New Yorkers attempt to convert HOA to condo association to save money on property taxes

Deborah Goonan, Independent American Communities

Homeowners file lawsuit, claiming HOA to condo conversion attempt thwarted by AG

An unusual battle over property taxes is brewing in the state of New York.

According to two recent reports (see references below), New Yorks state law sets the assessed value of a condominium based upon it’s potential rental income, whereas value of a home governed by a homeowners’ association is based upon its resale market value. Tax analysts say that, because of this odd tax valuation method, property tax on a condominium can be 50 percent lower than that of a single family home.

(Note: For an in-depth explanation of New York City’s Class 1 and Class 2 property tax policy, see this 2015 CityLab article. )

So, in order to save money on property taxes, several HOAs made up of townhouse style dwellings decided to convert to condominium associations.

Presumably, homeowners decided to give up private ownership of their very small lots in favor of communal ownership of land in the condominium association. Doing so, they reasoned, would change each property from a Class 1 to a Class 2 dwelling, thus resulting in lower significantly lower assessed values and lower property taxes. Reportedly, an attorney worked with several NYC HOAs to file new legal condominium declarations, including updated floor plans that delineate privately owned units from commonly owned land.

Homeowners in one community, The Landings at Dobbs Ferry, say that they have now met the legal requirements to convert from HOA to condo association, which should cut their average $30,000 annual tax bill nearly in half.

Elected officials from the village at Dobbs Ferry and the town of Greenburgh were definitely not happy about the conversion attempt at The Landings, since it would create a $1.3 million tax revenue shortfall. Town and village officials say that shortfall would result in an unfair shift in the tax burden to all other municipal taxpayers who own single family homes.

Of course, no discussion of how the town or the village might work to reduce expenses!

In additions, State Assemblywoman Sandra Galef introduced a bill that would reform NY law to make the method of valuation of condos similar to that of single family homes. It gained some traction in the Assembly, but did not get to the Senate prior to the end of this year’s Legislative session.

Predictably, condo Developers voiced opposition to the bill. They love the tax break for condos, because it helps them to sell units at higher prices.

While The Landings was in the process of their HOA to condo conversion, the town of Greenburgh passed a resolution denying a tax break to homeowners following a conversion.

Reportedly, several other local governments have enacted similar policies in the recent past, for the purpose of ensuring higher tax revenue from Class 1 properties in HOAs.

Because Dobbs Ferry and Greenburgh refuse to accept their new status as a condominium association, homeowners at The Landings, recently filed a lawsuit accusing NY Attorney General Barbara D. Underwood of colluding with local officials. The lawsuit claims the AG is deliberately blocking recognition the conversion of The Landings from an HOA to a condominium association.

AG Underwood denies any wrongdoing, and says she’d just doing her job to protect homeowners from risks and unintended consequences of converting their ownership from HOA to condo.

Homeowners in line to pick up more payments in condo tax play

David McKay Wilson, Rockland/Westchester Journal News Published 7:00 a.m. ET June 20, 2018 | Updated 12:37 p.m. ET June 20, 2018

Tax Watch columnist David McKay Wilson explores the latest in the fight over the taxable value of condominiums in New York state.

In Dobbs Ferry, the 103-member homeowners’ association at The Landing has filed to become a condominium, a move that could save them as much as $1.3 million in property taxes and shift that burden onto the shoulders of their neighbors.

It’s happening in New Rochelle too, where the 44-member Brook Ridge Homeowners Association has converted to condominium ownership, which could result in savings of up to $400,000 — which would also be paid by their city neighbors.

As these associations try to take advantage of the tax break provided to condominiums in New York state, the state Assembly on Monday passed legislation that would give municipalities the option of barring condos from getting the tax break, beginning for those units built in 2021.

Read more:

www.lohud.com/story/money/personal-finance/taxes/david-mckay-wilson/2018/06/20/condo-tax-break-limbo/715530002/

 

It’s important to point out that, all too often, state laws create more problems than they solve. The original tax reform law making condominiums Class 2 properties, comparable to apartment buildings, was intended to spur construction of multifamily housing, and to increase affordability.

But critics say that the misguided and outdated tax law had the effect of providing a financial benefit to one special interest group, in this case developers of condominiums.

Clearly, giving a huge tax break to condo developers doe not benefit taxpayers at large.  Instead, the complex, unworkable condo tax policy pits local government against state government. Effectively, it creates an unlevel playing field where the group that feels overtaxed (Class 1 owners of single family homes) will go to great lengths to reduce their tax burden.

Presumably, homeowners at The Landings, as well as other HOAs under similar circumstances, know that the radical act of converting their HOA to a condominium erodes their private property rights. But if homeowners don’t acknowldge the risks of giving up private land ownership — such as the increased vulnerability of the association to hostile takeover and forced termination of condominium — then shame on them.

 

HOA sues NY Attorney General Underwood over condo conversion

By Bill Heltzel – August 24, 2018

Homeowners at The Landing at Dobbs Ferry found a way to minimize the impact of a new federal tax law last year by converting their homes to condos.

But when they tried to make the conversion to save about $1 million a year on property taxes, local government officials and the New York State attorney general, they claim, thwarted their plan.

On Aug. 20, the homeowners’ association sued Attorney General Barbara D. Underwood in Westchester Supreme Court to compel her to recognize The Landing as a condominium.

Underwood and Assistant Attorney General Constance Leperides, the homeowners allege, have been working in concert with local government officials “to obfuscate and delay the conversion process to prevent The Landing from being recognized as a condominium in time to receive the favorable tax treatment that motivated its conversion.”

Underwood responded through her spokeswoman, Rachel Shippee.

“It’s a shame that the association is trying to muddy the waters by involving us in its dispute with the town,” Shippee said in an email. “We reject their claims and will continue to fulfill our statutory responsibility to protect New Yorkers.”

The Landing is composed of 103 homes in 36 buildings built in the late 1990s to 2003.

Last year, the homeowners decided to respond to a new federal tax law that capped state and local tax deductions. Their properties were being taxed as single-family homes based on their fair market or resale values. Converting from a homeowners’ association to a condominium would make the homes taxable at a lower rate.

They would save about 40 percent on property taxes, averaging nearly $10,000 per home.

Read more:
westfaironline.com/106130/hoa-sues-ny-attorney-general-underwood-over-condo-conversion/

 

The controversy will play out in NY courtrooms.

And there’s a good chance that Assemblywoman Galef’s bill will be reintroduced and considered in the next Legislative session.

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