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The city of Minneapolis is systemically and illegally inflating the assessments of homes, some property owners and their advocates allege in a new lawsuit seeking class-action status.
The suit asks for reassessments and tax credits potentially worth millions to residents of foreclosure-battered neighborhoods. The same pattern did not occur in better-off neighborhoods, the suit claims.
The litigation asserts that the city has set property values across the North Side and in the Phillips community of south Minneapolis an average of 50 percent higher than the price the homes' owners paid for the properties the previous year. That also inflates their neighbors' assessments, the plaintiffs argue.
"That makes us suspect that there's a pattern of ripping people off here that's not acceptable," said John Braun, a University of Minnesota law student. Braun owns property in the Camden neighborhood and says he was a victim of an inflated assessment.
Braun and the law school's legal clinic checked the post-sale city assessments of 10,000 homes. They found property owners willing to act as plaintiffs. They served the suit on the city last week and were expected to file it in Hennepin County District Court yet this week.
The city will fight the suit, City Attorney Susan Segal said, adding: "The lawsuit reflects a lack of understanding of the property tax system and the relevant law in this area."
The lawsuit is based on analysis of home valuations in better-off neighborhoods in the city's lakes area against valuations of homes in neighborhoods where foreclosures and resales of homes have been rampant.
The sale prices of all publicly listed homes in one year were compared to the value city assessors set for them at the start of the following year.
The suit alleges that homes sold in 2008 in the Near North area on average were assessed the following year at three times the sale price, nearly that much in the Camden area and at twice the sale price in Phillips.
Meanwhile, homes sold in the Calhoun-Isles area and Southwest were assessed on average at close to parity with the selling price.
The suit asks for reassessments of residential property in the allegedly overassessed communities on behalf of owners at the start of the last three tax assessment years. It also asks that any resulting lower tax be credited to them.
"I don't want people paying on value they don't have," said City Council President Barbara Johnson, many of whose constituents could gain if the lawsuit succeeds. She noted that it's difficult to set values in a foreclosure-dominated market.
More than selling price
Experts caution that there's more to valuing property than noting the selling price.
For example, a bank, to cut its losses, sometimes will sell a property below market value, according to John Hagen, director of the state's property tax division. Or it may decide to settle for what it's owed rather than for the home's full value.
"There's kind of an old assessment saying: 'One sale does not a market make,'" said Lloyd McCormick, who directs the state's liaisons to county assessors.
The experts say that in addition to isolated sales, an assessor must also consider all sales of similar property in an area.
But those at the University of Minnesota's legal clinic who helped shape the lawsuit point to a 1984 state Tax Court decision involving a foreclosed Grand Rapids duplex with an assessed value much higher than what the owner paid for it four months earlier.
The court said that even with a lender anxious to sell a trashy and vacant property in a depressed market in a less-than-desirable neighborhood, "None of these factors negate an arms-length transaction ... the very best evidence of market value is a recent arms-length cash sale." Though that's not conclusive, the court, in slashing the assessment, said it gave the sale "substantial weight."
City officials say property owners get multiple opportunities to challenge assessments. They can call an assessor, appeal to a local board or go to court. But the lawsuit's plaintiffs say the assessment notices don't give individual owners the kind of information about widespread patterns allegedly identified by the plaintiffs. Nor do individual challenges offer large-scale property tax relief, the plaintiffs say.
The lawsuit has three sets of named plaintiffs, two owning property in Phillips and one in Camden. But lawyer David Wilson said he expects to add plaintiffs. Wilson is handling the case with legal clinic supervisor Laura Thomas and students Braun and Michael Gavignan.
The plaintiffs are seeking class-action status for their lawsuit on behalf of people in the three communities who bought residential property and homeowners whose recent valuations were impacted by the alleged over-assessments.
'That's not fair'
One of the plaintiffs is Idowu Odunlade, an immigrant from Nigeria who lives in the McKinley neighborhood of the Camden district. She bought a house there from a bank in March 2008 for $22,000.
It was earlier listed at nearly $60,000, but the bank cut the price during the home's five months on the market. Odunlade said that was the major factor in her decision to buy.
But the city placed a value of $90,100 on her property the January after the sale. "I thought, 'That's not fair,'" she said.
She said she's held off making major improvements because she can't afford them on her salary as an aide in an assisted care facility.
"There are hundreds and hundreds of [similarly aggrieved property owners] out there," Thomas said.
The lawsuit is aimed mainly at the city, but it also names the county and top assessors in both jurisdictions. The lawsuit alleges that the city's assessments violate such state or federal constitutional guarantees as equal protection, due process and uniformity, plus state laws governing property valuation.
Steve Brandt • 612-673-4438