Officials React Cautiously To Plan To Cut Prices of Real Estate Seized From Thrifts
By Peter Schmidt
Washington--The National School Boards Association and other organizations representing state and local taxing authorities reacted with caution last week to a federal plan to cut the sales prices of $16 billion in real estate seized from troubled savings and loan institutions.
The Resolution Trust Corporation, which is administering the costly bailout of the savings and loan industry, last week adopted a plan that allows cuts of 15 percent or more in the prices of property that is slow to sell.
Officials of the nsba and other groups said they are uncertain what impact the plan will have on property values and tax revenues.
The groups generally welcomed the increased effort to sell the property--much of which is boarded-up and vacant--to private owners who may invest in it and help local economies rebound.
But the groups expressed fears that the new plan, if not carefully administered, may flood already-sluggish real-estate markets with undervalued property and result in the overall lowering of property values and the shrinking of tax bases.
"The issue is trying to find a fine line between dumping the properties and seeing them boarded up," said Frank H. Shafroth, the director of federal relations for the National League of Cities.
While Mr. Shafroth has been among those urging that the properties be moved quickly, he does not welcome the price reductions be4cause, he said, they are likely to lower overall housing values. "Whatever happens to assessed housing values has immediate impact on what is paid in taxes," he noted.
The r.t.c. plan, adopted by the agency's board of directors on May 8, allows the agency's local managers and national directors to reduce the prices of seized properties that do not sell within six months to 15 percent below their appraised value.
Properties that remain unsold three months after a price cut can be reduced in price by an additional 5 percent. In addition, real estate and other assets can be sold at auction for as much as 30 percent below appraised value under the new policy.
Michael A. Resnick, the n.s.b.a.'s associate executive director for federal relations, said he did not know how to view the plan because of the uncertainty over the extent to which the federal government will honor tax debts and other obligations on the properties.
"If the federal agencies intended to be scofflaws and not honor the payments and taxes on the property, we would want them to get rid of the property as quickly as possible," Mr. Resnick said.
"If the federal agencies are going to pay the taxes and penalties," he added, "there would be no reason for us to support a plan that would possibly result in lowering current and future assessments and, in turn, property-tax revenues."
In an April 25 letter, the n.s.b.a. and other groups urged the Federal Deposit Insurance Corporation and the r.t.c. to issue regulations clarifying and strengthening the taxing authority of state and local governments under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. (See Education Week, May 9, 1990).
As of late last week, neither agency had responded to the request.
Stephen D. Driesler, the senior vice president for government affairs of the National Association of Realtors, said he views the price reductions as a positive development. Many of the seized properties cannot sell in their depressed local or regional markets at the prices now being asked, he said, and, without proper maintenance, they are likely to decrease in value.
He added, however, that the r.t.c. must consider the effect of price reductions on local markets. "You can't develop a single marketing plan out of Washington that is going to work in Denver and Baton Rouge and Phoenix," he said.
Ninety-five percent of the 30,123 parcels of residential and commercial property and land seized by the agency as of Jan. 2. were in 15 states in the South and West. Of these, Texas was hardest hit, with 15,750 properties under federal control.
Kerry L. Horn, assistant director of governmental relations for the Texas Association of School Boards, predicted that the agency's plan would hurt the tax bases of rural or suburban areas where failed thrifts had been able to buy up relatively large portions of the local property-tax base.