Property Sales and Illegal Tax Assessments

Property assessments for tax purposes are typically not impacted by the sale of property in any given community and for good reason. It is desirable to avoid a …

Property assessments for tax purposes are typically not impacted by the sale of property in any given community and for good reason. It is desirable to avoid a situation in which a home sale changes the value of surrounding homes that have been assessed at similar values but are not being sold. If and when a home is sold above its assessed value and surrounding homeowners are informed of an assessment increase, they should file an appeal immediately to avoid a subsequent tax increase. Assessment changes triggered by reasons unrelated to actual improvement constitute an illegal spot assessment and should be challenged. For more on this continue reading the following article from JDSupra.

Generally the sale or exchange of real estate will not affect the status of the assessment on the property.  This basic rule is founded upon the statutory and constitutional theory that it is inequitable and unfair to change an assessment based upon a sale until everyone in the particular county is brought up to market value pursuant to a countywide reassessment.  An individual sale for a price that is above the indicated market value of the assessment is a definite indication that other properties that have not sold are also underassessed.  It would be discriminatory to change only the assessment on those properties that were under-assessed and sold, while not altering the assessment on other under-assessed properties that have not sold.

A system that does this is creating disproportionality in taxation between sold and unsold properties, and between new and old owners.  It is unconstitutional to intentionally raise a property that has sold and not touch a similarly valued property that has not.  New owners of real estate are entitled to the same basic ratio of assessment to fair market value as the owners of similar unsold realty.  The assessment law in Pennsylvania does not permit this so-called “welcome stranger” increase in assessment upon sale.

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Alarm bells should go off in a property owner’s head when an assessment change notice is received immediately after a deed has been recorded. In 99 percent of realty sales transactions, no change in assessment will be warranted under the law. If a property owner receives the “welcome stranger” assessment increase, an immediate appeal with the appropriate board of assessment appeals should be filed.  It is important to note that this appeal must be filed within 40 days of the mailing date of assessment change notice called an “interim assessment notice.”  The assessment appeal should clearly note that the appeal is based upon an illegal spot assessment.

Improvements to real estate in Pennsylvania are not triggering events for a full reassessment of the property, but the existing law allows the assessor to value the increase in value of the property due to the improvement. Assessment changes to the unrealized economic increase in value unrelated to the improvement are strictly prohibited and constitute an illegal spot assessment under the law.

A sale or transfer of real estate, however, will result in certain assessment timing issues that may affect taxes.  Some of these issues are the timing of exempt status, condominium assessment, subdivision assessment changes, and clean and green violations.

A buyer in an arm’s-length real estate transaction should compare the existing assessment’s indicated fair market value on the property against the sales price.  If the sales price is lower than the indicated assessed market value, an appeal based on the sales price should be filed with the local board of assessment appeals.  Indicated market value can be arrived at by dividing the assessment by the prevailing county ratio of assessment to fair market value.  Where no assessment change has taken place, a taxpayer is entitled to appeal his or her assessment once a year.It should be noted that while a County Assessment Board cannot change an assessment on the sale and purchase of a property, the taxing districts at the present time have the legal right to file an appeal to the County Board of Assessment Appeals seeking to raise the assessment to the purchase price.  In this scenario a party should seek legal advice on how to best combat this practice.  The majority of these appeals are brought by school districts seeking additional revenue.  The assessment law presently allows the taxing districts to do by appeal what the Boards of Assessment Appeals are prohibited to do by statute.  We are finding this practice more and more common as districts face the need for more revenue.

This article was republished with permission from JDSupra.


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