Glitch Leaves Developers Facing Steep Back-Tax Bill : Assessor: Computer snafu that undervalued thousands of mostly vacant lots since 1989 means the county is owed as much as $1 million.

TIMES STAFF WRITER

Local real estate developers may owe as much as $1 million in back taxes because of a three-year-long computer glitch at the Orange County assessor's office, real estate officials said Saturday.

Assessor Bradley L. Jacobs said thousands of mostly vacant lots may be undervalued because his office's computer failed to record the value of work done on those properties.

Jacobs said Saturday that certain local properties may be undervalued by as much as $80 million but he quickly cautioned that that figure was "a wild guess."

State law requires that any changes made on vacant lots be recorded if they result in the property's appreciation.

For example, a developer who grades a steep hillside would generally see an increase in the property's value because that land would be more suitable for home building. Once a home is built, obviously, the property appreciates dramatically.

Jacobs said his appraisers have tracked down the cause of the undervaluations to a computer program installed in February, 1989. He said he was alerted to the problem by an outsider.

The computer was not equipped to figure increased values on land changes such as grading. The problem went unnoticed for so long because a hot real estate market ensured that properties kept changing hands and were automatically reassessed at time of sale.

The computer glitch "didn't make any difference when the real estate market was rising because the properties turned (over) so quickly. Those improvements in land were in the transfer price," explained Jacobs.

However, a runaway recession greatly reduced Orange County home sales. Though developers were preparing many vacant properties for homes sites, those changes went undetected because fewer people are buying new houses.

Jacobs said he sent teams of auditors to communities ranging from Rancho Santa Margarita to Yorba Linda to look at some of the thousands of properties now in question.

The Lusk Co., an Irvine-based home builder, said that one of its Yorba Linda developments--the 96-home Fairmont Terrace--was examined.

Donald D. Steffensen, Lusk's executive vice president, said the company is reviewing the situation.

"Certainly today land values aren't what they were in late 1989 and early 1990. I'm sure we are going to look very closely at what they have assessed it at and see whether we think it's equitable," said Steffensen.

Steffensen said he planned on scrutinizing the assessor's final figures because some land values have actually decreased since 1989. The assessor can only add the market value of a developer's changes.

"It just adds another level of expense that probably--at least today--can't be recovered from the sale of product," Steffensen said.

Because Orange County has about 16,000 property tax rates, it is difficult to figure out exactly how much back taxes are owed.

The basic tax rate, however, is 1%. Taxes for lighting, sewer service and education are tacked on top of that figure.

If Jacobs' "wild guess" that certain properties are undervalued by $80 million is accurate, it would mean that developers owe in the neighborhood of $1 million.

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