Reassessment Is Tough for O.C. Homeowners : Taxes: For many, bills keep going up 2% a year while values decline. Appeal process is long and confusing.

For four straight years, Mary and Michael Stout have watched helplessly as their property investments in Costa Mesa and Huntington Beach slid south along with the rest of the Southern California real estate market.

Since 1988, dwellings in their upper-middle-class neighborhoods have sold for $20,000 to $150,000 less than their purchase prices.

What really galled them, though, is that their property assessments came in each year with an automatic 2% increase tacked on--as permitted by state law.

“It’s absolutely insane that our property taxes are increasing when the newspapers are full of stories about the drop in Orange County real estate,” Mary Stout said.

While some property owners have received sizable tax breaks--at least 60,000 parcels were devalued this year alone--the Stouts’ bewilderment over their assessments is shared by many who wonder why the reduction in their home values hasn’t resulted in a property tax decrease.

And when property owners like the Stouts have chosen to appeal their assessments, they have become mired in one of the state’s worst administrative logjams, which takes nearly two years to unravel: a backlog of more than 17,000 appeals with 25,000 more expected this year. The deadline for filing this year’s claims is Wednesday.

Interviews and documents show that Orange County Assessor Bradley L. Jacobs’ system for adjusting property values has caused long delays and widespread confusion, and that Jacobs is reluctant to inform the public of how to seek reductions outside the time-consuming appeals process.

Orange County officials said they have stretched their resources to handle the mounting appeals and have already reduced the values of 74,000 properties in the last three years, based on reviews of at least 600,000 parcels.

By comparison, Los Angeles County Assessor Kenneth P. Hahn this year reviewed all 350,000 pieces of single-family residential parcels that had transferred ownership between 1988--when values began to fall--and 1992. He decided to reduce 270,000 parcels, or 77% of the total.

“We knew that market conditions had changed and we had the technical ability with a computer program to do this,” said Gary Townsend, the chief deputy assessor for Los Angeles County. “We were egalitarian about the process and reduced homes from East L.A. to the Pacific Palisades.”

The assessor in Ventura County has lowered assessments on 107,000 properties out of 230,000 parcels in the county since 1991. In San Diego County, officials reduced 30,000 properties out of 40,000 reviewed just this year. However, San Diego assessors analyzed only properties brought to their attention by homeowners and businesses.

Though the Southern California economy continues to decline, valuations of many area homes continue to rise 2% each year because assessors’ offices cannot appraise every piece of property each year, nor are they required to, officials say.

Jacobs defends his method of handling assessments.

“Our approach is that we look at properties one at a time,” he said. “We are very careful, very efficient. The number of appeals has nothing to do with the quality of assessments. It has to do with the state of public confusion. When people are unsure about what’s going on (in the economy), they move to protect themselves. We attempt to do the right thing even if people don’t ask us to.”

Still, the waiting game continues.

While Orange County’s tax roll is less than one-third the size of Los Angeles County’s and has fewer new appeals each year, residents here still must wait about two years before their claims for property assessment reductions are heard--about the same as in Los Angeles County.

In fact, many Orange County property owners have agreed to delay their rights to a hearing within two years at the request of the assessor’s office.

In San Diego County, which is similar in size to Orange County, officials report that residents receive nearly immediate responses on their appeal requests. And in Ventura County, the backlog is just 500 to 600 properties.

Anaheim resident Robert P. Stahovich received a $644.95 property tax refund check only two weeks ago after filing a property appeal in 1991. He has filed another appeal this year on the same property, but does not expect a decision for another year and a half.

“It’s so mind-boggling that it has me laughing by the time I get all my paperwork together,” Stahovich said of the protracted process. “They just burn you out. This is so crazy. I know I’m not the only one who feels this way.

“In the meantime, you pay your taxes,” he said. “They don’t give you a delay on paying your taxes. They want the money right away.”

The county provides tax refunds with interest to those who are ultimately granted property tax reductions.

Webster J. Guillory, a manager in the assessor’s office, acknowledges that appraisers have been buried in appeals because of falling real estate values, but he says they work as fast as they can to resolve appeals.

“We have a thin staff that is spread over a lot of work,” he said. “But you won’t be lost. We will get to you.”

But Larry L. Bales, a longtime employee in the Orange County assessor’s office who has run against Jacobs in past elections, said the office is notoriously slow in reviewing properties.

“All you have to do is push a button on a computer” to review properties, Bales said, “but they look at (documentation for) each and every property before making a decision. All the while, the county gets free use of the (tax) money while the appeal is pending.”

Guillory said appraisers review each property individually and cannot base their reductions on a general model that applies to many parcels.

State law requires that assessors recognize declines in property values if the market value drops. As recently as last year, the State Board of Equalization warned assessors of their obligation “to inventory and process declines in value with the same diligence and resources expended on increases in value.”

“They just can’t pick and choose because they want more tax revenue,” said Matthew K. Fong, the board’s vice chairman. “I’ve been told by assessors that they just don’t have the staff and I tell them that they seem to have the staff when it comes to raising taxes.”

But when assessors reduce taxes, they are depleting tax revenue that funds vital services, such as police protection and library operations, said John F. Mahony, who represents Orange County property owners in the appeals process.

“They are really sitting on a fence post,” he said. “You just can’t give away the farm. . . . It’s a little bit of a game. (The county) is looking for revenue for the county, and I’m looking for an adjustment for my client.”

Although assessors are not required to reappraise every piece of property every year, state law says they must be “proactive” in looking at property that should be reduced downward, particularly parcels purchased at or near the peak of the real estate market.

For many who purchased their homes before 1988, there isn’t much of a case to be made for declining property taxes, because their values still exceed what they paid for the houses. But for those who bought in 1988, and particularly in 1989 and 1990, property values have decreased rapidly. Many are entitled to a reduction.

In 1991, Jacobs’ office conducted a review of some 200,000 properties that sold or were transferred between 1988 and 1991. Based on that sample, the value of nearly 10,000 properties was reduced, 10,000 others held the same value, and assessments were increased on county’s remaining 710,000 properties.

Last year, the assessor’s office reduced the value of 4,000 properties, kept 10,000 the same and raised the rest. Guillory could not say exactly how many parcels were reviewed in that time but estimates it was at least 200,000.

This year, Jacobs made the largest reduction of values in the county’s history, lowering the assessments of some 60,000 properties while keeping 125,000 the same. Again, Guillory estimated that at least 200,000 properties were reviewed although he could not provide an exact number.

Even though this year’s action represented a landmark reduction, the adjustment went nearly unnoticed outside the assessor’s office. Jacobs made no mention of the decrease in a press release announcing the delivery of the 1993-94 tax roll. Other assessors have extensively publicized the reductions.

Assessors in other counties also have chosen to use public service announcements and press releases to publicize a process whereby property owners can challenge assessments without filing a formal appeal. Each spring, property owners in other counties who believe their assessments are too high are encouraged to send letters or telephone their assessor’s office to dispute the values.

Within that period, generally from March 1 to mid-May, property owners can ask that their assessments be lowered by providing evidence of their property’s worth, such as comparable sales. If an assessment is not lowered, a property owner is free to file an appeal.

Orange County does not solicit challenges from property owners prior to the time formal appeals must be filed, preferring to independently seek out properties worthy of reduction or wait for the appeals process to run its course.

Last September, the State Board of Equalization made a number of recommendations for assessors to follow in helping with assessment reductions mandated by Proposition 8, a state constitutional amendment approved by voters in 1978 requiring that property valuations be lowered if they fall below market value.

Among the suggestions were informational inserts in tax bills, announcements in newspapers, radio and television, and special mailings to property owners keeping them abreast of ways to reduce assessments.

Guillory said the Orange County assessor’s office does little to solicit letters or telephone calls, fearing that the office would be overwhelmed with requests. The office, however, does receive numerous unsolicited letters and telephone calls from property owners, which are reviewed and acted upon.

Mass mailings are too expensive and, judging from the calls and letters property owners send the local office, local residents are well aware of their rights under Proposition 8, Guillory said.

Bill Gage, the principal appraiser for the San Diego County assessor’s office, said that Assessor Gregory Smith issues regular public notices encouraging property owners to submit challenges to their home valuations before filing an appeal.

“We think having people send us letters saves them, and us, from going through a time-consuming appeals process,” Gage said.

Although the State Board of Equalization is empowered to audit the operations of county assessors, it does so only every five years. Jacobs’ office is not due for another review until 1995.

Even for those who have benefited from the process, such as Sharon and Roger McErlane of Laguna Beach, the appeals system is still baffling.

Earlier this year, they were granted a $150,000 assessment reduction on their three-bedroom home, which they bought in 1989 for $750,000. They had filed appeals for both 1991 and 1992.

Sharon McErlane is certain the 1992 assessment was reduced, but is not so sure about the 1991 valuation.

“This whole thing has been so confusing that I don’t know if they reduced it for two years or not,” she said. “I’m still trying to figure it out.”

Property Reductions

State law requires county assessors to reduce property tax assessments when the market value drops. Below is the number of parcels in Orange, Los Angeles, Ventura and San Diego counties whose assessments have been reduced since 1991 without going through a formal appeals process.

Orange Los Angeles San Diego Ventura County County County County 1991 10,000 4,297 5,035 25,000 1992 4,000 16,818 7,626 33,000 1993 60,000 270,000* 30,440 49,000

* Residential properties only

APPEAL EXPLOSION

There has been more than a 200% increase in the number of Orange County property assessment appeals during the past four fiscal years. Another 25,000 property appeals are expected in Orange County this year, adding to an existing backlog of 17,000; in Los Angeles County, 17,000 appeals have been filed so far and about 32,000 are backlogged.

Orange Los Angeles San Diego Ventura County County County County 1989-90 7,815 11,203 3,531 N/A 1990-91 9,226 15,890 3,008 976 1991-92 13,300 20,426 5,523 1,883 1992-93 25,000 35,445 20,523 2,690

N/A: Information not available

HOW TO CHALLENGE YOUR PROPERTY VALUE

* Fill out an application available at the Orange County assessor’s office, Building 12, 630 N. Broadway, Santa Ana

* Try to enclose with your application copies of comparable sales in your neighborhood.

* Applications must be filed or postmarked no later than Wednesday.

* Expect a wait of 18 to 22 months before the application is reviewed.

* You will be notified of a hearing date and location at least 30 days in advance.

* Attend the hearing with evidence--particularly comparable neighborhood sales.

Source: Individual county assessor’s offices