Values Down, Taxes Up?

QUESTION:

My property taxes are going up, even though the local home values have gone down. This is because, it is said, there are so many foreclosures. When a house is foreclosed and goes back to the lender, isn't the lender still required to pay the property taxes on the house? The lender will make money on the house eventually.

ANSWER:

First, you should be appealing your tax assessment. If local home values are going down then that should be reflected in your tax bill.

Second, when a home is foreclosed the lender and their servicer are supposed to take on the taxes, maintenance and security once new ownership is recorded. However, after foreclosure a property may remain vacant for a lengthy period, making it susceptible to vandalism and reducing its value. As an example, the Woodstock Institute found that among more than 18,000 vacant properties in Chicago almost 70 percent had been foreclosed.

Third, the idea that the lender will make money on foreclosed property now or at some point in the future is unlikely in most markets, if not impossible.

Short sales depend on the willingness of the lender to accept less than the remaining principal debt. In the case of foreclosures, a 2007 study by the Joint Economic Committee of Congress estimated that a typical foreclosure produces a loss of as much as $80,000 in terms of lost principal, taxes and reduced local home values. Today, losses are likely to be greater because home prices have continued to decline.

Alternatively, if a property could be sold at a profit then the owner would simply sell, pay the lender in full and everyone would be happy. There would be no need to foreclose.

According to the National Association of Realtors distressed homes were selling at a 20-percent discount in April, and 37 percent of all existing sales that month involved distressed homes. As long as the marketplace is filled with these properties there can be little pressure to push prices higher.