Quarterly: Spring 2002

CBQ >> Summer 2002 Issue

Public Policy Watch

Local News

Out-Of-Cycle Property Tax Assessments To Be A Thing Of The Past

Why were several new homeowners and commercial property owners in Montgomery County, the State's chief property tax assessor and GWCAR members smiling in the halls of Annapolis recently? All were hailing the signing of legislation ending Montgomery County's 20-year practice of predatory property tax gouging of recent homebuyers and commercial property owners.

On Thursday, May 16, 2002, Governor Glendening signed into law SB 208/HB 892 "Property Tax - Petition for Review Outside of Assessment Cycle." The law, which is effective immediately, eliminates a county's right to file a petition for review to reassess any property, whether it is commercial or residential, outside of the normal triennial assessment cycle.

"GWCAR members, recent homebuyers and the State Tax Assessor were extremely concerned with Montgomery County's policy of reviewing and challenging real property assessments out-of-cycle. The Maryland General Assembly established a specific structure that requires properties to be assessed every three years, not annually," stated GWCAR President Phillip Thomas. "When the county appeals an assessment outside the normal triennial assessment cycle, it is systematically penalizing recent buyers of real property because of the timing of the sale."

GWCAR volunteers and staff knew that this would be an uphill battle since we would be taking on the Montgomery County Government. Therefore, it was important to use our regional leadership and grassroots advocacy to help preserve a quality of life where everyone is treated equally.

GWCAR was able to form a coalition that included the State Department of Assessments and Taxation, the Greater Capital Area Association of REALTORS^®, the Maryland Association of REALTORS^®, and several Montgomery County homeowners who were subject to the county's out-of-cycle assessments.

At one point the legislature even considered eliminating out-of-cycle assessments only for residential property, which would allow the county to continue reassessing commercial properties. Through GWCAR's strong lobbying efforts we were able to persuade our legislators that the triennial system applies to all properties and not just residential.

Montgomery County Council Passes Hike In The Recordation Tax

At a time when the commercial real estate market is trying to bounce back from the recession in the Washington Metropolitan region, one would think that local governments would strive to keep closings costs down. Instead, the Montgomery County Council chose to raise the recordation tax on commercial and residential properties.

On Thursday, May 9, 2002, the Montgomery County Council unanimously approved legislation that will increase the recordation tax rate by 56.8% to $6.90/$1000 and provide for an exemption for owner-occupied residential housing on the first $50,000. "Unfortunately this is the only exemption a county may provide for under state law," commented Meredith Weisel, GWCAR's government affairs associate. Since the bill passed unanimously, this means it is veto proof and became effective July 1, 2002.

"Fortunately, GWCAR members were able to convince the council to substantially reduce the increase from the original bill, which would have increased the rate to $9/$1000, which is a 104.5% increase," stated Weisel.

GWCAR worked with several other business organizations to try and convince the council that although they intend to allocate the net revenue for capital improvements to schools and educational technology for Montgomery College, this stealth tax will only force potential buyers to seek out other jurisdictions in which to locate.

Charles McClenaghan of the Mortgage Bankers Association pointed out that "increases in taxes and fees hurt both the buyers and sellers in a real estate transaction and have the net effect of reducing growth in the economy." The Mortgage Bankers Association of Metropolitan Washington formally thanked GWCAR for its leadership on the recordation tax in their annual installation meeting at the Mayflower Hotel in Washington, DC.

Federal News

Mortgage Fraud Prevention System

A briefing was held recently on Capitol Hill on a mortgage fraud prevention system called the Collateral Management & Fraud Prevention System that is currently being utilized by several lending institutions.

The purpose of the briefing was to explain the advantages of the system with the hopes of soliciting congressional and industry assistance in convincing the federal government (including HUD, the VA and the USDA) of the merits of adopting the system.

The system is intended to be a fully automated, integrated solution to help reduce losses due to flips, heighten quality control and increase operational capacity. The intended benefits to the federal government would be to improve the integrity of the insured loans, reduce loan default rates and improve the accountability of the appraisal review process.

There will be follow up industry meetings. For more information, contact Peter Morgan of NAR at (202) 383-1233.

Senate Passes Terrorism Insurance Legislation

The U.S. Senate passed legislation in June that will make the federal government the insurer of last resort for losses associated with future acts of terrorism and urged Congress to move swiftly to resolve the differences between the Senate bill, S. 2600, and a related bill, H.R. 3210, that passed the U.S. House of Representatives in 2001.

The events of September 11 have resulted in the limitation or exclusion of property and casualty insurance for losses associated with acts of terrorism, forcing commercial real estate owners, lenders and investors to assume terrorism risks they are not equipped to measure, price or absorb. This dearth of adequate terrorism insurance has severely reduced and restricted commercial real estate transactions, making it increasingly difficult to operate or acquire properties, build new projects and find appropriate financing.

Forty-five states now allow primary insurers to exclude acts of terrorism when they underwrite commercial property and casualty insurance in those states. In addition, homeowners in at least five states recently received notices that terrorist acts are no longer covered under their homeowners insurance.

For more information, contact the following NAR staff members: Doug Miller at (202) 383-1117, Edward Miller at (202) 383-1171, or Amy Fletcher at (202) 383-1234.

Finance Committee Approves Conservation Incentive

Under current law, an individual who donates an easement for land to an organization devoted to conservation is permitted to exclude from taxation any built in gain associated with the easement, so long as the easement is granted in perpetuity. No similar incentives exist for sales of property to conservation organizations.

The Senate Finance Committee has reported a charitable incentives bill that includes a new incentive for sales of property to conservation organizations. The provision would allow the seller to exclude from taxation 50 percent of any gain associated with the sale. The exclusion is intended to provide an incentive for retention of open space. The incentive is also believed to be a mechanism to help underwrite what may be a below market price for the seller.

The Senate bill is unlikely to be considered before fall.