oversight

Department of Housing and Urban Development Unresponsive to Multifamily Housing Real Estate Tax Problems

Published by the Government Accountability Office on 1977-09-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          DOCUMENT RESUME
03505 -   [A2723943]
Department cf Housing and Urban Development Unrespcnsive to
Multifamily Hcusinj Real Estate Tax Problems. CED-77-125;
E-114860. September 27, 1977. 23 pp. + 2 appendices (6 pp.).

Report to the Congress; by Elmer B. Staats, Comptroller General.
Issue Area: Domestic Housing and Community Development:
    Minimizing Costs in Maintaining Integrity and Livability of
    Subsidized Housing (2107).
Contact: Community and Economic Development Div.
Budget Functicn: Commerce and Transportation: Mortgage Credit
    and Thrift Insurance (401).
Organization Concerned: Department of Housing and Urban
    Development.
Congressional Relevance: House Committee on Banking, Currency
    and Housing; Senate Committee on Banking, Hou'sing and Urban
    Affairs; Congress.
Authority: National Housing Act, as amended (12 U.S.C. 1701 et
    seqg.). State of Michigan Public Act of 1966, no. 346.

          Although the Department of Housing and Urban
Development (HUD) has beea able to reduce real estate taxes
sporadically through local appeal actions, it has been
unresponsive generally to real estate tdX problems of
multifamily housing projects. The lack of a program to verify
that taxes assessed on HUD-insured projects are fair and
equitable has resulted in payment of excessive taxes and
approval of unnecessary rent increases.   Pindings/Conclusions: A
review of the Chicago, Detroit, and Dallas area office
operations indicated that HUD has not effectively reviewed and
appealed tax assessments on projects it owns, insured proper and
timely payment of taxes on these projects, or concerned itself
with real estate taxes in its review of financial operations of
insured projects. These problems were caused, in part, by a lack
of needed tax information at the local offices and the absence
of a headquarters policy on servicing insured-project tat
problems. In Detroit, HUD was everassessed in several cases,
paid taxes on projects it did not own, and paid $35,000 worth of
late charges. In ct:er cases, HUD paid unnecessary taxes by not
taking advantage of State relief laws, and did not appeal a
known overassessment. Although area offices are required to
evaluate the fairness of tax assessments, they do not have the
data available to them. HUD believes that tax assessment review
for insured projects is the cwners' responsibility.
Reccsmendaticns: Real estate taxes should be included as one of
the items to be dealt with in monitoring problems of insured
projects. Procedures should be established to assure that real
estate taxes assessed on both HUD-owned and -insured multifamily
projects are fair and equitable. A multifamily tax payment
system should be developed which insures proper and timely
payment of real estate taxes. States and other taxing
authorities which have enacted tax relief legislation should be
noted, and BUD-insured project owners should be instructed to
take advantage of such programs. (Author/SS)
               RE'I'ORT77'0)THE
                              i C(ONGRELSS

         -'
         u    .r3Y 7'HE"OMPTRO()LLER                                  (GENEAL
              oO
               ()J T'HE                        ;NIT'EI)
                                                  STAT'ES




              Department Of Housing And Urban
              Development Unresponsive To
              Multifamily Housing
              Real Estate Tax Problems
              Although an increasilngy large number of
              multifarnily housing p,'ojects have been un-
              able to geneiate sufficient income to pay the
              rapidly increasing cost of local real property
              taxes, the Department has not

                     effectively reviewed and appealed tax
                     assessments cn ownedr projects,

                     insured proper andi timely payrnment of
                     taxes orn owned projects, and

                     concerned itself wvith re,, I:stiie tt xes
                     irn its 1monitoring of insured projects'
                     financial operatiorns.

              As a resuilt, the [L)epr tnilt h!as pai: Iirlneces
              sary taxes on projects it owns arid project
              owrIers hIave [iid onrnlteess„ry tixes ()I0 [ptoj
              ects i-istiued by the( L)epiartrn eflt




              CED-77-125                                           SEPTEMBER 27, 1977


i   --
                COMPTROLLER GENERAL OF THE UNITED STATES
                          WASHINGTON. D.C. 20S"




B-1148!i0




To the President of the Senate and the
Speak.er of the House of Representatives


     This report shows how the Department of Housing and
Urban Development's unresponsiveness to real estate tax prob-
lems has resulted in the payment of unnecessarily high taxes.
The report also identifies problems with the Department's real
estate tax payment system.

     We reviewed this area because real estate taxes consti-
tute a large portion of the operating costs of multifamily
housing projects and the payment of unnecessarily high taxes
results in increased rents for project tenants and can ad-
versely affect project viability.

     We made our revie? p;ursuant to the Budget and Accounting
Act, 1921 (31 U.;.C. j3), and the Accounting and Auditing Act
of 1950 (31 U.S.C. 67).

     We are sending copies of this reper:t 'o the Director, Of-
fice of Management and Budget, a:d the Secretary of Housing
and Urban Development.




                                  Comptroller General
                                  of the United States
 COMPTROLLER GENERAL'S                   DEPARTMENT OF HOUSING AND URBAN
 REPORT TO THE CONGRESS                  DEVELOPMENT UNRESPONSIVE TO
                                         MULTIFAMILY HOUSING REAL ESTATE
                                         TAX PROBLEMS


              DIGEST
             Although the Department of Housing and Urban
             Development has been able to reduce real estate
             taxes sporadically through local appeal actions,
             it has been unresponsive generally to real
             estate tax problems of multifamily housing proj-
             ects, where such taxes are a significant part of
             the rising cost of operation and maintenance.
             (See p. 6.)
             An effective tax management program could prob-
             ably reduce significantly taxes on Department-
             owned and -insured projects. However, it has no
             program to verify that taxes assessed on
             Department-insured multifamily housing projects
             are fair and equitable. This has resulted in
             payment of excessive taxes and approval of
             unnecessary rent increases.
             Ir a review of the Chicago, Detroit, and Dallas
             area offices, GAO found that the Department has
             not

             -- effectively reviewed and appealed tax assess-
                ments on projects it owns (see p. 6),
             -- insured proper and timely payment of taxes on
                these projects (see p. 13), and
             -- concerned itself with real estate taxes in
                its reviews of financial operations of insured
                projects. (See p. 14.)

             These problems were caused, in part, by a lack
             of needed tax information at the local offices
             of the Department and the absence of a head-
             quarters policy on servicing insured-project
             tax problems. The large number of Department-
             insured projects, the short time allowed for
             appeals of tax assessments by many of the ap-
             proximately 6,000 taxing authorities nation-
             wide, and the fact that tax assessments are


ITwr hm.    Upon rol,        po5rt                 7the
c5w:ar     should b nas lroon.       i                      CED-77-125
sent directly to owners of insured projects
make it difficult to establish an effective
tax management program for insured projects.
However, an effective program can be estab-
lished if Department field offices become more
directly involved with real estate tax issues
when monitoring insured projects.
Specifically, its field offices could
-- arrange to have local taxing authorities to
   send copies of tax assessments on insured
   projects directly to the Department at the
   time the notices of assessments are sent to
   financing institutions hol ding mortgages on
   property,

-- identify methods used to compute tax assess-
   ments by the taxing authorities in those areas
   where Department-insured projects are located,
-- compute tax assessments on Department-insured
   projects before tax assessments are sent by
   the local taxing authority,

-- compare the Department's computed assessment
   with the taxing authority's to identify un-
   reasonable assessments,
-- alert the owners to unreasonable assessments
   and instruct them on the appeal process, and

-- verify that appeals are filed, when warranted.
Since tax increases on insured projects are
generally passed on the tenants in rent increases,
unreasonably high taxes ultimately have their
greatest impact on the low- and moderate-income
tenants, those least able to afford them. (See
p. 5.)
Here are some examples noted by GAO:
-- Six of 14 Department-owned projects in Detroit
   were overassessed by 9 to 76 percent. (See
  p. 8.)
-- The Department was aware of, but did not ap-
   peal, an unreasonable assessment on a Rockford,


                      ii
           Illinois, project which resulted in about
           $25,000 annually of unnecessary tax payments.
           (See p. 8.)

           -- Of 23 owned projects in Chicago, 4 were
              vacant. boarded-up properties which had not
              earned any income since 1975. The Depart-
              ment, however, had not appealed even the
              assessments on these properties.  (See p.
              9.)
           --Of 71 eligible Department-insured projects
             in Detroit, 5.2 did not take full advantage
             of a tax relief program provided by the
             State of Michigan for subsidized projects.
             (See p. 17.)
           -- In four projects in Detroit, the Department
              incurred $35,000 in late charges because it
              did not pay tax bills on time, paid taxes of
              $36,000 on property it did not own, and did
              not pay two tax bills totaling $2,100.
              (See p. 14.)
           Although area offices are required to evaluate
           the fairness of tax assessments on owned projects
           and seek reductions when warranted, tax informa-
           tion needed to do this is obtained and retained
           by Department headquarters. which is responsi
           bile for paying the taxes due. (See p. 18.)
           With respect to insured projects, headquarters
           officials believe that the primary responsibil-
           ity for review and appeal of tax assessments
           rests with the owners.

           GAO believes that an effective tax management
           program can be established if the Department
           field offices become more directly involved with
           real estate tax issues when monitoring
           Department-insured projects. GAO is making
           specific recommendations for improving the De-
           partment's tax management of both owned and in-
           sured projects.   (See p. 23.)
           AGENCY COMMENTS

           The Department agreed to implement one of four
           GAO recommendations--to identify States and
           other taxing authorities which have enacted


TIIr Sht                        iii
tax relief legislation and to instruct insured-
project owners to take advantage of such programs.
With respect to the remaining three recommenda-
tions, the Department either disagreed or pro-
posed to implement changes in its instructions
and training. These changes, in GAO's opinion,
will not resolve the problems discussed in this
report.  (See p. 23.)




                    iv
                    Con tents

                                                        Page
DIGEST

CHAPTER

   1         INTRODUCTION                                 1
                 HUD and real estate taxes                2
                 Scope of review                          4
   2         HUD UNRESPONSIVE TO REAL ESTATE
               TAX PROBLEMS                               5
                 HUD responsibility                       5
                 HUD has not effectively reviewed
                   or appealed tax assessments on
                   owned projects                         6
                 HUD's system does not insure correct
                   and timely tax payments              13
                 No monitoring of HUD-insured proj-
                   ect's real estate taxes              14
                 HUD area office comments               17
                 Action needed to more effectively
                   manage real estate tax problems      17
                 Conclusions                            20
                 Agency comments and our evalu:'tion    21
                 Recommendations                        23
APPENDIX

   I         Letter dated July 18, 1977, from the
               Assistant Secretary for Housing-FHA
               Commissioner-HUD                         24
  II         Principal officials of the Department
               of Housing and Urban Development
               responsible for the activities dis-
               cussed in this report                    29
                      ABBREVIATIONS
       GAO   General Accounting Office
       HUD   Department of Housing and Urban
               Development
                          CHAPTER 1

                        INTRODUCTION
     The Department of Housing and Urban Development (HUD),
pursuant to the provisions of the National Housing Act, as
amended (12 U.S.C. 1701 et seq.), insures mortgage loans made
by private lending institutions on various types of
housing, including multifamily rental housing. In addition
to insurance, HUD also provides interest subsidy payments
for housing intended for low- and moderate-income families.
These payments enable project owners to charge lower
rents.
     If a project owner defaults on a loan agreement, the
lender may collect full insurance benefits by foreclosing
the property and conveying the title to HUD. An alternative
for the lender is to collect reduced benefits--I percent of
the unpaid principal is forfeited--by assigning the mortgage
to HUD.
    As assignee of a defaulted mortgage, HUD may
     -- hold the mortgage and give the project owner an
        opportunity to work out his p-oblems and bring
        the mortgage out of default or

     -- proceed with acquisition of the property title
        through foreclosure.
     In instances when the owner abandons an assigned mort-
gage project, HUD becomes mortgagee-in-possession and oper-
ates the project pending foreclosure.

     As of June 30, 197b, HUD had insurance outstanding on
13,841 mortgaged multifamily properties amounting to $19.4
billion and had 1,709 assigned multifamily mortgages
valued at $2.8 billion. For the purpose of this report,
these two categories will be referred to as "insured
projects."
     HUD's inventory of foreclosed or owned property con-
sisted of 319 projects valued at $369.6 million. These
properties plus those projects where HUD is mortgagee-in-
possession will be referred to as "owned." Responsibility
for these projects as well as the insured mortgage pro-
grams is distributed among 76 area and insuring offices,
10 regional offices, and HUD headquarters.


                              1
HUD AND REAL ESTATE TAXES
     A provision of the Natioral Housing Act subjects all
multifamily housing owned by 'UD to real property taxation
on the same basis as privately held real estate. HUD-insured
projects being privately held are also liable for real estate
tax payment.
Importance of taxes to project viability

     Real estate tax is one of the largest costs of owning
and operating multifamily rental housing. "The Compendium
of Multifamily Housing," a publication of the National Associa-
tion of Home Builders, initiated a survey of the income and
expenses experience of HUD-subsidized projects in December
1974. The compendium stated that

     " * * * although the survey clearly reflects the
     high costs of utilities, it also showed another
     cost that all but rivals electricity and gas in
     the percentage of total costs - real estate taxes."

     In a 1975 study conducted by the Institute of Real Estate
Management, a HUD consultant indicated that real estate
taxes nationwide averaged 28 percent of all expenses and
ranged as high as 48 percent in one city surveyed. Compared
to payroll expenses at 18 percent and all utilities (electri-
city, gas, water, and heating fuel) which totaled 23 percent,
real estate taxes accounted for the single largest element
of cost. Our analysis of 164 subsidized and nonsubsidized
HUD projects in the Chicago area office inventory showed
that taxes aTeraged 31 percent of total operating expenses.

     Additionally, a narrow margin between cash outlays
and revenues limits the ability of subsidized projects
to cope with rising costs. A 1976 HUD task force report
explained that certain projects were less able to deal
with cost increases. Our analysis of 76 subsidized and 88
nonsubsidized projects showed that the subsidized projects
had the least amount of margin between cash outlays
and revenues. This lack of margin places HUD multifamily
projects in jeopardy of default whenever taxes or any
other cost increases.
     In 1975 congressional testimony, the Secretary of
HUD commented that

    " * * * an increasingly large number of HUD-related
    multifamily projects have been unable to generate in-
    come sufficient to keep up with rapidly increasing
    costs for utility and local real property taxes."

                             2
She went on tc state that this situation is further
complicated by project tenants' inability to absorb rent ir-
creases necessitated by these rising costs.

HUD responsibility for tax payment
     Under most mortgage loan agreements, the lender/mortgagee
arranges for tax payment to protect his interest and insure
taxes are paid. The funds used to make payment come from
the owner/mortgagor and are kept in an escrow account. HUD
assumes this tax payment function when assigned a mortgage.

     HUD's tax payment system for multifamily housing is
centralized in its headquarters in Washington, D.C., which
pays all taxes for assigned mortgages as well as owned
multifamily projects. As part of this system, all tax-related
information (i.e., tax bills and reassessment notices) is sent
to HUD headquarters to facilitate payment.

Unique nature of real estate taxes
     Unlike other costs of owning multifamily rental housing,
such as payroll and utilities, real estate taxes are subject
to both sudden increases at the time of reassessment and to
reassessment appeal or protest by the property owner. This
right to appeal gives a property owner an opportunity to
have an assessment reduced. However, the burden of appeal
falls solely o, the property owner and an appeal cannot be
made at the owner's leisure. Most taxing authorities have
appeal deadlines which must be met to successfully reduce an
assessment. Time frames for successful appeals are limited
as illustrated below.

     State                   Appeal deadline (see note a)
                            (days after assessment notice)
     South Carolina                    10
     Georgia                           10
     Illinois                          20
     Maryland                          30
a/Deadlines may vary among taxing jurisdictions within etch
  State.

     These appeal deadlines are typified by a lack of unifor-
mity and, since about 6,000 taxing authorities exist nation-
wide, any centralized system for payment or appeal is dif-
ficult to operate effectively. If appeals are not filed




                             3
within specified time frames, opportunities to appeal are
lost, along with any potential for'tax savinqs.

SCOPE OF REVIEW

     Our review was primarily conducted in the Chicago,
Detroit, and Dallas area offices, as well as HUD headquar-
ters. We interviewed HUD officials, local taxing authorities,
and others concerned with real estate taxes. We also examined
HU" project and appeal files, local taxing authority records,
anu data provided by professional associations.

     At the time of our review, HUD owned 77 multifamily
projects in the Chicago, Detroit, and Dallas area offices.
We selected 32 of these projects for review because files for
the selected projects had the information, such as tax
assessment amounts and project financial statements, needed
for evaluating the real estate taxes paid for the projects.

     We concentrated our analysis primarily on HUD-owned
projects. During the review, however, it became apparent
that the real estate tax issue for insured projects should
not be ignored; our review was expanded to include a limited
review of such projects. Projects reviewed were selected from
inventory listings and included projects insured under various
HUD programs.

     HUD's inventory of insured and assigned multifamily
projects in the three area offices totaled 1,514 at the tirr
of our review. We selected 123 of these projects for review.
The following rschedules identify the extent of audit coverage.

                 HUD-owned multifamily projects
    Area office             Inventory        Reviewed
       Chicago                 20                  10
       Detroit                 16                   8
       Dallas                  41                  14
           Total               77                  32
                 HUD-insured multifamily projects
    Area office           Inventory          Reviewed
      Chicago                 516                  14
      Detroit                 743                  82
      Dallas                  255                  27
          Total             1,514                 123

                                4
                          CHAPTER 2
        HUD UNRESPONSIVE TO REAL ESTATE TAX PROBLEMS

     HUD has not been responsive to the real estate tax pro-
blemi of multifamily properties. Real estate taxes are a
significant cost factor and can cause serious problems for
tenants, project owners, and the Government. While HUD
officials are aware that significant tax reductions are
often possible, they have not

     --effec-tively reviewed and appealed tax assessments of
       HUD-owned projects,

     -- insured proper and timely tax payment on HUD-owned
        projects, and
     -- concerned themselves with real- estate taxes when
        monitoring HUD-insured projects' financial opera-
        tions.
     As a result, HUD has paid unnecesarily high taxes on
its owned projects as have project owners on HUD-insured
projects. Since tax increases on insured projects are
generally passed on to tenants in the form of rent increases,
high taxes ultimately have the greatest impact on those
least able to afford them--the low- and moderate-income
tenants. Also, as discussed on page 2, tax increases may
threaten project viability.

     Taxes are high. According to HUD financial statements,
HUD paid over $6.9 million in taxes on owned projects in
fiscal year 1976. Assuming a similar rate of taxes paid
for insured projects, taxes paid in fiscal year 1976 on
these properties would have amounted to approximately
$368 million.
HUD RESPONSIBILITY

     HUD claims to have different tax management responsibility
for owned and insured multifamily projects. On owned projects,
area offices are required to evaluate the reasonableness of
tax assessments and to seek reductions when warranted.

    On insured projects, HUD rules state that:

    "Agressive servicing of insured project mortgages
    by HUD personnel is of vital importance. Initiative


                              5
     must be taken Go provide continuous knowledge of all
     aspects of project operation, maintenance, and finan-
     cial status so that unfavorable conditions may be
     promptly identified and corrected. Servicing based
     upon waiting for request(s) from mortgagors or mort-
     gagees is a negative approach that cannot be
     condoned."

     In this regard, HUD requires submission of annual finan-
eial statements, approves rent levels established for the
projects, and periodically inspects the projects to determine
adequacy of maintenance and condition of the project. HUD
headquarters officials explained, however, that primary re-
sponsibility for review and appeal of tax assessments on
insured projects rests with the owners. They stated that no
specific guidelines or procedures for HUD area offices
exist concerning insured project tax problems. They did
say that HUD might get involved, but only on a case-by-case
basis.
HUD HAS NOT EFFECTIVELY REVIEWED OR APPEALED
TAX ASSESSMENTS ON OWNED PROJECTS

     HUD acknowledges its responsibility to insure that real
estate taxes on owned projects are reasonable and has had
some success in reducing the taxes on these projects. How-
ever, HUD's efforts to reduce taxes have been at best
sporadic and unreasonable tax assessments on owned projects,
including vacant, boa-rded projects, have not been appealed.
Our review of 32 HUD-owned projects identified 12 projects
with apparent unreasonable tax assessments. As a result, HUD
has paid unnecessary taxes on its owned projects.
HUD efforts to reduce taxes have been sporadic
     In the Chicago area office during the January 1974 to
February 1976 period, a total of 22 owned property assess-
ments were appealed. Eleven of these appeals were success-
ful, resulting in over $380,000 of tax savings.

     Nineteen of the 22 appeals had been filed by the end of
June 1974, but no further appeals were filed until November
1975. The HUD area official responsible for tax appeals in
1974 explained that his supervisor would not let him continue
active pursuit of tax reductions. His supervisor agreed tax
appeal work was needed, but informed him that other work
must take precedence.




                             6
     Because HUD did not continue its efforts, nine of the
project assessments which had been appealed successfully
in 1974 were increased $460,000 the following tax year when
they were not appealed. The new assessed values were 19
percent higher than 'he values successfully appealed in 1974.
     During the period June 1973 to 1975, the Dallas area
office achieved numerous tax reductions through the efforts
of one individual. Although adequate documentation showing
tax savings achieved through appeals was not maintained, we
nevertheless found 17 cases where tax savings of about
$124,000 were realized. However, the effective Dallas
efforts ended when the individual making the appeals was
reassigned to a HUD regional office.

     During the period June 1972 to 1976, the Detroit
area office filed only two tax assessment appeals, which
achieved about $133,000 in tax savings. Despite their
success, HUD officials stated that additional appeals
were not filed because of a lack of staff.
HUD did not appeal unreasonable assessments
     In Detroit, when reliable income and expense data is
available, the assessor values multifamily projects using
the income approach. This assessment method is based on
the amount a potential purchaser would be willing to pay
for the right to earn a certain net income from that pro-
perty over a period of years. The data needed to use this
method would normally be provided by the property owner.
If the data were not provided, other valuation methods
would be used.

     At December 31, 1975, HUD owned 14 projects in Detroit.
Information in HUD files was adequate to enable us to evalu-
ate the accuracy of the 1976 tax assessment for seven of
these projects. Using the assessor's income approach, we
concluded that six of these projects were overassessed by
rates ranging from 9 to 76 percent.




                              7
                 Assessed Value
                          Income       Over-     Excess     Percent
Project        Actual    approach    assessed     tax     overassessed
   1      $     323,120 $ 183,330   $139,790    $ 4,557        76
   2          1,372,720 1,255,680    117,040      3,816         9
   3            422,120   317,181    104,939      3,421        33
   4            147,820    94,530     53,290      1,737        56
   5             40,580    32,019      8,561        279        27
   6             40,900    35,161      5739         187        16
              Total                 $429,359    $134997
As shown above, taxes were almost $14,000 more than necessary.
The local assessor agreed with our analysis subject to verifi-
cation of the HUD data used and, in fact, explained that our
calculations were conservative and the tax reductions could be
greater.
     In Chicago in 1974, HUD used tests on the basis of taxes
as a percentage of income and taxes per dwelling unit to
determine whether an assessment should be appealed. As of
January 1976, there were 20 owned projects in the Chicago
area office's inventory. We chose 10 projects which had suf-
ficient information to apply HUD's appeal criteria. Using
this test, five project assessments Qualified for appeal.
A true estimate of the tax savings is impossible without
actually appealing, but previous successful appeals indicate
that savings probably could have been realized on the five
projects.

     The following example illustrates the impact of HUD's
inaction in Chicago.
       A HUD-owned apartment complex located in Rockford,
       Illinois, consists of 10 brick walkups 1/ containing
       192 dwelling units. The project was built in 1969 with
       a HUD-insured mortgage of $2,429,000. The project owner
       defaulted on the mortgage and HUD acquired the property
       in 1974.




I/A building of several stories with no elevator.
     HUD records show high taxes as one of the causes
     contributing to project default although the owner
     had been successful in reducing high assessments
     as shown below.

            Tax authority   Assessed amount    Reduction i;.
     Year     assessment     after appeal     assessed amount
     1970     $1,116,000      $612,000           $504,000
     1971      1,375,000       612,000            763,000
     1972      1,191,000       641,000            550,000
    By the time HUD acquired the project, however, the
    assessment had increased to $1,191,000 and has re-
    mained at that figure.
     A HUD official called this situation to the attention
     of the area director, but no appeal was filed. This
     same official estimated that, because of HUD's inaction,
     about $25,000 in excess taxes was being paid annually.

     The most obvious signal of a project's decline is when
it is vacated and boarded up. This should also indicate that
the assessed value of the property should be reevaluted to
determine if it is still equitable. At the time of our
review, there were four vacant and boarded-up properties
in the Chicago area office inventory of 20 HUD-owned projects.
These projects had earned no income since 1975. HUD, however,
had not appealed the assessments on even these properties as
the following examples illustrate.

     A brick three-story walkup containing 37 units in
     Chicago, Illinois, was originally rehabilitated and
     insured by HUD for $190,000 in 1967. After acquisi-
     tion of title in 1971, HUD sold the property with a
     HUD mortgage of $165,000 in 1972.

    HUD acquired the title once again in 1974 when, according
    to the property management firm, the building was in
    deplorable condition. After acquisition, the building
    suffered numerous fires and was totally vandalized.

    The project has not earned income since 1974 and was
    vacated and boarded up. Because of its condition, in
    late 1975 the City of Chicago had the building con-
    demned, ultimatley resulting in its demolition in 1976.




                                9
         Despite the physical and financial decline of the
         project during HUD's ownership, the assessed market
         value was increased by the Cook County Assessor to
         $264,000 in 1974, resulting in a tax of about $11,000.
         This tax actually exceeded the potential sales value
         of the property estimated by HUD to be only $1,000.
         HUD did not appeal this reassessment.
     Another HUD project located in Chicago has been cited
with numerous building code violations since 1972 and has
suffered damage from fire and vandalism. This project is
pictured below.




          i!0                   E    =5                 A__                 _i       I




    -;
  LiW
    S    Sea

  BMy               ai__                            ,jff17g        D~~~~t    5 He-




                               a~~~~~~~Sd iwsoigm,,.in an ,1till :'S:'S-:wos.
                H   f      F    ;   W_     f4~~0.




                                         Side view showing missing and partially boarded windows.



                                                              10
                   Rear view showing mising window and door.


     This building's assessed market value was increased
to $179,733 in 1974. Although the building was vacated and
boarded up in early 1975, HUD did not appeal the tax assess-
ment when t had the opportunity to do so later that year.

     A similar situation in Detroit is illustrated by the
following example:

    A HUD-owned project located in Detroit, Michigan,
    consists of three buildings at three separate sites
    containing a total of 138 units. HUD acquired title
    to the property in April 1975. At the time of acqui-
    sition, the buildings were boarded up, vandalism had
    been extensive, and city inspectors said the buildings
    were dangerous and should be demolished. The following
    photos show the three buildings with broken and partially
    boarded-up windows. Under these conditions the buildings
    are susceptible to extensive weather damage and
    vandalism.




                               11
Building Number:




                   Assessment inod       $3,400




                   Assessmentinjctaeas   $4,160




                   Assessment increased $62,040



                      12
     In 1976 an assessor for the city noticed the condition
     of the third building and initiated an assessment reduc-
     tion of $62,000, or 63 percent. The other two buildings
     however, received assessment increases totaling about
     $8,000. HUD did not appeal the reassessments on these
     two buildings. The local assessor informed us that
     if HUD had appealed these reassessments, reductions
     similar to the one granted building three would have
     been possible.

HUD'S SYSTEM DOES NOT INSURE CORRECT
AND TIMELY TAX PAYMENTS
     The multifamily housing real estate tax payment system
is a manual operation handled centrally in Washington, D.C.,
by the Servicing anti Settlement Section of the Multifamily
Mortgage Branch. This section is responsible for (1) ob-
taining tax bills on all acauired-mortgage and owned multi-
family properties, (2) verifying HUD's obligation to pay
these taxes, (3) preparing the tax payment vouchers, and
(4) dealing with the taxing authorities on any matters
requiring resolution.
     Our previous report (B-171630, Nov. 26, 1975) noted
serious weaknesses in a similar system used to pay the
taxes on HUD single-family residences. The weaknesses
included:
     -- Late tax payment resulting in unnecessary penalty
        and interest charges.
     -- Tax payment on property it did not own.
     -- Failure to pay taxes it owed.

We suggested, among other things, computerizaton and partial
decentralization of the single-family residence tax system.
     According to a HUD official, improvements planned for
the single family residence tax payment system will not
include multifamily projects because the current manual
multifamily system is considered adequate.
     Our limited review, however, disclosed payment problems
identical to those found in the single family residence tax
system. For example, during our review of only four projects
in Detroit, we found that HUD




                              13
      -- incurred $35,200 in late charges because it did
         not pay tax bills on time,
     -- paid taxes of $36,300 on property it did not
        own, and
     -- did not pay two tax bills totaling $2,100.
Except for $14,400 of the late charges, all of these errors
were the result of incorrect property identification infor-
mation in the tax files at HUD headquarters.

     The problem of timely payment was confirmed by a HUD
internal audit report issued in 1976. This report concluded
that HUD personnel were not adequately controlling the
timely payment of taxes on multifamily projects and that,
as a result, $60,500 in tax penalties were incurred during
the last 3 months of 1975.

      We are currently following up on the actions taken to
correct the deficiencies found in our 1975 report and are
including an evaluation of the systems for paying taxes
on properties assumed and acquired under other HUD pro-
grams. The review is concentrating on identifying the
causes of improper tax payments and the results will be
included in a separate report.
NO MONITORING OF HUD-INSURED
PROJECT'S REAL ESTATE TAXES

     HUD is required to know all aspects of project operation,
maintenance, and financial status so that unfavorable condi-
tions may be promptly identified and corrected. But HUD
officials have explained that HUD does not become involved
in evaluating the reasonableness of real estate tax assess-
ments or in reviewing and appealing them as that responsi-
bility rests with the insured-project owners.

     However, we believe HUD officials should not ignore
real estate taxes when monitoring these projects because
to do so can result in the payment of excessive taxes which
threaten project viability and contribute to defaults or
result in unreasonable rent increases for project tenants.
Lack of involvement has left HUD unaware of changes in
project assessments, owner tax appeal efforts, or the
availability of local tax reduction programs.
     Our review of 123 insured projects identified 56
instances of unreasonable tax assessments or payment of


                               14
unnecessary taxes. The following example illustrates
the effect of HUD's unawareness of a tax assessment increase
on a subsidized project. In this case about $85,000 paid
in unnecessary taxes contributed to the projects's temporary
default and a large rent increase for the low-income people
residing in the project.

     A 30-story apartment project in Chicago was com-
pleted in 1970 with a HUD-insured mortgage. This was
a subsidized project designed to serve low-income families.
     In 1971 the local assessor increased the assessed
value of this project from $763,000 to $2,181,000, or
an increase of 186 percent. The owner was unaware of
the increase until the tax bill was received the following
year, according to the management agent, who said the
notice of reassessment had not been received. By the
time the tax bill was received, it was too late to file
an appeal.

     The bill received showed a tax increase of $177,000
over the previous year's taxes. According to the management
agent, the project, unable to cope with the large tax
increase and other rising costs, was forced to default
on the mortgage payments.
     To offset increased costs, the owner requested a rent
hike and HUD approved a 31-percent increase. This increase
averaged $44 per month on the projects' average rent
of $143. HUD records show that 75 percent of the increased
rent was directly attributable to the tax increase.

     The project owner ultimately did appeal the assessment
and won a reduction of $85,000 in taxes for the fol-
lowing year.

     The next example also shows that, because HUD did not
keep abreast of insured-project tax matters, an unreasonably
high rent increase resulted for another project's tenants.
     A HUD-insured project consisting of two 10-story
elevator buildings containing 540 dwelling units was
completed in the early 1960s.  In September 1975 the
owner requested that HUD approve a rental increase of
about $287,000 because of increased operating costs.
HUD approved an increase of $272,000--slightly less
than requested.




                             15
     HUD, in approving the rent increase, used a real estate
tax of $258,941, the amount shown on the project financial
statement of December 31, 1974.
     Unknown to HUD, the project owner had won a reduction
in property taxes in 1975. Instead of $258,941, taxes
were only $158,877. Thus, the rent increase approved
by HUD was based on taxes that were more than $100,000
overstated. Had HUD used the correct figures, the ren-
tal increase could have been 40 percent less.

     The following example illustrates the need for HUD
personnel to know local tax rules.  In this case, an erro-
neous claim of high taxes made by the project owner went
undetected, resulting in another unnecessary burden being
placed on project tenants.

     The owner of a Chicago project submitted a request in
1974 for a rent increase of $125,000. As support for the
request, the owner claimed real estate taxes of $173,000.
The actual tax paid, however, was only $92,000. The owner's
figure was computed by multiplying two times the second
tax installment but, in Chicago, the second installment
is not always one-half of the total tax.

     HUD approved a rent increase of $97,000 partly on the
basis of the larger tax amount submitted by the owner. The
actual tax bills were submitted by the owner with his re-
quest for the rent increase. If HUD had added these bills,
rather than relying on the owner's erroneous total, it
would have come to the correct total.
     The following example is another illustration of HUD's
overall unconcern about insured-project real estate tax
matters. Many States provide some form of property tax relief
for low-income families. In some States, this relief is pro-
vided by tax abatements or reduced payments in lieu of taxes
for subsidized housing. We believe it is important that HTD-
subsidized projects take full advantage of any available tax
relief.

     We found, however, at least one program--in Detroit--
where eligible HUD-subsidized projects did not take full
advantage of available tax relief.

     The State of Michigan Public Act of 1966, No. 346, as
amended, provides that municipalities can grant tax relief
to projects having Federal- or State-subsidized mortgages.




                             16
Although most municipalities decided not to provide relief,
the City of Detroit implemented the law. Beginning in
1969, the city began allowing projects to make a payment
in lieu of taxes on the basis of the formula specified
in the Paw.
     Our analysis of all HUD-subsidized projects in Detroit
showed that 52 of the 71 projects eligible for the program
did not take full advantage of the available tax relief.
Although we believe the owners' ignorance contributed to their
failure to take advantage of the program, HUD did not pro-
vide any guidance to owners of insured projects nor did HUD
instruct owners of eligible projects to either initially
apply for relief or to annually submit required data to the
city. In addition, we found that HUD officials had only
a limited knowledge of how the program worked and did not
know who should be receiving tax relief and how much.

HUD AREA OFFICE COMMENTS
     We discussed the examples of unreasonable assessments
identified during our review which were still outstanding
with HUD area office officials. The Detroit office said it
would appeal the assessments on the HUD-owned projects but
would not take any action on the insured projects unless it
received directions to do so from HUD headquarters. The
Chicago office said it would appeal assessments on the HUD-
owned projects if sufficient staff was made available for
the work. With respect to the insured projects, the examples
of unreasonable assessments noted were no longer outstanding,
either because the owner had successfully appealed or HUD
had subsequently acquired the properties. Chicago officials
stated that they would not take any action on future assess-
ments of insured projects unless HUD headquarters instructed
Chicago to do so.
ACTION NEEDED TO MORE EFFECTIVELY
MANAGE REAL ESTATE TAX PROBLEMS

     The significance of real estate taxes was recognized
by the Secretary of HUD in 1975 when she testified before
the Congress that an increasingly large number of multi-
family projects have been unable to cope with rapidly
increasing real estate taxes. The Assistant Secretary for
Housing Management testified at the same time that preventing
foreclosures of HUD-insured properties was a major goal.
Both of these HUD officials testified that the low- and
moderate-income families in these projects frequently cannot
absorb the rent increases necessitated by rising costs.



                             17
     HUD area officials advised us the program for managing
real estate taxes was not more effective because of & lack of
personnel, a lack of expertise in the tax area, and higher
priority work.
       We believe these problems are compounded by the fact
that
       -- responsibility for tax problems of HUD-owned projects
          is divided between the field and headquarters and

       --no policy exists for tax management of insured
         projects.

Divided responsibility
     A barrier to reducing taxes on HUD-owned multifamily
projects is the division of responsibility between area
offices and headquarters. Area offices are responsible for
reviewing and, where necessary, filing appeals on owned-
project tax assessments. Despite this decentralized ap-
proach, responsibility for the multifamily project tax
payment system is centralized in Washington, D.C. Tax
information needed by the area offices to determine the
reasonableness of the tax assessment is sent to and retained
by headquarters. This division has contributed to the miss-
ing of appeal deadlines, problems in paying tax bills, and
the overall inability to develop an effective tax manage-
ment program. For example, the tax assessment on a Detroit
project was increased in 1975. HUD headquarters, upon receiv-
ing the tax bill, wrote to the area office and asked if the
increase was reasonable. Area office officials didn't know;
therefore, they asked the project's managing agent who in-
formed HUD that the deadline for appeal of the assessment
increase had passed and, as a result, no action was taken.
     Numerous HUD local officials have questioned this
division of responsibility. For example, a HUD Region V
lawyer who had worked on tax problems for the Chicago area
office stated that the main problem is the centralized pay-
ment system which separates those responsible for reviewing
taxes from information needed to review taxes. Another Re-
gion V official mentioned constant complaints from area
and insuring office officials about tax information goina
to headquarters. He explained that it was difficult for
these officials to carry out their responsibilies when neces-
sary information is not readily available.




                               18
No policy on insured projects

     HUD has no stated policy toward real estate taxes
on insured projects. Although HUD guidelines require that
initiative must be taken to deal with all project problems,
headquarters officials disclaim responsibility for taking
positive action relative to taxes saying they are the owner's
problem. These officials also state that there are no HUD
guidelines or procedures for the review of tax assessments on
insured projects.

     Some local officials, however, think it is important
that HUD get involved in insured-project tax problems. For
example, HUD Region VII has prepared, on its own initiative,
a real estate tax handbook to aid local officials. A Region
VII official explained that HUD directives were not clear on
insured projects but that HUD could and should assist mort-
gagors with their tax problems. The handbook states that a
systematic plan must be developed that will identify and
track insured projects which require possible tax abatement
action. The view of these local officials appears more con-
sistent with HUD's guidelines which, in requiring aggressive
servicing of all project problems, would seem to include tax
management. However, as long as HUD headquarters lacks a
clear policy, the situations described in our report will
continue.
     This lack   of a clear policy has also contributed to
the absence of   tax information on insured projects at the
area offices.    As a result, HUD does not know what insured-
project owners   are doing or not doing to appeal their taxes.
     HUD requires the insured mortgagor to submit annual
financial statements but does not require submission of tax
information, such as copies of reassessment notices or tax
bills. As a result, the agency does not know of a tax
increase until the financial statement is received, which
could be well after appeal deadlines have lapsed.

     In addition, HUD does not require the insured mortgagor
to inform it of tax appeal action being taken. Thus, when
a mortgagor requests agency approval of a rent increase on
the basis of increases in taxes or other costs, HUD does not
know what, if anything, the owner has done to reduce these
taxes. If the owner has filed appeals, HUD does not know
the results. Inadequate information has been a major factor
in the approval of unreasonable rent increases.




                                19
CONCLUSIONS

     Real estate taxes are a signficant part of the rising
cost of operating and maintaining HUD multifamily housing.
An effective tax management program could more than likely
obtain significant tax reductions on HUD-owned and -insured
projects. HUD, however, has not established a program to
insure that the taxes assessed on HUD-insured multifamily
housing projects are fair and equitable, and its program
on owned projects has not been effective. This has resulted
in excessive tax payments and unnecessary rent-increase
approvals.
     These problems were caused, in part, by a lack of needed
tax information at the local HUD offices and the absence of
headquarters policy on servicing insured-project tax problems.
We recognized that the large number of HUD-insured projects,
the short time frames allowed for appeals of tax assessments
by many of the approximately 6,000 taxing authorities nation-
wide, and the fact that tax assessments are sent directly to
owners of insured projects makes it difficult to establish
an effective tax management program for insured projects.
We believe, however, that an effective program can be estab-
lished if the HUD field offices become more directly involved
with real estate tax issues when monitoring HUD-insured
projects.

     Specifically, we believe HUD field offices could

    -- arrange to have local taxing authorities to send
       copies of tax assessments on HUD-insured proj-
       ects directly to HUD at the time the notices of
       assessments are sent to financing institutions
       holding mortgages on property,

    --identify methods used by the taxing authorities
      to compute tax assessments in those areas where
      HUD-insured projects are located,
    -- compute the tax assessments on HUD-insured projects
       before the tax assessments are sent by the local
       taxing authority by using the latest data available
       concerning project status,

    -- compare the HUD-computed assessment with the assess-
       ment actually made by the taxing authority to identify
       assessments which appear unreasonable,




                             20
     -- alert the owners to unreasonable assessments and
        inst' uct them on the appeal process, and
     --follow up to insure that appeals are filed, when
       warranted.
AGENCY COMMENTS AND OUR EVALUATION

     On March 9, 1977, we solicited HUD's views on the
matters discussed in this report. HUD responded on July 19,
about 4 months later, with the following comments.  (See
app. I.'
      HUD agreed with our proposal that it should identify
States and other taxing authorities which have enacted
tax relief legislation and instruct HUD-insured project
owners to take advantage of such programs. HUD plans to
implement this recommendation through the regional admin-
4 strators.


     HUD also agreed with our proposal that real estate taxes
should be included as one of the items to be dealt with when
monitoring problems of insured projects. HUD stated that (1)
field offices would be instructed to encourage owners to
seek redress where tax assessment is excessive and the statu-
tory limitation for protest and appeal have not lapsed and
(2) changes will be incorporated into ongoing training pro-
grams to insure that loan management personnel receive instruc-
tions in this area.

     However, a close reading of HUD's entire response indi-
cates the above comments are made in the context that HUD's
first knowledge of an increase in taxes would normally occur
when an owner applied to HUD for a rent increase. The
changes proposed by HUD will only deal with the situation
"after the fact," whereas cur proposal envisioned monitoring
the projects before the tax assessments are finalized, which
is before HUD is now made aware of tax increases. We believe
HUD's monitoring should include the specific items we have
identified on pages 20 and 21 of our report.

     Regarding our proposal that HUD establish procedures to
insure that real estate taxes assessed on both HUD-owned and
-insured multifamiliy projects are fair and equitable, HUD
stated that, with respect to HUD-owned properties, paragraph
151 of the "Multifamily Property Handbook" instructs the
regions and area-insuring offices how to proceed with an
appeal and the factors that are needed to make an appeal of
tax assessments.




                             21
     We recognize that the HUD handbook provides the
methodology for making tax appeals. HUD's implementation
of these procedures, however, has been ineffective as evi-
denced by the examples cited in our report because it has
been an area that HUD field offices have not actively pur-
sued and staffed. We believe that if HUD conscientiously
evaluated new tax assessments and appealed those that appear
to be unreasonable, HUD could achieve substantial savings
in real estate tax payments on owned properties.
     With respect to HUD-insured properties, HUD feels that
project owners and managers must bear the responsibility
for assuring that their tax assessments are fair, but that
HUD personnel, to the extent feasible, upon reviewing an
application for a rent increase, an annual financial state-
ment, or data in support of mortgage relief, should assist
owners to seek relief for inequitable assessments. HUD
plans to issue additional written guidance to its field
offices on this subject.
     As indicated earlier (see p. 21), HUD's proposed changes
deal primarily with the tax issue after the fact, that
is, in connection with a request for a rent increase or
mortgage relief. Our report examples demonstrate the short-
comings of this approach. Although primary responsibility
to appeal tax assessments rests with project owners, we
believe HUD officials must aggressively monitor such assess-
ments to insure that taxes paid by project owners are not
excessive; otherwise, excessive taxes may threaten project
viability and contribute to defaults or result in unreason-
able rent increases for project tenants.
     HUD disagreed that there was a need to develop a multi-
family tax payment system which insured prompt and timely
payment of real estate taxes. It stated that the present
system meets those objectives and indicated that the
percentage of penalties paid because of late tax payments
amounted to only 0.0025 percent of total taxes paid.
     Penalties due to late payments account for a small
percentage of total taxes paid--about 0.25 percent for the
October 1975 to March 1977 period rather than the 0.0025
percent indicated. HUD's response, however, ignores the
other problems discussed on page 13--HUD's payment of
taxes on property it does not own and its failure to pay
taxes on projects it does own. Furthermore, in May 1976
HUD's Inspector General reported on the lack of control
in HUD's tax payment system. In our opinion, the




                            22
lack of control resulted from a centralized system attempting
to deal with a highly decentralized problem. We, therefore,
believe that HUD should implement the following recommenda-
tions.
RECOMMENDATIONS

    Wa recommend that the Secretary of HUD:

     -- Require, as a matter of policy, that HUD officials
        include real estate taxes as one of the items to
        be dealt with in monitoring problems of insured
        projects.
     -- Establish procedures to assure that real estate
        taxes assessed on both HUD-owned and -insured
        multifamily projects are fair and equitable.

    -- Develop a multifamily tax payment system which
       insures proper and timely payment of real estate
       taxes.

     -- Identify States and other taxing authorities which
        have enacted tax relief legislation and instruct
        HUD-insured project owners to take advantage of
        such programs.




                             23
APPENDIX I                                                                            APPENDIX I




                    ,.l   r Or
           Y                 \I|'!lc   DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
           .,   ^            *eWASHINGTON.                    D.C. 20410




 OFFICEOF THE ASSISTANT SECRETARSY FOR
 NOUSINO-FIIOERAL HOUSING COMMIISONERI
                                                           July 18, 1977
                                                                                     IN RSPLY REFER TO,




          Mr. Henry Eschwege
          Director
          Community and Economic Development
            Division
          United States General Accounting
            Office
          Washington, D.C.   20548

          Dear Mr.               Eschwege:

              Your letter of March 9, 1977 addressed to the Secretary of Housing
          and Urban Development transmitting a proposed report to the Congress
          entitled,  "HUD Unresponsive to Multifamily Projects Real Estate Tax
          Problems," has been referred to me for reply. I will answer the recom-
          mendations in the order that they were presented.

                Recommendation No. 1: The Secretary of HUD should require, as a
                matter of policy, that HUD officials include real estate tces as
                one of the items to be dealt with in monitoring problems of insured
                projects.

                Reply: We concur that real estate taxes should be included as one of
                the items to be dealt with in monitoring problems of insured projects.

                Normally, HUD is first informed of an increase in taxes at the time
                an owner files for a rent increase.   Currently, HUD's rental processing
                procedures for insured projects, require that field offices make every
                effort to ascertain that operating expenses, including real estate
                taxes, are reasonable and necessary to the project's operations.
                Field offices will be instructed to encourage owners to seek redress
                where it appears the tax assessment is excessive and the statutory
                limitation for protest and appeal have not lapsed. Appropriate
                instructions will be forthcoming in 4350.1, Insured Project Servicing
                Handbook.

                In our ongoing training programs for loan management personnel at
                HUD East, changes will be incorporated into the curricula to ensure




                                                         24
APPENDIX I                                                            APPENDIX I




       that field perohnol receive instructions in this area.
         eoocerndation No. 2: The Seoretary of HUD should establish pro-
       oedures to assure that real estate taxos assessed on both HUD owned
       and aD insured multifamily project ate fair and equitable.
       While NUD must rely on project owners and managers to bear the
       major responsibility for assuring that their tax assesantd are
       fair, MUD personnel, to the extent feasible, upon reviewing an
       applioation for a rent increase, an annual financial statement or
       data in support of mortgage relief, will be instructed to assist
       owners to seek relief for inequitable assesments. Additional
       written guidance to field offices on this subject will be forth-

       Rcommendation No. 3s The Secretary of HUD should develop a multi-
       family tax payment system which ensures proper and timely payment of
       real estate txes.

       epalZ, We believe that the present system meets the objectives
       of proper and timely payment of real estate taxes. While the problem
       can not be entirely eliminated, the percentage of penalties paid
       miount to only about .0025 percent of the total taxes paid.
       Th prooedure for the procurement and payment of tax bills on
       Secretary-held project ortgages and properties is outlined
       below:

             On or about 60 days prior to the tax penalty date, form letters
             are sent to each tax oollector.

             At the es    time, a master list of properties and mortgages are
             printed from the addressograph plates which are prepared at time
             of property acquisition. The master list is retained for recording
             the receipt of tax bills, making payments and sending follow-
             up letters for tax bills not reoeived. After the tax bills
             received have been checked off the mster list, and approximately
             15 days after the first mailing, a follow-up letter is mailed
             to each tax oollector for bills not yet received. If the re-
             quested bills have not been received from th tax collector
             within 30 days from the initial request, we address a letter to
             mortgagor or the Area/Inuring Office Director, as appropriate,
             advising that we have been unsuccessful in obtaining the tax bill
             and requesting that he secure and forward the bill in order that
             payment my be effected prior to the penalty date.

       ]Recnlendation No. 4: The Secretary of UD should identify states
       and other taxing authorities which have enacted tax relief legislation




                                        25
APPENDIX I
                                                                        APPENDIX I



       and inrt         insutm
                            rd proaect ors       to take advMntage of
       much proqru-.
       lp:ys   After idantlfioation of state and other teains authorities
       which have   acted tax relief lelelatioa   , w wi11 take th n
       steps to Glumnt this reaomsaatim                                 ary
                                                .

                                     si ncerly,    ,.




                                     Assistant    aecretary
   Bnlosure




                                      26
APPENDIX I                                                             APPENDIX I

    PpOPLRTY DISPOSITION HANDBOOK
    tULTI FNllLY PROPFRTI ES
             4315.1

     CHAPTER 6
   * 151. REAL ESTATE TAX APPEALS. Directors shall make continuing efforts
          to achieve reductions in real estate tax assessments when the facts
          warrant, particularly when a reassessment is being made. Formal
          protest or appeal of an assessment shall not be made without prior
          consultation with the Area/Regional Counsel. Private counsel shall
          not be retained to perform legal services in connection with tax
          appeals without the prior written consent of the OGC. When a
          formal protest or appeal is planned, the Director shall gather
          information and evaluate the assessment in the light of local
          conditions and make appropriate recommendations to the Area/
          Regional Counsel. Tax appeals taken above the level of a local tax
          assessor shall be handled through the Area/Regional Counsel. On all
          tax appeals handled through the Area/Regional Counsel, a continuous
          follow up with the Area/Regional Counsel shall be conducted by the
          CPO until such time that the final tax appeal authority has adju-
          dicated the matter. Where a tax appeal will be taken, the CPO
          shall notify OFA to pay the taxes under protest, if allowable under
          local law.
           a. Real estate tax assessment appeals shall be made when:
                1. The project's value has been adversely affected by local
                   economic conditions.
                2. Thr project has experienced accelerated obsolescence due
                   to nearby modern construction and/or changing neigh-
                   borhood characteristics.
                3. Gross rental income has been adversely affected by reduced
                   rental rates in competitive projects, or other similar
                   factors.
                4. Actual and/or estimated annual operating expenses are
                   disproportionate to the estimated annual income.
                5. Taxes represent a disproportionate percentage of the
                   expenses.
                6. The project has been programmed for razing or removal;
                   the site isor will be a vacant lot.
                7. The project has been conveyed to HUD in a vandalized or
                   structurally incompleted condition.
                8. The tax assessment is based on a value inexcess of the
                   current market value of the property.
                9. The project's gross rental income/or value have been
                   adversely affected by the loss of a rental subsidy.

    8/76                            Page 59-1


                                        27
APPENDIX I                                                              APPENDIX I


                                                 PROPERTY DISPOSITION HANDBOOK
                                                        HULTIFAMI.LY PROPERTIES
                                                               4315.1
                                                                    CHAPTER 6
   *         b. During the period HUD manages a multifamily project as a
                mortgagee-in-possession, the CPO shall gather information and
                evaluate the tax assessment in light of local conditions, and
                submit this Information with recomnendations to the Director.
                All data and information concerning the tax appeal, together
                with required forms and documents, shall be developed and
                prepared so that the appeal may be made upon acquisition. A
                determination shall be made as to the calendar dates the
                Appeals Board will honor the assessment appeal.
       152. SALE BEFORE REAL ESTATE TAX SETTLEMENT. Inthe event the local
            office does not have the time, prior to sale of a property, to
            follow through to the final tax settlement, it shall keep the case
            alive by protesting the assessment in question, so that the ulti-
            mate purchaser could take over and settle the case. Upon settle-
            ment:




                                     Page 59-2                           8/76


                                         28
APPENDIX II                                         APPENDIX II


    PRINCIPAL HUD OFFICIALS RESPONSIBLE FOR ADMINISTERING

              ACTIVITIES DISCUSSED IN THIS REPORT

                                         Tenure of office
                                         From          To
SECRETARY OF HOUSING AND URBAN
  DEVELOPMENT:

     Patricia R. Harris               Jan. 1977      Present
     Carla A. Hills                   Mar. 1975      Jan. 1977
     James T. Lynn                    Feb. 1973      Feb. 1975
ASSISTANT SECRETARY FOR HOUSING--
  FHA COMMISSIONER:

     Lawrence B. Simons               Mar.   1977    Present
     Morton A. Baruch (acting)        Mar.   1977    Mar. 1977
     Joseph Burstein (acting)         Jan.   1977    Feb. 1977
     John T. Howley (acting)          Dec.   1976    Jan. 1977
     James L. Young                   June   1976    Dec. 1976
ASSISTANT SECRETARY FOR HOUSING
  PRODUCTION AND MORTGAGE CREDIT--
  FHA COMMISSIONER (note a):

     David S. Cook                    Aug. 1975      June 1976
     David M. DeWilde (acting)        Nov. 1974      Aug. 1975
     Sheldon B. Lubar                 July 1973      Nov. 1974
ASSISTANT SECRETARY FOR HOUSING
  MANAGEMENT (note a):

     James L. Young                   Mar. 1976      June 1976
     Robert C. Odle, Jr. (acting)     Jan. 1976      Mar. 1976
     H. R. Crawford                   Apr. 1973      Jan. 1976

a/ On June 14, 1976, HUD combined the functions of these
   two Assistant Secretaries under a single Office of Assis-
   tant Secretary for Housing--FHA Comissioner.



(38702)




                                 29