Many California homeowners, while owning properties worth less than what they paid for, are at least getting some benefit by paying lower property taxes.
While many homeowners are familiar with Proposition 13 (which caps the tax assessed value on properties to a growth rate of no greater than 2%) they are most likely unfamiliar with Proposition 8 (the other one). When Proposition 13 was passed in 1978, Proposition 8 was also passed.
When your property declines in value, it is actually Proposition 8 which kicks in and allows you to claim a lower taxed assessed value on your property. The tricky part is that once the housing market rebounds, the cap on Proposition 13 doesn't kick in until you reach a value essentially equal to your purchase price of the home. In other words, if values rebound over night, the property's tax assessed value will be allowed to increase at more than the 2% rate until the purchase price value is met. So surging home values could mean surging property taxes as well.
While most homeowners are faced with depressed values, there are a few counties where property values are increasing and homeowners are getting assessed additional property taxes. For instance, some 37,000 residents in Santa Clara County received notice that their property taxes were increasing this year as a result of rebounding housing values:
"It's a double-edged sword,'' said Kreshel, a senior manager at eBay. "The value is going up and so are my property taxes, even though it's still below what I had to pay for it,'' she noted with a sigh. "It's part of being a homeowner.''
It is really only a matter of time before home values start to recover state-wide and homeowners realize that the property taxes will increase dramatically as result.