Tripling of property taxes just the start of a suburban condo nightmare
Daily Herald: On Guard
In a gut-wrenching decision, Viki Johnson and her husband have decided to stop paying the mortgage on their Palatine condominium.
They hadn't planned on buying anything, but their apartment complex underwent a condo conversion in 2007 and they calculated they'd pay just $300 more a month than rent to buy. It'd be a tight squeeze for a couple of years, but they could swing the $174,000 purchase price.
But as the housing market went into free-fall, the developers - who in recent years have been involved in a litany of litigation including suits on foreclosures, breach of contract and conspiracy to defraud - made a cost-saving maneuver that helped them but contributed to a spike in everyone else's property taxes.
"We just can't afford it anymore. It's been a nightmare," Johnson said. "We're paying $4,000 more on housing this year than we expected."
The Johnsons will soon join a fast-growing club at the Woods at Countryside complex off Northwest Highway, where 98 units - almost half of all the condo units that had been sold - went into foreclosure in the first half of 2010.
Meanwhile, taxes for the 460-plus unsold units are just a fraction of the sold ones - a fact that has irate residents feeling deceived.
The project began a few years ago when Renaissance Residential partners T.J. Wojtas and Vince Manglardi received a $63 million promissory note from Parkway Bank to convert 719 apartments into condos. As of April, though, they'd sold just 253 units, according to court documents.
In 2008, the pair turned to the Cook County Board of Review for relief and filed an appeal to get their assessed valuations reduced. The board granted it for one year, citing a statute that condos can be assessed as vacant land until they have an occupancy permit.
"The idea was to grant them one year of relief, hoping they'd sell more (units)," Board of Review analyst Mark Volpe said.
As a result, units with identical floor plans have huge discrepancies in assessed values. For instance, the Johnsons' two-bedroom, two-bath unit in 2009 was assessed at $18,851 while all but a handful of the hundreds of units still owned by Renaissance Residential were assessed at less than $5,000.
In Cook County, the assessed value of residential properties now represents 10 percent of their market value.
Residents only recently realized that the developer's savings came at the expense of the condo owners. That's because Woods owners pay an additional Special Service Area tax, an amount that plummeted for the developers with the board's reduction and tripled for everyone else.
Village aided project
During the conversion, the village of Palatine agreed to assist the developers with the financing of certain public improvements, such as sprinklers and streetlights, by loaning them about $6 million through a bond issue at 9 percent interest and creating the special tax to pay off the bond.
Buyers signed a disclosure statement drawn up by attorneys at Meltzer, Purtill & Stelle in which they agreed to pay the special tax. Johnson's said her share would be about $600 annually.
But when the developer was granted an assessment reduction, all the owners had to pick up the slack since Palatine still has to levy the same amount to pay back the bonds. Johnson's share tripled to $1,800 in the 2008 tax year.
"I think that's why there have been so many foreclosures," resident Jenny Grimm, 35, said. "People can't afford these unexpected expenses."
Neither Manglardi nor Wojtas returned calls. Management company Hughes & Associates declined to comment.
Palatine Village Manager Reid Ottesen defended the Special Service Area, calling it a mechanism to provide additional homeownership opportunities while providing public safety improvements. The village required a percentage of the complex remain rental units.
He said the developers approached the village with the project and it met all code requirements. They're behind schedule with improvements, but the money is paid out only as work is completed.
While the developers could have secured their own financing, attorneys told Ottesen owners would likely have to pay it off quicker than the 20-year life of the village bond. Without a Special Service Area tax, the developers would have been responsible for the cost, not the buyers.
The spike in property taxes isn't entirely due to the special tax, as Palatine Township was reassessed in the second half of 2007.
But residents say they were told their taxes would total between 1 percent and 11/2 percent of the purchase price. The "good faith estimate" prepared by American Home Mortgage in Mount Prospect stated Johnson's total estimated monthly payment for real estate taxes would be $108 a month, or $1,296 a year, when in fact Johnson's 2008 tax bill was $5,659 - more than four times the amount she was told to expect.
The $108-a-month estimate was based on how the unit was taxed as an apartment before the Special Service Area tax took effect. As a condo, it was assessed at a much higher value, and the bill included the special tax.
"I think the developer pulled a fast one on everyone," Johnson said.
An error at the county level compounded the financial strain on owners, according to Volpe, the Board of Review analyst.
The Cook County assessor's office upheld the review board's decision but never brought the developer's assessed values back in line with the other units after the yearlong reprieve was up, he said.
"An oversight, a mistake, whatever it was, the Board of Review can only make a decision based on those who appeal. And obviously, the developer didn't come in to complain," said John Sullivan, Board of Review first assistant commissioner.
No break for buyers
Owners like Grimm, who saw her Special Service Area tax more than double to $1,600, were holding out hope the playing field would be evened. But the board sent condo owners letters a few weeks ago denying their appeals of their assessments.
"The board met with us and told us that yes, we got screwed in this situation," said Grimm, who works at a financial counseling firm. "But then we all got our appeals denied."
Volpe explained that while the situation is unfortunate, lowering the owners' assessments would shift the burden to all the other taxpayers living in Palatine. He said the value of the Woods complex had already fallen to $99 million due to a 5 percent across-the-board reduction in Palatine Township by the county assessor, and further reducing assessments would lower its value by several millions more.
Volpe said while there's no reason to believe the developers were lying at the time they filed for the reduction, he heard earlier this year during an outreach program with residents that 60 percent of the developer-owned units are being rented, meaning they're not eligible for the occupancy-based reduction.
A spokeswoman with the Cook County assessor's office said the units whose assessments were lowered due to lack of occupancy will be returned to full value when Palatine Township is reassessed and notices are mailed in the next few months.
Renaissance Residential, Manglardi and Wojtas have been sued either individually or jointly no fewer than 37 times in Cook County in recent years. Wojtas also had a couple of minor criminal arrests in the 1990s on charges of theft and unlawful explosion of fireworks.
Many of the recent cases are foreclosure complaints that lenders have filed against the developers or their company for properties in Streamwood, Chicago and Palatine other than the Woods complex. In another case, the law firm of Swanson, Martin & Bell represented the developers in a lawsuit and then sued its former clients for not paying the $119,000 legal fee.
The biggest battle they're currently tied up in relates to the $63 million loan for Woods at Countryside. Court records show the group defaulted on their mortgage and promissory note in August 2008. They filed to reorganize under Chapter 11 bankruptcy, but one of the creditors didn't approve the plan.
William Anaya, an attorney with Arnstein and Lehr representing the developers, said they're now working with the banks on day-to-day operations, trying to stay afloat.
"Nobody's going to make any money on this. Right now it's just about minimizing loss," Anaya said. "They're highly leveraged and got caught in the economic downturn."
He said he's not aware of any "malicious or evil" actions by the developers, adding that they have an optimistic long-term view; otherwise they would have filed for Chapter 7 bankruptcy, or liquidation.
But long-term success means little to the people losing their homes. Owners are now working with the county and township assessor's office and plan to appeal with the state Property Tax Appeal Board. But it would be years before they see any money, if ever.
A real estate agent told Grimm, who bought her 800-square-foot condo for $151,000, that a unit with the same floor plan recently sold for $106,000.
"I've always been good about money and would never buy anything beyond my means," said Grimm, who's recently married and due to have her second child in December. "But we can't sell these things. I understand why people are walking away."