We have fielded a large number of calls from buyers that have purchased foreclosures in the last couple of days.

The question is if they purchased a home for $100,000 in an open market how could the local municipality tax them on a value that is significantly higher? I thought this was a good question. I do not pretend to be an expert on valuation from the municipal point of view. I am however fairly well versed on market valuations. The purpose of a real estate appraisal (I know this is different than an assessment) is to determine value of property if it were to sell at an arms length transaction in an open market.

If that is the case why does the government think your home is worth more? The obvious answer is that we all know the government needs revenue, but that reason seems quite un-American. So I need a good answer to give to the public if someone can assist.

I think I have a good idea. Most foreclosure homes need a great deal of workand are an eyesore to say the least for most neighborhoods. What if the local municipality not only assesed them at the lower value but also gave a tax abatement for 6 months to owner occupied purchasers so they could improve the property and increase its long term taxable value and perhaps those of the nieghbors. I know a lot of homeowners would be happy to pay a couple of extra bucks every year if the neighborhood looks significantly better. Who knows. It seems like a good idea to incentivize someone for doing something good for the community.

This issue sounds a little strange to me, I know I would not be happy paying taxes based on an amount higher than the one I paid for the home, especially when the Flint Journal told me last Sunday my home will not be worth what I paid for it in 5 years. How will this problem be solved? This seems like a long term opportunity for forward thinking governments to INCREASE long term value by coming up with an intelligent solution now. Lets see what happens.

Why not take this to the next level and find a way to give property tax to someone willing to move into the city of Flint if they purchase a Land Bank or foreclosed property? Perhaps assess them only a school tax for a period of time. Think about this. If a hundred properties are assessed at $25,000 and collect $100,000 in taxes annually on these homes that are vacant. Meaning there is no one there to support the local businesses. So the city gaves up a little revenue over three years to lure residents. If 70 of these homes sold, plumbing was installed, the homes are significantly improved and taxable value increased to $38,000. The city would then be collecting $106,400 on these 70 homes every year going forward after year three. The tax lost on these homes over 3 years $210,000, but they are now collecting the $106,400 vs the $70,000 a year. So they get the money back in 5.8 years assuming the plan failed and no other homes sold. If the plan is successful and the loss is amortized out using 20 year bonds the city would significantly increase cash flow for years to come. Forget about the tax generated on the thriving business that would serve these new residents and the positive impact on the area. Good Stuff.

This sounds a lot better than penalizing people for paying market value for their home.