By: Connie S. Carr
On December 28, 2016, the Ohio Supreme Court issued another opinion regarding real property valuation in Utt v. Lorain Cty. Bd. of Revision, Slip Opinion No. 2016-Ohio-8402. This case involves the valuation of a single-family home in Elyria, Ohio that was recently the subject of a recent sale.
The property owners had purchased the property from the Federal National Mortgage Association (Fannie Mae), who owned the property as a result of foreclosure, having paid $54,000 to acquire it. Fannie Mae sold the property 3 months later to the current property owners for $20,000.
The county auditor valued the real property at $79,700 for tax year 2012 and the property owner challenged the valuation citing their 2011 purchase as a recent arm’s length sale. The Board of Revision (BOR) upheld the county auditor’s valuation and the Board of Tax Appeals (BTA) reversed it and valued the property at the sale price. This case illustrates the process and burden of proof on each party challenging a valuation when a recent sale has occurred.
1. The property owner has the initial burden of proof, to provide evidence of a recent arm’s length sale establishing a lower value. In this instance, the property owners provided the auditor’s parcel report, the conveyance fee statement and documentation of the real estate agent’s listing. Note, in some cases, a copy of the recorded deed and the purchase agreement may also be appropriate to show that the sale transaction was recent to the tax lien date and was arm’s length in nature. [Also note that this case was based on the county’s 2012 valuation. State law in 2012 put more emphasis on sale value. Under RC 5713.03 in 2012, if a property owner proved the facts supporting a recent arm’s length sale, and such evidence was unrebutted, then the auditor was required to use such sale price for the valuation n 2012. RC 5713.03 was later amended and currently provides more latitude to the auditor regarding whether to base a valuation on a recent sales price or not.]
2. The burden then goes to the Board of Education, county auditor, or other parties objecting to a lower valuation, to rebut the property owner’s facts. The rebuttal must either show the transfer was not recent to the tax lien date or, more typically, that the sale was not an arm’s length transaction. A presumption that the sale was arm’s length may be rebutted is the challenger can show that the sale was a forced sale under RC 5713.04. (“….The price for which such real property would sell at auction or forced sale shall not be taken as the criterion of its value….”) This is not a difficult burden to meet. Previously, the court held that the sale of foreclosed property by HUD “is generally regarded as a transaction that is not a voluntary sale between typically motivated market participants.” See Schwartz v. Cuyahoga Cty. Bd. of Revision, 143 Ohio St.3d 496, 2015-Ohio-3431, 39 N.E.3d 123.
3. If the property owner’s facts regarding the sale being arm’s length are initially rebutted, then the burden of proof goes back to the property owner. The property owner will have to prove that despite the property being purchased through a forced sale, it was nevertheless an “arm’s length transaction between typically motivated parties.” See Olentangy Local Schools Bd. of Edn. v. Delaware Cty. Bd. of Revision, 141 Ohio St.3d 243, 2014-Ohio-4723, 23 N.E.3d 1086.
In this case, the auditor and BOR presented expert testimony regarding Fannie Mae, its ownership of the property as a result of foreclosure, arguing that the property owners did not pay true value for the property. The expert also stated that at the time of the sale to the property owners, Fannie Mae did not act as a ‘typically motivated’ seller because it was insolvent and in conservatorship. The BTA did not accept the expert’s testimony because he did not have firsthand knowledge of the sale and only provided ‘general market commentary.’ Because none of the parties was disputing the sale price, the BTA reversed the BOR’s decision and set the value at the lower sale price of $20,000.
The court disagreed. It held that the expert’s testimony was in fact sufficient to show that the sale was a forced sale. The burden was then on the property owners to show that “the sale was nevertheless an arm’s-length transaction between typically motivated parties”. See Olentangy at 43. The property owners did not participate in the court hearing, nor the BTA hearing, and the documents they previously provided did not meet their burden. The court reversed the BTA and reinstated the county’s valuation.
Property owners need to be aware that the sale price for real property, while providing some evidence of a property’s value, is not necessarily controlling and the auditor can consider other evidence; particularly when facts and circumstances indicate it may have been a forced sale.