A Minnesota Tax Court judge has thrown out a lawsuit which alleged that Minneapolis has systemically and illegally inflated the assessments of homes in foreclosure-battered neighborhoods.

Judge Sheryl Ramstad ruled that claims of overassessment for 2008 and 2009 were filed too late under the state law allowing property owners to challenge assessments, and that a claim for 2010 should be dismissed because it improperly included multiple property owners.

The lawyers who filed the case on behalf of plaintiffs in neighborhoods with more foreclosures or forced sales said that they will exercise their option for automatic Minnesota Supreme Court review of the ruling.

"We viewed this as kind of a two- to three-year haul, and this is just year one," said attorney David L. Wilson. He said he expects a review to happen slowly. "There are so many legal issues that the court rarely deals with," he said.

If the lawsuit succeeds, it would shift some of the tax burden away from foreclosure-prone neighborhoods toward better-off neighborhoods and businesses. The lawsuit seeks reassessments and tax credits potentially worth millions of dollars.

The suit alleges that the city has set property values on the North Side and in the Phillips community on average much higher than the price the homeowners paid for the property the previous year. In her Aug. 31 ruling, Ramstad dismissed all claims brought against the city and Hennepin County, which also was named.

"We're pleased with the ruling, but not surprised," City Attorney Susan Segal said. "Our assessor's office has conducted the property tax valuations in accordance with state guidance." Deputy County Attorney Mark Chapin added, "I believe that the law is correct as outlined by the court."

Ramstad ruled that claims against the county should be dismissed because it merely carried out duties assigned by state law to counties, and the city was responsible for the actual assessments.

She noted that state law provides multiple avenues for owners to challenge assessments of their market value, ranging from informal contact with an assessor to a formal tax petition in court.

The attorneys for property owners in the low-income neighborhoods argue that the public wasn't made aware that some sales are excluded from market analysis if they are judged not to be arms'-length transactions. Ramstad agreed with the city that ignorance of that doesn't excuse not challenging the assessments in the time frame set by law.

The analysis of post-sale assessments found that homes sold in 2008 in the Near North community were on average assessed the following year at three times the sale price, nearly that much in the Camden community, and twice the price in Phillips. But homes in the Calhoun-Isles and Southwest communities, which are more affluent, were assessed at close to par with their sales prices.

Steve Brandt • 612-673-4438