What's it worth? Loudon County assessments questioned when appraisals lack consistency

Hugh G. Willett knoxnews.com

LOUDON - A Rarity Bay lot owner's disagreement with Loudon County over his property assessment is raising questions about appraisal reductions on land in the upscale gated community owned by developers, including Rarity Bay creator Mike Ross.

Ross received lowered appraisals of more than $11 million on 2005 tax appraisals for lots he owned in the waterfront community, according to a review of records by the Loudon County assessor's office. However, the assessor at the time said Ross didn't request the reductions.

Records show that appraisals conducted in April 2005 on 178 parcels in Rarity Bay were rolled back to 2001 levels just weeks after they had been appraised at a higher level by the county assessor's office.

All lots on which adjustments were made were at the time owned by Ross' companies, developers, relatives or business associates, Jenkins said. Two of the lots belonged to another developer in Maryland who purchased them from Ross.
The average assessed value of land along Bay Point Rd. owned by private individuals in the Rarity Bay community is $800,000 like this stretch that is just down the street from the property owned by developer Mike Ross which, records have shown, assessed at $500,000.

This stretch of property on a peninsula in an area called Bay Point within the Rarity Bay gated community in Loudon County was assessed at $500,000 despite that average assessment in the area is $800,000. Records have shown that many of the properties owned by developer Mike Ross were under assessed.

Ross has developed a number of residential communities in the Knoxville area under the Rarity brand, including Rarity Bay, Rarity Pointe, Rarity Ridge, Rarity Mountain, Rarity Meadows, Rarity Oaks, Rarity Club, and Rarity Rivers.

An attorney for the state comptroller's office said the selective adjustments appear to be an example of "developer discounting," a practice that about 20 years ago was determined to be against the law by the state Board of Equalization, which regulates property appraisals.

Loudon County assessor Chuck Jenkins called the comptroller's office earlier this year for an opinion on appraisals in question.

Overvalued or undervalued?

Ross said he does not recall requesting adjustments on any of the appraisals for 2005.

"It's been three years and we have hundreds of lots. I honestly don't recall," Ross said.

But appraisals are something he keeps a close eye on, he acknowledged, saying he keeps records on requests for adjustments.

"I don't always agree with the appraisals," Ross said. "We follow them closely."

In 2005, the assessor's office was run by Loudon County Mayor Doyle Arp. The county commission appointed Chuck Jenkins to fill the role of assessor after Arp became mayor in 2006.

Arp denies that Ross requested the discounts and contends that all changes to assessments for the 2005 tax year were based on requests he received from private property owners. According to the records, none of the 178 lots in question were privately owned.

"Mr. Ross did not contact or ask me to change anything," Arp said in a statement.

Jenkins, who ran unopposed for the assessor's job in Thursday's election, said he first realized something was wrong with the 2005 assessments after receiving a call in February from a Rarity Bay property owner living in Florida who thought his appraisal was too high.

The property, listed in the name of Frank Renkel, is located on a peninsula in Rarity Bay and was assessed at $800,000 in 2005.

Lots listed as owned by the Ross-owned company Tellico Lake Properties and located on the end of the same peninsula - some featuring more lake frontage than Renkel's lot - were originally appraised at $800,000 in April 2005 but were then reduced to $500,000 several weeks later.

Renkel, who bought his lot in 2004, said he originally planned to build a home on the lake but decided a few years later to put it up for sale.

While doing research to market the lot, Renkel said he was surprised when noticing that his property was appraised at $800,000 while larger lots with more lake frontage on the same peninsula were appraised at $500,000.

Renkel said he contacted Jenkins because he thought his lot was overvalued next to comparable lots. He said he isn't at all happy to find out that others were getting lower-than-market-value appraisals on their lots.

"While researching his (Renkel's) complaint, it became apparent that there was a lack of consistency in appraisals among identical, often adjacent lots," Jenkins said. "The lower appraisals were on those lots still owned at the time by the developer."

Further review revealed that approximately $11.6 million in total appraised value was cut from 178 lots in Rarity Bay, Jenkins said. The changes to the appraisals saved Ross more than $132,000 in taxes between 2005 and 2007, he noted.

The 178 changes were keyed into the assessor's office computer system on May 4, 2005, several weeks after the official 2005 reappraisals had been completed and entered into the state database, Jenkins said.

Fair and equal

In a statement, Arp said any reductions to the 2005 appraisals were the result of his own research that included consideration of the average selling price of comparable lots at that time and the state of infrastructure, such as roads. The appraisals also reflected the value of lots that might have been sold without memberships or fees for the amenities associated with the development, he said.

"This is a mass appraisal program and all values are based on sales information collected during the years between appraisals. As the assessor of property from 1980 to 2006, I strived to be fair and equal to all property owners," Arp said in the statement.

According to Jenkins, Rarity Bay was a mature community in 2005 and the infrastructure was largely complete. The majority of lots were sold with the membership fee included in the sales price. Even the most expensive amenities such as lifetime golf memberships - priced at about $20,000 - would not account for the adjustments, which averaged more than $65,000 on each lot and as much as $300,000 on some higher-priced lots, Jenkins said.

Jenkins said one lot in question was first appraised at $800,000 in April 2005, then reduced to $500,000 in May of that year before being sold for $1.5 million in November 2005.

Any such considerations by Arp should have been included in the official 2005 appraisal process and supported by documentation, Jenkins said.

"There was no supporting documentation for the reversals, no record of appeals to the Board of Equalization and no sales data to support the lower valuations," Jenkins said.

Most importantly, Jenkins said, is the fact that any such reasons for reductions in the appraisals should have been applied equally to privately owned and developer-owned lots.

"I am sorry Mr. Jenkins spent so much time researching this matter when a simple phone call would have answered these questions," said Arp, who blames the issue on a political adversary, not Jenkins.

A state opinion

In seeking guidance from the state, Jenkins was told the appraisal rollbacks were not justified under state law.

"It sounds as if the person who did it was using the practice of developer discounting," said Robert Lee, general counsel to the state Comptroller of the Treasury, division of property assessments. "The state Board of Equalization has determined that there is nothing in the law that allows developer discounting."

Developer discounting was popular in some Tennessee counties until the late 1980s, according to Lee. The practice, designed to encourage development, was based on the consideration that the developer is more of a middleman and should not be taxed at the same level as private landowners.

Legal opinions issued by Tennessee judges in the late 1980s and early 1990s made it clear that the practice is not legal, Lee said.

"We hope the practice is not used any more," he said. "The law states that all property is to be taxed at fair market value."

Lee said the possibility of filing criminal charges depends on the circumstances, noting that if a "quid pro quo" existed between the developer and the assessor's office, the local district attorney could pursue criminal charges.

In cases where developer discounting has been discovered, the assessor's office or the state Board of Equalization has the power to restore the appraisals to their proper value, Lee said.

Aware of the issue

Loudon County District Attorney General Russell Johnson said his office became aware of the appraisal issue Aug. 4 when he received copies of letters sent to Gov. Phil Bredesen's office pertaining to appraisals in question.

Johnson said he has spoken to several people involved in the issue and decided to seek advice from the state's property assessment division in Nashville. He said he was traveling to Nashville Friday to meet with Lee.

Jenkins said that after discovering the inconsistencies he began conducting a review of each assessment and has since reassessed the lots and managed to correct all but $1.3 million of the $11.6 million in 2005 adjustments in time for the 2008 tax bills.

The rollback of the 2005 reappraisal on 178 select properties and the resulting write off of $11.6 million in appraised value ended up costing Loudon County more than $132,000 in lost tax revenue, Jenkins said.

"That money is not recoverable and that portion of the tax burden had to be redistributed among the rest of Loudon County's taxpayers," Jenkins said.

Renkel believes payback is due, though not necessarily from taxpayers.

"I think its wrong," Renkel said. "I'm very glad Mr. Jenkins investigated. The way I look at it, it should be illegal. I think somebody should pay.

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