Coach Mitchell Goldstein
April 6, 2015
Property taxes in the US are onerous, especially in the northeast. On average, every year, about 2% of the properties in a community will go tax delinquent because people cannot pay the high taxes. Many of these properties will be lost at a tax deed auction or be subject to confiscation or tax foreclosure by tax lien certificate holders.
In many of these tax delinquent cases, the property is free and clear of any mortgage. In all of these cases the owner will lose the property – often receiving nothing. Where there are bids of more than the outstanding taxes, called overbids, the taxing jurisdiction tries to keep these monies that are rightfully due the property owner who just lost their property. A federal judge has rightfully called this practice “unseemly.”
IMHO, it is the height of irresponsibility for a government to uniformly “take” a person’s home because they have not paid property taxes. In many cases the property taxes are truly onerous and often based upon widely inaccurate tax assessments. When the property owner does not have the ability to pay it is often due to circumstances beyond their control. It is easy to see how high taxes create poverty. [see City Eyes Break below]
What to do about high property taxes?
Some taxing jurisdictions are aggressively helping citizens by not scheduling tax deed auctions. Some towns and counties are creating the tax liens but they are ignoring the mandate to prosecute a tax foreclosure after the required period of time. This is laudable.
Sadly, this enlightened policy is not copied in Schenectady, NY. I have rental property there. The value of the property has steadily declined. It is a good thing I purchased the property at about 40% of the market value at the time. However, I refinanced the property and took out double the cash that I had purchased the property for. Incredibly, my mortgage payment is less than the amount of the taxes!
Addressing the Landlord's in Schenectady, NY
Mayor shouldn’t be proud of home values
January 14, 2015 in Daily Gazette, Letter to Editor
In speaking to landlords, Schenectady Mayor Gary McCarthy, as quoted in the Jan. 9 Gazette, said: “We all know taxes are high here, but it has driven down property values. So your total cost of home ownership in Schenectady is lower than some of our sister communities, even though their tax rates may be lower.”
I do not know where, if anywhere, the mayor studied economics or finance. I suspect, though, there are not many Schenectadians who are comforted about either their high taxes or the fact their property values have fallen by roughly 20 percent in the past five years as a result of his policies as mayor and his votes while on the City Council.
Maybe that is why our tax equalization rate is 123 percent and why the mayor opposes a reassessment. And, by the way, “our sister communities” not only have lower taxes, but rising property values.
ROGER HULL - Schenectady
The writer founded the Alliance Party and was its unsuccessful candidate for mayor in 2011.
See entire article: Mayor shouldn't be proud of home values.
In referring to the Mayor's quote above:
This must be the new math – where taxes equals value. According to His Honors’ analysis, the cost of home ownership is regulated by the property value. Using this logic, the city can raise taxes until the property value is zero and that there would be no ill effect to the owner. I wonder if the mortgage bank shares this same view? I thought the mortgage payment was part of the cost of home ownership? What happens to the value of the banks portfolio when the taxes consume the entire value? I wonder how much more taxes will be going up so that we can anticipate how much more our property values will be going down?
21% Interest on Tax Liens
City eyes break on back taxes
September 3, 2014 - Schenectady NY Daily Gazette
Saying the interest rate on late property taxes is so high that residents can’t catch up, the Schenectady City Council is considering giving them a break.
Those who are late currently pay 21 percent interest, but [nearby] cities like Albany and Saratoga Springs charge just 15 percent, Councilwoman Leesa Perazzo said.
Some homeowners hit a financial crisis and never catch up. The council has received many letters, emails and personal requests over the years from residents who described yearlong crises, such as a disabling heart attack, a layoff or the death of a spouse. By the time the owner recovered financially, the tax bill for that lost year had often doubled.
Perazzo cited one woman who now pays $9,000 every year on a $5,000 bill because she cannot catch up from the year she missed. The year after that, she paid off the old bill, including the interest, but she could not also afford to pay the current year’s taxes, so at the end of the year, she was still a year behind. Several years later, she is still in the same situation.
“They can’t catch up,” Perazzo said. “This woman has lived in her home 43 years. She’s been paying faithfully. … I think it’s time to take some action, especially for the people who have been willing to pay double their taxes.”
Councilman Vince Riggi strongly supported her. “We’re all hearing from good homeowners who had a hard time for a year or two,” he said. “I think we have to do something. If people can’t pay it, we foreclose on the house. And who will replace them? And if we don’t replace them, what’s going to happen to that home?”
Perazzo proposed offering a payment plan. The council has the authority to waive interest and penalties on property taxes, and could do so in cases that met certain conditions.
“It would have to hinge on people making payments in good faith,” Perazzo said, adding that it would be only for owner-occupants...If they missed even one payment, she said, the plan would be canceled.
The goal would be for residents to pay off the debt while simultaneously paying their current taxes, Perazzo said.
See full article: City eyes break on back taxes.
“If they missed even one payment, the plan would be canceled.” In establishing a standard that almost certainly will produce poverty, this insane standard epitomizes the lack of logic lawmakers have. Tax delinquent home owners are making double tax payments, on homes that are losing value in an income distribution scheme favoring certain special interests, e.g. teachers, the police and other city workers. Their self interest puts widows and other unfortunates on the street, and they will then have to go on public assistance. Only in America!
A more equitable solution would be to gauge a payment in keeping with the person's income and other expenses. Any shortfall could be made up by a sinking fund. This allows those who have sustained our communities during the bad times to remain in their homes until we have good times. Certainly we must pay our taxes, however government creates the problem and then government fixes an unfair penalty - that is unseemly.
The Real Problem
The greatest part of local taxes is the property tax. The greatest part of the property tax bill goes to pay for local schools. In my area, the school budget consumes about 70% of total local taxes. This is due to the very generous contracts given by school boards friendly to under-performing school officials.
Sadly, our children’s test scores are terrible, so we are certainly not getting what we are paying for. When running for county office, I proposed that teachers should be paid at the rate commensurate with the product they produced.
Our students are rated no higher than 24th in the world. I contend our teachers should be paid at that level. That would reduce the school budgets by at least 50%. Teachers would then agitate for better teaching curricula so as to compete with other world class teaching systems. Our teachers are not bad, it is what our teachers are required to teach that is bad and in other ways that they are restricted. Garbage In, Garbage Out. Remove the federal and state Depts. Of Education; allow parents to control their children’s education and you will get a good outcome.
For a better understanding of high property tax rates and the ill effects of big government intervention in our public schools see: Sam Blumenfeld: NEA – Trojan Horse in American Education
These days, one of the areas to understand in real estate investing is being aware of the political and judicial impacts within the local areas that you wish to invest within. In assessing the value of a property, one of the questions I ask "Is the judge pro-tenant?," "Is the mayor or Town Council pro-tenant?"
It is more important to know about the judge but the Town Council's view will be reflected in the view of the local Building Department. A hostile building inspector is not someone a rental property owner wants on his property. The Building Department and the city government in Schenectady, NY is openly hostile to landlords. This fact significantly impacts on your ability to resell your property to another landlord/investor.
I place a dollar value based upon the answers to the above observations and that impacts the price I offer.
G-d Help US.
� 2015 Mitchell Goldstein - All Rights Reserved
Coach (Mitch) Mitchell Goldstein is a Nationally Recognized Expert in tax delinquent property investing and a Real Estate Investor since 1972 in commercial and residential properties.
Coach Mitch is dedicated to helping would be real estate investors to attain their financial goals through investing in tax delinquent real estate and has created various products and services to facilitate the tax delinquent real estate investor.
Mitchell is a Jewish American of Hungarian and Polish extraction and a fan of Locke, Jefferson, and Madison, whose instincts against accumulated power have proven prescient; and of Washington, and Hamilton, whose notions regarding consolidated power required that honor and the highest moral behavior be the hallmark of those exercising power.