Prices of two vacant lots at “compulsory” auction reflected market values in their neighborhood and supported reductions of the lots’ property tax assessments

The auction prices of two lots established their values for purposes of determining their property tax assessments, the Indiana Board ruled last month in Norris v. Howard County Assessor, Pet. Nos. 34-002-10-1-5-00149 and -00151 (May 31, 2012) [Small Claims Docket].  See http://1.usa.gov/LNEnrG.  On August 4, 2009, Richard and Patricia Norris (Owners) purchased two vacant lots at auction in Howard County for a total of $4,500.  The seller was a developer which, Mr. Norris asserted, “could no longer meet [its] financial obligations.”  (Page 3, ¶ 11(c).)  The developer auctioned a total of 144 vacant lots for prices ranging from $800 to $4,500 per lot.  The developer had not sold a single lot in three years before the auction.  The sales disclosure forms for the acquisitions indicated that the sales were “compulsory, as a result of a foreclosure or express threat of foreclosure.”  (Page 5, ¶ 12(e).) 

For the March 1, 2010 assessment, the assessor assigned the lots a total value of $71,000.  Owners believed that the lots should be valued at their purchase prices.  They contended that the purchases were arm’s length transactions, as they were between willing buyers and a willing seller. 

As further support for an assessment reduction, Mr. Norris stated that he and his wife in 2011 had listed the lots for sale.  They had received and accepted a tentative offer of $14,000 for the two lots.  Because the potential buyer could not obtain financing, the deal was not completed. 

The Indiana Board agreed with Owners.  The Board noted that “a sale does not necessarily indicate the market value of a property unless the sale happens in a competitive market under all conditions requisite for a fair sale, in which the buyer and seller are typically motivated.” (Page 8, ¶ 19(b).)  Even though the sales disclosure forms indicated that the sales were “compulsory,” the Board explained that “there may be situations where enough properties in an area are sold in forced sales or are otherwise sold under duress as to effectively constitute the market.”   (Page 8, ¶ 19(c).)  Two factors were important:  (1) the developer had been unable to sell a lot for three years; and (2) 144 lots were offered at auction.  Id.  That evidence was sufficient to prove that the purchase prices “reflected the market in that neighborhood.” (Page 9, ¶ 19(c).)   In addition, the parcels were listed for sale in 2011, and Owners had received and accepted an offer of $14,000 for the two lots.  The Indiana Board explained:  “While the sale was never closed and the offer was a year removed from the relevant valuation date, the transaction is some evidence that the properties’ purchase prices better reflected the properties’ values in 2010” than their assessed values.  Id. (emphasis added.)

The assessor failed to support her assessments.  As the Indiana Board observed, she claimed the properties’ values were valid because they were “within acceptable statistical ranges for measuring overall uniformity, equality, and accuracy of mass appraisals.”  (Page 9, ¶ 19(d).)  In rejecting this argument, the Indiana Board reasoned that an individual taxpayer has the right to appeal his or her property tax assessment to prove the property’s correct value “independently of any constitutional or statutory requirements for uniform and equal assessments.” Id.  The lots’ assessed values were reduced to a total value of $4,500. (Page 9, ¶ 20.)