Assessing Sales of Bank-Owned Properties

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Assessor

John Tuteur Assessor

Assessing sales of bank-owned properties 

The current California real estate market is unlike any other since the 1930s. The combination of a deep economic recession, a frozen credit market and a historically high rate of properties transferring by trustee deed back to banks (foreclosure) means that more than half of all real estate transactions are purchases of bank-owned properties, also known as Real Estate Owned (REO). The buyer of a bank-owned property needs to understand the reassessment process that will establish the taxes they pay and the refunds they receive.

The property is reassessed

A trustee's deed to complete a foreclosure is a change of ownership under Proposition 13; so is the subsequent sale to the ultimate purchaser. Each event triggers a supplemental assessment, which usually results in a reduction in value. Our Assessor Division holds the trustee deed reassessment to see if the ultimate purchase takes place in the same assessment year (January through December). When the final purchase of the bank-owned property is worked by the Assessor Division, the full cash value for each of the events is enrolled. The reduction in value for the trustee deed usually results in a property tax refund, which is pro-rated between the foreclosing bank and the final purchaser.

Illustration - pay taxes due first

A single family residence was purchased in July 2006 for $675,000. The market began its steep decline in mid-2007. As of Jan. 1, 2008, the assessor enrolled a decline in value of $540,000. On July 1, 2008, the bank foreclosed and took title to the property by a trustee's deed. On Nov. 15, 2008, the bank sold the property to the final purchaser for $375,000. In the purchase escrow, the bank will pay the first installment of current taxes due based on the Jan. 1, 2008, value of $540,000 from July 1, 2008, through Nov. 14, 2008, and the buyer will pay the taxes from Nov. 15, 2008, through Dec. 31, 2008.  (In the trustee deed escrow, the bank will usually pay any delinquent property taxes and usually will keep all property taxes current until the property sells.) 

The final purchaser will also be responsible for the 2nd installment of taxes, which will be due on April 10, 2009, and covers the period Jan. 1, 2009, through June 30, 2009, and will also be based on the $540,000 value. (The first installment of current taxes, which run from July 1 of one year to June 30 of the next calendar year, is due Nov. 1, becomes delinquent after Dec. 10 and covers the period July 1 through Dec. 31. The 2nd installment is due Feb. 1, becomes delinquent after April 10 and covers the period Jan. 1 to June 30.)

Then a refund, if appropriate

In the spring of 2009, the assessor will probably enroll both the trustee deed event and the final purchase transaction at $375,000, because bank-owned property sales make up a large percentage of the current depressed market. (In a normal market, the assessor may determine that full cash value is something other than the final purchase price.) This reassessment generates a notice of supplemental assessment to the bank and to the purchaser. Approximately 35 days after the notice is sent, a property tax refund of approximately $1,400, based on the difference between $540,000 and $375,000, is sent. The refund will be split between the bank and the purchaser. The bank will receive a refund of approximately $524 (for July 1, 2008, through Nov. 14, 2008). The balance of approximately $876 will be sent to the purchaser, which can be used to help pay the 2nd installment of taxes.  The refund check may not arrive before the 2nd installment is due, but the taxes should still be paid prior to April 10, 2009. In October 2009, the purchaser will receive a regular tax bill for the 2009-2010 tax year based on the value enrolled for the Nov. 15, 2008, purchase of $375,000. 

Should you have any questions please contact Napa County Assessor John Tuteur at 707.253.4459 or by e-mail john.tuteur@countyofnapa.org  More articles can be found at http://www.countyofnapa.org/GOV/Departments/DeptPage.asp?DID=11700&LID=388