Providence's Finance Committee Votes in Favor of Tax Hike

Even Higher Rate Increase for Small Landlords

On July 14^th, the Providence City Council's Finance Committee voted to increase the property tax rates for residential and commercial property and eliminate the homestead exemption for owners of 1 – 5 non-owner occupied properties, (July 16^th  and July 20^th articles in the Providence Journal).  The full City Council will vote on July 26^th.

Details of the Proposed Increases:

25.5% increase in residential property tax rate: The residential property tax rate would increase from $24.21 per $1,000 of assessed value to $30.38.

Additional 33% rate hike for small landlords:  The Council will vote to repeal a homestead exemption for non-owner occupied rental properties of 1 – 5 units.  If approved, this will result in an additional 33% increase in the property tax rate for owners of these properties. This will mean a grand total of a 58.5% tax increase for some landlords.

17.8% increase in commercial property tax rate:   The commercial property tax rate would  raise the commercial rate from $28.60 per $1,000 of value to $33.70

When will these increases take effect?   Immediately? Retroactively? Property owners will receive revised tax bills in August, (July 16^th Providence Journal). 

Mayor Scott Avedisian in studio discussing T.F. Green's airport expansion plan.

Mayor Avedisian was a great guest explaining for almost the full hour about how the expansion of the T.F. Green runway was originally proposed a decade ago, and the positive and negative effects it will have on Warwick.

One thing we all learned was the train station stop at the airport is the closest air to rail connection in the country.  Hopefully this will attract commuters to Boston and other rail points to see the value in our housing and look to move the area.

RI Foreclosures are Up 55% From a Year Ago and Up 19% From March

One in every 525 households received a foreclosure notice in April, according to RealtyTrac.

The Irvine, Calif.-based real-estate tracking firm said 861 properties in Rhode Island, or one in every 525 homes, received a foreclosure notice last month. The state’s foreclosure rate ranked 19th-highest among the 50 states.

Nationally, RealtyTrac said one in every 387 homes received a notice in April, a drop of 2.4 percent from a year ago and down 9 percent from March 2010.

When you get down to individual state foreclosure statistics, what you really talking about is that state's economy.  We've seen the median price of a home in Rhode Island stabilize and even creep up a bit. We've seen the tax stimulus encourage people to get back into the real estate market. But now that that is over, it's going to be our local Rhode Island economy that provides the true heartbeat for our real estate market.  

Providence Tax Rate to be Determined in Early Summer

Visit the Providence Tax Assessor records website: http://providence.ias-clt.com/parcel.list.php PROVIDENCE — Mayor David N. Cicilline on Friday submitted a proposed $639-million budget for the fiscal year that starts July 1. It calls for no increase in the tax levy. The budget is a 3.5-percent increase over the current budget ($618 million), but just below the city budget for fiscal year 2009 ($640.6 million). It proposes a property tax levy — the amount of revenue that the city will raise through the property tax — of about $274 million, which is the same amount that was raised from taxes this year. But how the decision to keep the tax levy steady at this year’s rate will affect property tax bills for residents and businesses is unclear. The city is in the process of completing a full property revaluation, which will determine the taxable values for city properties and is required by the state every nine years. Statistical revaluations, based on home-sale price data, are conducted every three years. City Director of Administration Richard Kerbel says that Cole-Layer-Trumble Co., the company hired to do the revaluation, will continue its work through the early summer. “When their work is complete, we will know what the [total] assessed valuation is of the city, and then we can begin the process of determining what the tax rates will be,” he said. The residential property-tax rate is currently $24.21 per $1,000 of assessed value; the commercial rate is $28.60.

North Providence is in bad financial shape.  To make up for deficits, they have approved a tax increase from $22.70 per 1000 to $25.60 per 1000.  This equals a 12.7% increase!  New tax bills are going out at the end of the month. There also may be another supplemental tax increase in January, which has not been approved yet, but more than likely will.  Total tax increase is supposed to be 17%.

Click here for current Rhode Island Municipal Tax Rates.

A disbarred Rhode Island attorney who handled real estate closings has been charged with misappropriating $500,000.

Geoffrey Regan was arraigned in Newport District Court on Friday and released on $20,000 personal recognizance.  He did not enter a plea to three counts of unlawful appropriation over $1,000.

The Rhode Island State Police said they received a complaint from the chief disciplinary counsel for the state court system.  They said Regan consented to disbarment.

An Ethics Primer:

Fiduciary (from reference.com):

fi-du-ci-ar-y

Fiduciary, in law, a person who is obliged to discharge faithfully a responsibility of trust toward another. Among the common fiduciary relationships are guardian to ward, parent to child, lawyer to client, corporate director to corporation, trustee to trust, and business partner to business partner.  In discharging a trust, the fiduciary must be absolutely open and fair.

I guess Mr. Regan missed fiduciary day at law school.

The FBI, Justice Department, Secret Service and Postal Service will get a combined half a billion dollars to investigate and prosecute those who engage in mortgage fraud.  President Obama signed the legislation May 20.  Important to remember; Rhode Island leads the nation in mortgage fraud.

The targets range from people who lie about their incomes on home mortgage applications to highly organized roving networks of “foreclosure relief” scammers who bilk money out of homeowners seeking mortgage modifications.  More on these gems of humanity in future posts.

Known as the Fraud Enforcement and Recovery Act of 2009, the legislation will fund new SWAT teams of fraud-busters and broaden federal legal powers to go after individuals and mortgage operations that currently get attention — if at all — only at the state or local levels.

The law also creates a Financial Crisis Inquiry Commission with broad powers to investigate who and what got us into the real estate mess, starting with the subprime boom, Wall Street hanky- panky and more recent bank failures.
How bad is mortgage fraud? The Treasury Department estimates it causes losses to consumers and the mortgage industry of anywhere from $15 billion to $25 billion a year. FBI Director Robert S. Mueller III told Congress his agency’s mortgage fraud caseload has tripled in the last three years.

Reports of potential fraud filed with the Financial Crimes Enforcement Network exceeded 65,000 in 2008 — up from about 25,000 in 2005 and just 5,400 in 2002. Officials say the recession and the end of the housing boom have actually stimulated more fraud rather than the reverse.

What do these frauds look like and where are they occurring? The Mortgage Asset Research Institute performs an annual study of the problem for the Mortgage Bankers Assn., and its 2009 report found:

* Roughly two-thirds of all frauds involve deceptions at the application stage. For example, some borrowers tell the lender they plan to occupy and use the property as their main residence, but they really plan to turn it into a rental unit. That ruse often gets the applicant a lower rate on the loan, but it’s a violation of federal law.

* About 28% of frauds last year involved deliberate misinformation about tax returns or financial statements. Fake IRS filings can be created with readily available software programs, and documentation of financial assets can be manipulated as well. Around 21% of fraudulent applications contained faked deposit verifications last year.

* Appraisal shenanigans rank high as well and were involved in about 22% of fraud cases in 2008. Appraisal fraud — typically inflated valuations intended to squeeze more mortgage money out of the lender — may well be more commonplace than the official statistics. That’s because many overvaluations are modest enough to avoid detection, but large enough to get the loan closed, thereby increasing subsequent risk of loss to the lender.

* Other widespread forms of home loan fraud include faked employment verifications, misinformation on closing or escrow documents, and credit reports or scores that have been manipulated in some way to get unqualified borrowers approved, or lower interest rates, or both.

Besides Del’s Lemonade, coffee syrup and Mayoral Marinara Sauce, Rhode Island can boast one more national treasure.  We are numero uno in mortgage fraud in the country.

Since 2004, Rhode Island has been steadily on the rise. In that year, it ranked 41st, with a score of 16, meaning it had only about one-sixth its share of mortgage fraud cases. In 2005 and 2006, Rhode Island ranked 18th. And in 2007 it climbed to 5th.

Mortgage fraud is exactly what it sounds like;  falsifying some rather important information on a mortgage application to obtain a mortgage one would not qualify for under the rules. I have to mention that this fraud does not always sit squarely on the shoulders of the lenders.  Borrowers, too, have knowingly given false information to obtain these loans.  Nationally  60% of mortgage fraud cases last year stemmed from falsified applications, while 28% came from tax returns or financial statements, and 22% came from appraisals.

In Rhode Island, however most of the fraud came from the appraisal/valuation portion of the mortgage process.  Here an unbiased appraiser visits a property on behalf of the lender and determines if the property is worth the money that is being suggested to buy or refinance it.

Originators are often the origin of price inflation according to Sandy Nickol, a regional president with Republic Bancorp Inc.’s  mortgage company in Farmington Hills, Mich.

“It starts with the originator trying to make the deal happen,” says Sandy Nickol. “Sometimes you can’t close the deal unless you can get the customer a mortgage of ‘X.’ If they’re trying to pull cash out to pay off three credit cards and it doesn’t make sense to refinance today unless they can do that, the whole deal is going to hinge on an appraisal that’s high enough to do that.”

Originators know this, so some will try to talk appraisers into modifying their estimates. Experts say that isn’t too tough because those estimates rely to some degree on an appraiser’s subjective evaluation of property and market conditions.

At first glance, the process might look harmless. After all, it helps borrowers get the loans they want. But in reality, overinflated appraisals trap consumers with too much debt and lock them out of the refinance market. They can also force people into default.  Take a mortgage one shouldn’t have in the first place, combine that with a national recession, mix in the declining home values we have seen here in Rhode Island, and it’s a recipe for disaster.

Look for this activity to increase further as cash strapped people turn to refinacing homes to pay essential bills.

The slight glimmer of good news is Rhode Island will get more than $1 billion from the federal stimulus package President Barack Obama signed last month.  The White House estimates that will create or protect 12,000 jobs in the state.

The mind numbing news is that Rhode Island’s  unemployment rate rose to 10.3 percent in January, the highest in more than 30 years and far exceeding the national unemployment rate of 7.6 percent, according to figures the state government released Tuesday.

Rhode Island, whose unemployment rate was 9.4 percent in December, fell into a deep recession early and has trailed only Michigan in joblessness.  The biggest difference between us and Michigan is that Michigan can point directly to the auto industry’s utter collapse as a defining reason.

Rhode Island’s problems are more varied.  A combination of a deep real estate downturn, a new construction stall and our local credit crisis are maily to blame.

The small businesses so crucial to the state’s economy have less cash on hand than big firms to ride out a prolonged downturn and a freeze in the credit markets.

Last year, Rhode Island lost 19,000 jobs.

About 4,100 jobs were lost in the manufacturing sector, 3,600 jobs in retail trade and another 3,400 in professional and business services.  The health care and education industries, however, reported gains.