Second of two articles on the impact of rising real estate tax assessments.
20-Jul-19 Most Chicago homeowners still havent recovered much of the home market value they lost after the Great Recession, but that hasnt stopped property tax bills from climbing.
Average home prices in Illinois are still 21 percent lower today than in 2007, reports the most recent data from the Federal Housing Finance Agency.
Even though many Illinois homes are worth less than they were more than a decade ago, property tax bills statewide have jumped by nine percent, after adjusting for inflation, and after the citys 2018 reassessment the numbers are much worse in Chicago.
Outgoing Cook County Assessor Joseph Berrios raised the estimated fair market value of some properties from 30 to more than 140 percent in North Side and Northwest Side neighborhoods.
The sharply higher assessed valuations sparked mind-bending real estate tax hikes in most North Side neighborhoods when bills arrived this month. In Chicago, the 2018 property tax bill increases are due August 1, when the second installment of the bill must be paid.
The recovery of home prices in Illinois is more painful compared with the national recovery. Since 2007, the decline in home values remains 300 percent worse in Illinois than the national average, with homeowners nationwide seeing property values just five percent lower today on average than they were in 2007.
While city-wide real estate tax hikes average only 11 percent because bills declined in many South Side and West Side neighborhoods, hefty increases hit the North Side, and even after successful appeals tax bill increases of 50 percent or higher were commonplace.
The overlooked real estate tax escrow issue is like the tip of the iceberg that sank the Titanic.
For example, former Assessor Berrios hiked the estimated fair market value of a vintage Old Town three-flat 93 percent from $1,021,100 to an astronomical $1,973,610. After a mildly successful appeal at the Board of Review, the assessed value was lowered 28 percent to $1,419,190. However, based on the final 65 percent assessment increase, the 2018 tax bill jumped a hefty 27.5 percent to $28,033 from $21,991 in 2017.
In June, after learning of Berrios 93 percent boost in assessment level on the Old Town three-flat, the mortgage lender, a major Chicago bank, reviewed the propertys real estate tax escrow and erroneously concluded the estimated tax bill would rise to $33,373 based on an adjusted assessed value.
In March 2019, the three-flat owner paid the $12,095 first installment of taxes. Based on the astronomically higher assessment, the bank erroneously estimated that the second installment, due August 1, would be $21,277. As a result, the bank immediately increased the monthly escrow payment from about $1,500 to nearly $6,400. However, the second installment bill came in at only $15,944 because both the city tax rate and state equalization rate declined.
Before the taxes jumped to $28,033 from $21,991, the monthly tax escrow was $1,465. Suddenly the bank demanded an escrow of $6,386 a month for four months to replenish the depleted escrow account. After that, the bank said it plans to escrow $2,356 a month for 2019 taxes due in 2020.
The lender wrote in a terse email, It is the banks intention to continue collecting the current escrow payment of $6,386 over the next four months (July, August, September, and October) amounting to $25,546...so the starting escrow balance is in the black, plus or minus $500.
How tax bills are computed
The property tax bill is determined by four factors the assessment, the equalization factor or multiplier, the tax rate, and the exemptions, said Michael Griffin, a Chicago real estate tax appeal attorney. In 2019, homeowners should appeal their assessment because they are likely to see a new higher assessment next year.
Homeowners also should review their exemptions because they can reduce their tax bill if they have the proper exemptions, Griffin noted. The three main exemptions are the Homeowners, Senior Citizen, and Senior Freeze.
The Homeowners exemption recently was increased to $10,000 from $7,000, and the Senior Exemption was hiked to $8,000 from $5,000. Those amounts are deducted from equalized assessed value of a home to which tax rates are applied to determine individual tax bills.
Also, more seniors are qualified for the Senior Freeze because the Illinois Legislature increased the maximum annual income to receive the freeze to less than $65,000 from less than $55,000.
Every homeowner should review their last tax bill to see if they received the proper exemptions and contact the assessor if the exemptions are wrong, advised Griffin (right).
Predicting a property tax increase really centers on two wild cards the tax rate and the state equalization factor, which cant be challenged by taxpayers.
The equalization factor, or multiplier, is established each year for Cook County to bring property tax assessments in line with other parts of Illinois. The value is determined by the Illinois Department of Revenue. The multiplier was pegged at 2.9109 in 2018, down from 2.9627 in 2017. In 2016, the multiplier was 2.8032.
The main engine that drives up property tax bills is the amount of money spent by local government, such as increased spending for schools and police, firefighter, and teacher pensions.
Chicagos 2018 tax rate decreased slightly to $6.786 from $7.266 per $100 of assessed valuation in 2017. In 2016, the tax rate was $7.169 per $100 of assessed valuation.
The 2018 tax rate in Chicago was lower and so was the state equalization factor, noted Griffin. With the sharply higher 2018 assessments in the city, the multiplier and the tax rate should have moved lower if the amount of money that local governments request remains the same as last year.
Griffin said another problem is that the assessment increases vary by neighborhood and from small to large for Chicago homeowners, so everyone should appeal their assessment to reduce the assessment increase to as small a level as possible.
Experts say property owners who think they are over-assessed should appeal now before they receive next years tax bill. If they wait until the tax bill arrives in 2020, it will be too late to appeal.
Contact the Cook County Assessors Office to find comparable properties or to start the appeal process. If appealing at the assessor does not lower the assessed value, there are two other appeal options, the Cook County Board of Review and the Illinois Property Tax Appeals Board. Or call Michael Griffin, an expert tax assessment lawyer, at 312-943-1789.