Exorbitant Property Appraisals Have Homeowners Reeling, Critics Railing

By Amy Linn, 9-29-09

“Oh my God.” That was all artist Lela Autio could think to say when she opened her 2009 assessment notice for a bare-bones Flathead Lake summer cabin—sans an inside toilet or central heating—that’s been in her family for more than 40 years.

In 2002, the Montana Department of Revenue (DOR) calculated that the property was worth $363,000. Now, Autio’s notice said it was worth $1.9 million—more than a five-fold increase.

“It’s outrageous,” says Autio. The cabin sits on 3.5 acres, including a few hundred feet on the lake, but it’s so outdated that Autio’s homeowners’ insurance was recently cancelled.

“This is a summer cabin,” Autio says. “We burn wood for heat and use an outhouse. Who would pay $2 million for that?”

Welcome to the 2009 Montana property assessment imbroglio, in which shocked property owners in growth areas like Flathead, Lake, Gallatin and Madison counties are receiving assessment letters saying the value of their land and homes has increased by as much as 300 percent or more, meaning their property taxes will skyrocket as well. This, despite the fact that shortly after the reappraisals were completed—in July 2008—the nation’s real estate market went belly up, buyers disappeared and home prices dipped or plummeted.

“Everybody’s hitting the roof,” Autio says.

Flathead residents aren’t the only ones hurting. In the exclusive Diamond Hitch subdivision in Big Sky, some property owners are seeing assessed values jump from $325,000 to $1.5 million, says real estate broker Eric Ossorio, of Ossorio/Prudential Montana Real Estate.

“A crisis is brewing — we’re strangling the goose that laid the golden egg,” Ossorio says. One of his clients is facing a $4,000 tax bill for a one-third-acre vacant lot in Madison County, he says. “People are freaking out now because they’re just getting these letters.”

Ossorio believes the fallout isn’t healthy for the state and will chase away wealthy owners and would-be buyers who pour needed money into local economies. “Tax policy that says ‘if you come to Montana we’re going to tax the bejesus out of you’—that’s not going to work,” he says. “You can’t increase property values up to 400 percent and not explain it to people. If people get the sense they’re going to be taken advantage of, they’re not going to stay here.”

The controversy, not surprisingly, has sparked finger-pointing between Democrats and Republicans, and between legislators from western Montana (where increases were highest) and those from eastern Montana (where values often fell or stayed static). People from both sides, meanwhile, blame the DOR.

One Missoula CPA, Patty Lovaas, has gone so far as to accuse the DOR of manipulating valuation figures and violating state law. In addition, she says the DOR tried to deceive the public by sending out assessment forms this summer that only showed the new valuations and not the old ones, so that the (potentially startling) comparisons weren’t on display.

“I have personally reviewed several assessments where the values have gone up 100 percent, 200 percent—they’re absolutely astronomical,” Lovaas says. The DOR is treating the Flathead Lake region “like it’s Lake Tahoe,” she adds, referring to the tony California ski and resort area. “But they’ve screwed with everybody, including the poorest of the poor.”

Not everyone holds that view, of course. Joe Roberts, a contract lobbyist for the Montana Association of Realtors, says he carefully bird-dogged the DOR and the legislation, HB 658, that dictates the state’s property reappraisal and mitigation process, and he calls the law fair. “I think ultimately it was a pretty darn good bill,” says Roberts. “Nobody’s ever going to be happy in this process,” he adds. “It’s a miserable job.”

Indeed, DOR director Dan Bucks says this has been “one of the more challenging” assessment processes in recent times. But that’s not because of any problems created by his agency, Bucks says. “We’ve provided more and better information this past year than ever before,” he says.

Instead, Bucks believes the troubles stem from the state’s popularity. “The rest of the world has been discovering Montana, especially in the past decade,” he says, and that’s driven up prices. “Particularly desirable is any land in scenic areas next to a lake or river,” Bucks says. “The values are simply going up.”

Montana’s magnetism aside, lawmakers say constituents are spitting nails. Legislators, realtors and other observers point to several things that have helped inflame matters. Among them:

-- The latest six-year reappraisal period happened to book-end one of the biggest real estate booms in state history. “We’d never seen this level of market appreciation before. We could see right away that this was going to be a problem,” said Rep. Mike Jopek, D-Whitefish, who sponsored this year’s property reappraisal and mitigation bill (HB 658) but did not vote for the final product after it was rewritten by the Republican-controlled Senate Taxation Committee. (Democrats wanted the bill to include more money for homeowner assistance programs that helped the poor, the elderly, and disabled veterans, among other things.)

-- The DOR got off to a rough start when it mailed out property assessment notices this summer that did not include the last round of reappraisals in 2002. “That was clearly against the law,” says lobbyist Roberts. “The statute provides that the assessment has to have the current and the prior valuation on it.” The DOR then started over and mailed out notices with the comparisons, but the misstep created some mistrust.

-- The DOR went the extra mile to include falling property values in its reappraisals; it added an extra six months to the process, ending it on July 1, 2008 instead of January 1, 2008. “We did that to catch as much as we could of depreciating values,” Bucks says. But finally, the window had to shut. And since prices in many areas of the state continued to drop after July 1, 2008, the reappraisal figures couldn’t help but look outdated. (To find out how to appeal your valuation, click here.)

Making things worse, homeowners say some of the valuations weren’t logical.

Autio, for example, says her next-door neighbor on Flathead Lake was forced to foreclose on his contemporary home on 2.9 acres: a bigger lot than hers, with a home full of amenities. The neighbor’s property went up for auction at the courthouse, got no bidders, and is now on the market for $885,000, she says.

“So how can my old place be worth nearly $2 million? How can they jack up prices that high?”

Jopek says the hikes are the result of a Republican-hijacked bill that’s going to wind up hurting citizens and local economies. “And this is going to cause real difficulty in our growth regions,” he predicted. “We’ve seen three-fold and four-fold increases in land values, especially along the Flathead lakefront.”

State Sen. Bruce Tutvedt, R-Kalispell, says legislators did the best they could, but were given “flawed data” from the DOR. He’s getting phone calls from constituents whose property tax bill has gone from $6,000 to $18,000 or from $4,000 to $12,000, he says. (To check out what your tax bill will look like, click here.)

“They [the DOR] said they’d get us the right valuations and we relied on them to do it in a fair and equitable fashion,” Tutvedt says. “You’re going to have some mistakes when you’re assessing 350,000 properties,” he concedes. “But it appears that these mistakes are widespread.”

So what can be done? On one thing, all agree: if you disagree with the market value on your assessment, file an appeal immediately. Homeowners have only 30 days from the date of their notice to lodge a protest. (For more on that process, click here.)

Another possibility, says Tutvedt, is that Republicans might ask the DOR to afford a longer period of time for homeowners to appeal.

Roberts is all in favor. “I don’t think people fully realize what that notice is, or understand that it’s going to affect the next six years of property taxes,” he says. “It comes at the end of summer and there are bunch of people that are going to wake up when the 30 days is over and find out they have no recourse.”

A final possibility, though a somewhat remote one, is that counties in the coming weeks will set lower mill levies, which are the dollars owed for every $1,000 of a property’s assessed value. Lower mill levies result in lowered property tax bills, but they also bring in less money to cash-strapped local governments—thus, they don’t happen often.

The safest bet for disgruntled property owners is to protest their assessment, and quick, says Lovaas. The appeals are free and can end up saving you money, she notes. But failing to file one might cost you.