Preliminary Change of Ownership
Correct Information Results in Fair Assessments
To arrive at fair values for property in Napa County, the Assessor’s office relies in part on information provided by the buyer of real property to determine whether a reappraisal is required and, if one is required, the new assessed value of that property. To promote the gathering of this information California law requires each buyer of real property to file a form with the Assessor at the time a deed or other evidence of change of ownership is recorded. Known as a Preliminary Change of Ownership Report (PCOR), this form is usually signed by the owner during escrow and then filed with Recorder Division by the title company when the deed is recorded. The Recorder Division then forwards the PCOR to the Assessor with copies of the deeds. The law specifically requires the Assessor to maintain complete confidentiality over all information contained in the PCOR.
In more complex transactions such as corporate buyouts or long-term lease agreements or when the buyer fails to file the PCOR, the Assessor has the authority to send a formal Change of Ownership Statement to the buyer with a 90 day return deadline. Failure to file this statement can result in a penalty equal to 10% of the taxes due or $100 whichever is greater.
The information the Assessor requires falls into two broad categories: what kind of ownership transfer took place and what were the financial terms and conditions of the property at the time of transfer. The first category of questions provides the basis for deciding if the transfer resulted in a “reassessment” under Proposition 13 which requires the establishment of a new base year value when a “change of ownership” occurs. Certain changes of ownership are excluded such as between husband and wife; parents and children; the creation of certain trusts; some transfers between individuals and legal entities such as partnerships and corporations or between legal entities, and certain transfers that involve “security interests” such as mortgages and co-signers on loans. Failure to answer these questions or giving an incorrect answer can lead to a reassessment when one was not warranted or to missing a reassessment which will be corrected later with escape assessments.
The second category of questions on financing and condition help us understand the true “purchase price” and whether the price shown on the deed represents “full market value” which is the standard the California Constitution mandates all assessors to find for the new base year value. Favorable financing where the seller takes back a low interest second mortgage may mean the “purchase price” is above fair market value. The existence of a long term lease at below market rents may mean the purchase price is below fair market value since California law requires the assessor to assess “the unencumbered fee simple interest” meaning that we add the buyers “leased fee interest” and the lessees favorable “leasehold” interest to arrive at full market value.
Finally, the type of property and its condition at time of purchase need to be taken into consideration when doing an appraisal for property tax purposes especially if there is an inheritance or exchange of properties where there is no purchase price. An apparently low purchase price might mean that the property was in poor condition and will require a substantial investment to bring it up to “average” condition. Multifamily, industrial/commercial and agricultural properties may require a second approach to value using income produced by the property in addition to looking at comparable properties. Remember that providing all the information the Assessor needs is for the benefit of the property owner in getting a fair assessment.