How you can stop paying property taxes, and why!

Posted in the Livermore Forum

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1 - 2 of 2 Comments Last updated Nov 17, 2010

Since: Oct 10

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#1
Nov 17, 2010
 
The current situation in CA is very bleak. Housing is dipping again (has over the second half of summer fallen 7% in Livermore, from the highs of 2010). Recent data indicates that housing is due for a national decline of 5%. Maybe, even more. Also, in the past, when housing has declined, CA has gone down much more than other states. So that number could be twice, maybe even 3x or 4x, here in CA. It could be a 20% decline.

The guy who owns this site (Patrick), is a complete whiny douche and he spouts a huge amount of bullshyt, but he has a collection of links you can verify the projections of further declines.

http://patrick.net/housing/crash.html

At the same time, CA has been so badly managed (the unions have increased their pay and benefits dramatically just in the last decade, and we are spending $15B/year to service illegals), that it is a near certainty that the politicians and unions will find yet more ways to raise taxes, possibly by overturning, or modifying Prop 13.

In part, there would be some justice in re-working property taxation, although dismantling the taxpayer protections against rapid increases in taxes that Prop 13 provides would not be a good idea. But in equalizing property tax burdens so that every parcel that is similarly situated pays its share of the municipal services which it benefits from or can use.

Basing the property tax on the value of the house is stupid: its archaic (being a medieval tax system from a time when land generated income and in essence the tax was applied to the production of "the estate"), its arbitrary (since it has no relationship at all to the services the parcel actually consumes or benefits from), and because of these things, it is fundamentally unfair, resulting in some people not paying a fair share of taxes,(the pre-1978 owners), and others paying far too much, well beyond their share.

So how can YOU benefit or protect yourself from this financial chaos and maelstrom forming here in CA?

Well, I am here to inform you that there might be a way you can stop paying property taxes, and why you might want to do that.

If you default on your property taxes, the county adds penalties and usurious rates of interest (meaning, should be illegal but is not, since *they* make their own law and voters are not given the opportunity to vote on it).

After the property has been in tax default for 5 years, the county can then seize your house and sell it at auction (this is called "power to sell", which is a nice way of saying they're going to steal it from you because they have a "legal" monopoly on force, or in more layman's terms, "Might makes right".)

So, why might stopping paying your taxes be a great idea? Here's the conditions in which you would benefit.

A) You have no equity in the house or it is "underwater" meaning you owe more than it is worth. Even if you think you have equity, check again, this time deducting 5% for realty fees. Your perceived equity might be eaten just by the process of selling the property.

and

B) You plan to move in five years or sooner.

and

C) you believe it to be true that in the next five years your property will not appreciate by at least the amount of the property taxes due in that time, plus whatever amount you are underwater, and adjusted upwards for inflation.

Here's an example:

House value: 500K
Mortgage(s): 500K
Tax/year: 6K

In this example, your home would have to be worth at least 530K, plus inflation, for you to be in the same position in five years. If it isn't you have thrown 30K away.

In part two of this post, lets look at how you benefit under various scenarios.

Since: Oct 10

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#2
Nov 17, 2010
 
if you think the house will appreciate just by the amount of the tax:

Pay taxes:
Assuming house just goes up by the amount of the tax alone:

You pay taxes:
Equity now: zero
Equity in five years:$30K (which will get eaten in a sale)
Net cash position: zero (you paid $30K in taxes)
Total cash/equity position: zero

Don't pay tax:
Equity now: zero
Equity in five years:$30K (which would get eaten in any sale and which is forfeited anyway)
Net cash position:+30K (the taxes you didn't pay).
Total cash/equity position:$30K

So, you can take the 30K, and put it into a new home in a cheaper state in five years. That's a 20% down on a 150K house.

Okay, now here's another scenario in which the house actually falls 5% in five years:

You pay taxes:
Equity now: zero
Equity in five years:-$30K
Net cash position:-$30K (the taxes you paid)
Total equity/cash position:-30K (it would be 60K but we're assuming you will walk away)

Don't pay tax:
Equity now: zero
Equity in five years:-$30K
Net cash position:+30K (the taxes you didn't pay).
Total equity/cash position:$30K (again it would be zero but we're assuming you walk away)

So in both cases, if you're planning to move anyway, if you stop paying property taxes now, you come out in a more favorable position.

There is of course another scenario in which housing actually recovers in a big way in the next five years, but my assumptions is that it is so unlikely I didn't even want to model it.

Of course, these examples best apply to folks who bought their house in the last maybe 12 years, and who paid upwards of about $350K when they did (so that the tax is significant).

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