agent typically charges to sell the property. Even in a crash, it's just not going to make the difference between making it possible or impossible to sell. The only scenario under which the lien value grows to a significant number is the one in which property values go up a lot for a long time (as they have, in the SF Bay area, for the last 20 or 30 years). In that case, it would take a hell of a crash to bring values down to where some properties would be worth less than their liens. A 20% drop wouldn't do it; it would take something more like an 80% crash. An 80% crash is not going to happen. But if it makes you feel better, I would be willing to accept a provision that says that if the amount of the lien at the time the property is sold exceeds 50% of the gain on the sale, the difference is forgiven. (No refund is offered if the property is sold at a loss.)

by kd5bjo 8y ago

If there's another real estate crash, property values could fall below the accumulated property tax debt, leaving people who thought they owned their home outright underwater and unable to sell.

ScottBurson 8y ago

As I said, you should try working out a scenario with actual numbers. The lien balance will just never get that large. Prop. 13 limited the tax rate to 1%. So to see how much the lien can increase by in a single year, you take 1% of the amount the property value increased, less 2% of the previous year's tax bill. Let's take, by way of example, a scenario where values have been flat (so the payment has been equal to the assessment, so there's no lien yet) and then jump 10% in a year. What happens? Let's say V is the property's value before the 10% jump. The assessment, after the jump, is for 1.1% of V; the tax bill is for 1.02% of V, creating a lien for 0.08% of V. If values plateau again, in the following year, the assessment will again be for 1.1% of V, but the bill will be about 1.04%, adding about 0.06% to the lien. It will take 5 years for the bill to catch up with the assessment, at which point the lien will total about 0.2% of V. 0.2% is just not a scary number; compare it to the 6% that an agent typically charges to sell the property. Even in a crash, it's just not going to make the difference between making it possible or impossible to sell. The only scenario under which the lien value grows to a significant number is the one in which property values go up a lot for a long time (as they have, in the SF Bay area, for the last 20 or 30 years). In that case, it would take a hell of a crash to bring values down to where some properties would be worth less than their liens. A 20% drop wouldn't do it; it would take something more like an 80% crash. An 80% crash is not going to happen. But if it makes you feel better, I would be willing to accept a provision that says that if the amount of the lien at the time the property is sold exceeds 50% of the gain on the sale, the difference is forgiven. (No refund is offered if the property is sold at a loss.)