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IPFS News Link • Housing

Foreclosure-Gate: Counties Engaged In Tax Fraud?

So alleges a new lawsuit... Last spring, Morris filed suit against the Fulton County Board of Tax Assessors, alleging the county inflated values in scores of neighborhoods by using foreclosures seizures as comparable sales. The seizures, termed credit-bid sales, represent not money changing hands, but unpaid mortgages when a bank takes over a house. He also says appraisers are disregarding valid sales and arbitrarily setting neighborhoods' average prices. These "credit-bid" sales are frauds. They should not be permitted in the first place, and are a big part of the scam that is going on with bank balance sheets. Here's how it works: You lose your house to foreclosure. You owe $300,000 on the house at the time, but the only reasonable comparables in your area have sold for $150,000. You either have lost your job or walked off, it doesn't really matter in this instance. The bank puts the property up for auction. But it refuses to take less than the balance owed, because doing so causes an immediate mark-to-market on the property and hits their balance sheet. So it "bids" the entire outstanding balance - in this case, $300,000. The bank obviously gets the house back. It shouldn't be able to bid at all, as this is not an "arms length" transaction, but the counties don't care. A bid is a bid, even if its a sham bid. The problem is that no money changes hands, because the actual holder of the note did the bidding (the proper way to do this, incidentally, is to set a reserve price and refuse to sell at less.) The county folks have been counting this sham transaction as a "sale" for tax purposes. The banks have been counting this sham transaction for balance sheet valuation purposes. The county residents have been getting royally screwed, as the actual sales that subsequently take place are being ignored as comparables and thus the correct tax base against which property taxes are set.