April 6, 2010 – The challenges we are facing today in the mortgage market, a liquidity crisis and the hangover from rampant price increases driven by easy credit, are going to take some time to unwind. There is a consensus that two major behaviors are largely responsible: excessively exuberant creativity on the part of the securities and investment industry in devising novel vehicles for enabling liquidity, and a shift in the mortgage industry from lending money to selling mortgages, some of them just as creative as the investment vehicles, both driven by personal greed.
When the profit model shifted from long term quality in the loans that were written to short term volume to fill the huge pipeline created by the securities industry, the crash became inevitable.
The usual sources of funding were crushed when the bubble burst, and will take years to recover. In the meantime, the remaining banks that are solvent and government sponsored programs will be the mainstay until the alternative sources of capital have recovered.
What this means in the near term is that qualifications will be more stringent and the cost of borrowing will increase. Gone are the days when loose standards of fiduciary responsibility enabled the writing of so many doomed mortgages. We hope such days will not return, and that when the pendulum eventually swings back, it will settle in a sensible range.
What we have today is an environment where there are mortgage products available to all segments of borrowers, as long as the more stringent qualifications are met. A combination of credit score, income and assets (down payment) that enables qualified borrowers to pay a reasonable price for property and reasonable fees to lenders will restore a healthy market. We are all going to have to work harder to make this happen, and it will be worth it in the long run.
In our local market, we are seeing a recovery in unit volume that seems to be sustainable, and an apparent halt to the steep price declines of the last few years. It is still a fragmented market, with retail sales, short sales and REO sales each having their own market forces, and there is something for everyone who is qualified to buy. Local mortgage lenders are cautiously optimistic that the market will improve.
Shelley Mortara of Nevada County Mortgage advises: “It’’s important to meet with your loan consultant and provide the requested financial documentation as soon as possible. In a buyers market, it’’s critical to have your credit approval in place prior to negotiating an offer on a home.”
Tom Smith of Falcon Financial adds: “The rates are very low for the right people with the right home. The current underwriting guidelines give the lowest rates to borrowers with 740+ credit scores. Homes that are in poor repair or unique in some way will present appraisal challenges.”
In every market, there are real people with real dreams, making them come true.
Paul Sieving is a Realtor® with CENTURY 21 Gold Dust Realty, has been Chair of the MLS Committee, a Director of NCAOR and Board Chair of the Grass Valley Chamber of Commerce, while serving our community as a real estate professional for over 10 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
March 2, 2009 – Today California residential real property taxation is primarily regulated by Proposition 13 and Proposition 8.
Proposition 13 – Limits the property tax rate to 1 percent plus voter-approved bonded indebtedness, and defines taxable value as the lower of the property’s Factored Base Year Value (FBYV) or market value on lien date, January 1. Factored Base Year Value is the market value of the property when it was acquired by the current owner, plus the value of any new construction, plus an inflation factor of no more than 2% per year. Taxable value can increase more than 2% in one year if the property experiences a change in ownership, new construction or received any temporary reduction in taxable value in a prior tax year.
Proposition 8 – Amended Proposition 13 to provide for declines in value. Prop 8 requires the Assessor to enroll the lower of either: (1) the Factored Base Year Value, or (2) the market value as of the annual lien date January 1. Prop 8 reductions in value are temporary reductions that recognize the fact that the market value as of the January 1 lien date of a property has fallen below its current Prop 13 factored value.
Once a Prop 8 reduced value has been enrolled, that property’s value must be reviewed each year as of the January 1st lien date, to determine whether its market value is less than its Prop 13 factored value. Prop 8 values can change from year to year as the market fluctuates. When the market value of the Prop 8 property increases above its Prop 13 factored value, the Assessor will once again enroll its Prop 13 factored value. In no case may a value higher than a property’s Prop 13 factored value be enrolled.
Properties enrolled under Prop 8 provisions are not subject to the 2% annual increase limitation that applies to those enrolled under Prop 13 provisions.
The 58 counties of CA take different approaches to Prop 8 enrollments. Some are pro-active and some are relatively passive, requiring the action of property owners in order to start a Decline in Value reduction. Due to the economic issues faced by local government, staff cuts and increased workloads at the Assessor’s Office can affect the expedience of the process.
In general, if a property was purchased between 2003 and 2008, it may be eligible for enrollment in Prop 8. In order to make an initial determination, it’s a good idea to call your Realtor®, as the Assessor’s office may be somewhat overworked, as explained above. In either case, the initial determination will look at what price was paid for the property, the current assessed value and the current market value.
Please feel free to contact me for an initial determination, and I will gather some comparable market data that will establish eligibility and support a request to the Assessor’s Office for enrollment in Prop 8.
February 8, 2010 – Propositions 60 and 90 are constitutional amendments passed by California voters that provide property tax relief for persons aged 55 and over. As specified by section 69.5 of the Revenue and Taxation Code, Props 60/90 allow, under certain conditions, the transfer of a Prop 13 factored base year value from an existing residence to a replacement residence.
Prop 60 allows transfers of valuation within the same county and Prop 90 allows transfers between different counties where transfers have been authorized by individual counties. Nevada County has not authorized Prop 90 transfers. Proposition 110, also included in section 69.5, applies the same conditions to valuation transfers for “severely and permanently disabled persons”.
In order to be eligible, the following requirements must be met:
- The homeowner or spouse residing with the homeowner must have been at least 55 years of age when the original property was sold.
- Both the sold and the acquired property must be the principal residence when owned and must be eligible for the homeowners’ exemption.
- The replacement property must be of “equal or lesser current market value” than the original property.
- The purchase or completion of the replacement property must take place within 2 years of the sale of the original property.
- This is a “one-time” opportunity, unless a person receives the benefit due to age and subsequently becomes disabled and is forced to move because of the disability. The reverse (eligible by disability followed by age) does not apply.
What this means is that in the situation where a property has been held by the same owner for a substantial length of time, and the market value has appreciated by a large amount, property tax relief is available for homeowners over 55 years of age.
If the market value of the original property is greater than the Prop 13 factored base year value, the lower valuation can be transferred to the replacement property of lesser or equal market value, rather than the replacement property being re-assessed at the purchase price. This will result in a lower property tax bill going forward.
Paul Sieving is a Realtor® with CENTURY 21 Gold Dust Realty, has been Chair of the MLS Committee, a Director of NCAOR and Board Chair of the Grass Valley Chamber of Commerce, while serving our community as a real estate professional for over 10 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
January 10, 2010 – For the first time since the enactment of Proposition 13 in 1978, assessed values of (and taxes levied on) real property may see a year over year decline for the January 1, 2010 assessment date.
Proposition 13 defines taxable value as the lower of the property’s Factored Base Year Value or market value on lien date, January 1. Factored Base Year Value is the market value of the property when it was acquired by the current owner, plus the value of any new construction, plus an inflation factor of no more than 2% per year. Pursuant to Article XIII A, section 2(b), and Revenue and Taxation Code section 51, the percentage increase cannot exceed 2% of the prior year’s value.
In a letter to all 58 CA County Assessors on September 2, 2009, the CA State Board of Equalization (BOE) reported the likelihood of a negative inflation factor for the coming year. From 1978-2009, the inflation factor has always been positive and has usually (except for 5 of the 31 years) been greater than 2%. The inflation factor is based on the California Consumer Price Index (CCPI).
The opinion of the BOE as communicated to Assessors in the letter states “Accordingly, because section 51 does not distinguish between positive and negative changes in the CCPI, and because Article XIII A, section 2(b) of the California Constitution specifically provides adjustments based upon reductions in the CCPI, it is our opinion that section 51 requires factor adjustments whether positive or negative. If positive, the increase is limited to 2%. However, there is no such limitation to downward adjustments, including instances in which the net change to the CCPI is zero or less than zero.”
What this means for CA is that for the first time in over 30 years, a reduction in the annual property tax bill may be seen for a substantial majority of taxpayers.
In addition to this effect of Proposition 13, another statewide consequence of the current economic crisis is that real estate values have also declined significantly since the peak of the boom in 2005. Values statewide have declined to approximately the levels last seen in 2002, and in some cases the decline is greater yet.
Proposition 8, also enacted in 1978, requires the Assessor to enroll the lower of either: (1) the Factored Base Year Value, or (2) the market value as of the annual lien date January 1. During the real estate boom, a substantial fraction of parcels in CA changed hands and received a new (usually higher) Base Year Value. Since market values have declined for many of these properties, they must be enrolled in Proposition 8, at a value lower than the Proposition 13 value they received when they changed hands.
In Nevada County, the number of parcels that changed hands between 2002 and the end of 2008 (the apparent end of the decline in values) was at least 5% of the total, and represents as much as 20% of the total assessed value in the County. The decline in value for these properties has been as much as 50% in some cases. This effect of Proposition 8 will have a significant impact on property tax revenue, perhaps greater than any foreseeable effect of a negative inflation factor for Proposition 13 enrolled property.
What this means is that CA Counties are facing a great challenge in declining property tax revenues in the near future due to a significant decline real estate market values and possibly also in the CCPI. Truly a Double Dip.
CA Assessors are charged with implementing these laws in a way that reflects a duty to both taxpayers and the taxing authority, in this case County Governments. It is a very challenging time for Assessors and their workload will be significantly greater than usual with a complicated mix of automated processes and the need to address a flood of individual property re-assessments under Proposition 8.
Paul Sieving is a Realtor® with CENTURY 21 Gold Dust Realty, has been Chair of the MLS Committee and a Director of NCAOR, Board Chair of the Grass Valley Chamber of Commerce in 2004 and Treasurer in 2010, while serving our community as a real estate professional for 10 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Paul Sieving - www.PaulSieving.com
December 24, 2009 – Today California residential real property taxation is primarily regulated by Proposition 13 and Proposition 8.
After an assessors scandal in 1966, AB80, a reform bill enacted by the legislature, kept assessments at a uniform percentage of market value. During the real estate boom of the 1970s, home assessments escalated rapidly. By 1978, the threat to homeownership brought on by this escalation engendered new legislation in the form of Prop 13 in June, and Prop 8 in November.
Both measures were on the ballot in June and Prop 13 won due to its controlling effect on rising assessments. Once Prop 13 was in place, the effectiveness of Prop 8 as an additional control was increased and it also passed in November.
The constitutionality of Prop 13 was immediately challenged by the taxing authorities, and after a long trip through the courts, the issue of acquisition-value assessments reached the U.S. Supreme Court in Nordlinger v. Hahn. In a stunning 8-1 decision, the court in 1992 upheld California”’’s acquisition-value system.
Proposition 13 – Limits the property tax rate to 1 percent plus voter-approved bonded indebtedness, and defines taxable value as the lower of the property”’’s Factored Base Year Value (FBYV) or market value on lien date, January 1. Factored Base Year Value is the market value of the property when it was acquired by the current owner, plus the value of any new construction, plus an inflation factor of no more than 2% per year. Taxable value can increase more than 2% in one year if the property experiences a change in ownership, new construction or received any temporary reduction in taxable value in a prior tax year.
Proposition 8 – Amended Proposition 13 to provide for declines in value. Prop 8 requires the Assessor to enroll the lower of either: (1) the Factored Base Year Value, or (2) the market value as of the annual lien date Jan. 1. Prop. 8 reductions in value are temporary reductions that recognize the fact that the market value as of the January 1 lien date of a property has fallen below its current Prop 13 factored value.
Once a Prop 8 reduced value has been enrolled, that property’s value must be reviewed each year as of the January 1st lien date, to determine whether its market value is less than its Prop 13 factored value. Prop 8 values can change from year to year as the market fluctuates. When the market value of the Prop 8 property increases above its Prop 13 factored value, the Assessor will once again enroll its Prop 13 factored value. In no case may a value higher than a property’s Prop 13 factored value be enrolled.
Properties enrolled under Prop 8 provisions are not subject to the 2% annual increase limitation that applies to those enrolled under Prop 13 provisions.
The combined effect of Props 13 and 8 is to limit the escalation of residential property tax assessments to a manageable level and to provide temporary relief for the taxpayer when the market value of a property falls below the Prop 13 factored value.
The Assessor of each CA County is charged with implementing these laws for the benefit of the taxpayer, including an assessment appeal process for the taxpayer who feels that the market value of a property my have fallen below the Prop 13 factored value.
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