I was honored to receive a call on Thursday stating I have been appointed to Governor McDonnell’s Foreclosure Task Force as the Virginia Municipal League’s representative. The Foreclosure Task Force, “serves as an advisory group to the Governor, and its findings and results will help inform the work of the Governor’s Housing Policy Initiative.”  The next meeting is Tuesday in Richmond.

About 18,000 foreclosured properties were on the market in Virginia in March 2011 (Source: VHDA).

My involvement in the Governor’s Foreclosure Task Force comes about after having recently attended the Virginia Municipal League’s Legislative Policy Committee meeting.  As a city council member, I represent Harrisonburg on this VML committee, which focuses on promoting, amending, or defending against the passage of policies by the Virginia General Assembly depending on their impact on local municipal governments.  At that meeting, the committee was presented with a budget analysis and projection.  The bottom line was this: local government revenues will recover much more slowly than state revenues.

At the state level, tax revenues are largely from sales tax and income tax.  The “ups and downs” of these revenue sources are felt just months, maybe even weeks, after the state’s economy ticks up or down.  This is in stark contrast to local government revenue, which comes in much larger proportion from property taxes.  Property taxes are based on assessments, which we know lag behind because homes are only reassessed in many Virginia communities every two years (Harrisonburg is now reassessing annually).  So, if prices are on the upswing, local governments don’t see higher revenues until two years later.  However, if they are on the downswing, property owners can feel frustration that assessments seem higher than the market value of the property.

In Harrisonburg and Rockingham County, for example, we’ve seen about an 8% drop in average home prices in the last two years.  That’s much better than the national average over the same period of time, but it’s still significant: as real estate is reassessed, the new property assessments will reflect the lower average prices – and local property tax collections will reduce accordingly.

Harrisonburg’s 2011 Adopted Budget projects real property taxes to total about $22.8 million.  An 8% reduction would be $1.8 million.  Rockingham County’s 2010-11 Budget projects $64.7 million collected in general property taxes.  An 8% reduction in these revenues would mean about $5.2 million fewer dollars.

Indeed, the Daily News-Record reported on November 23, 2010, that, compared to 2009, “single-family homes [in Harrisonburg] declined 1.4 percent and townhouses dropped 0.3 percent, according to city officials.”  As reassessments continue, it can be expected that they will continue to decline.  (Keep in mind, these are averages. Some subdivisions have decreased much more, while others have increased slightly in value.  From the same DNR article, “Old Town’s assessed value increased by 0.8 of a percent.”)

If home prices were to begin rising today, assessments – and property tax revenue – wouldn’t correspond for another year or two.  So while the local budget did not see an immediate decline in property tax revenue in 2008, it will see a decline for a couple years past when traditional economic indicators (sales and jobs) turn around.

Keep in mind why this matters: the general rule is that property taxes are the primary way for municipalities to fund education.  Indeed, the same Harrisonburg budget that projects $22.8 in property tax revenue includes $24.9 million budgeted for Harrisonburg schools – over 90% of school funding is provided by property taxes.  Declines in property tax revenue thus have the potential to negatively impact resources available for perhaps the important investment communities can make: educating our youth.

So, given that foreclosures are a major negative driver of home prices and eventual lower assessments (read: school funding), working to remedy and expedite the lengthy, convoluted, and error-ridden foreclosure process should be a top priority for those in local government.  Consider this recent scenario in Harrisonburg (true story):

A Harrisonburg property owner could no longer pay her mortgage, and put her home on the market about a year ago.  It became clear given current market rates, it will likely sell as a short sale.  This means the market value would be less than what the property owner owes the bank.  In this scenario, the lending institution needs to give a “third party approval” for any offer less than what is owed to them.  The property had two offers, both well over $100,000, for the better part of six weeks.  The bank never responded to these offers, and the property was auctioned off at the Court House steps for $75,000.  The result was a foreclosure and much higher deficiency for the property owner and depressed property values for the nearby homes (yes, the bank also lost over $25,000 but I’m less concerned about that).  All because the bank, for whatever reason, wouldn’t process or accept the higher short sale offers.

This circumstance is inexcusable in my mind, foremost because of its detrimental financial impact to my constituents and their families, and furthermore because of its long-term impact on our available education dollars.  It is a circumstance I have seen all to often from my front row seat as a real estate agent -and I can only imagine how often it plays out throughout the entire Commonwealth.  One hint is included in the Review of Virginia Foreclosure Trends from the VHDA:

While delinquency levels have peaked and begun to decline, processing issues have caused foreclosure inventories to again grow.  It will take substantial time to fully resolve the inventory of distressed loans and properties. – VHDA

I am eager to explore how the Commonwealth can address these processing issues, and the myriad of other issues associated with foreclosures.  Thus, I am pleased and honored to bring the local government perspective to the Governor’s Foreclosure Task Force on behalf of Harrisonburg and the Virginia Municipal League.  I’m also looking forward to learning from the experienced members, who have been working on this issue for many years and decades.

For those of you interested in recent statewide data and trends, check out the March 15, 2011 Review of Virginia Foreclosure Trends from the Virginia Housing Development Authority.  I look forward to the latest numbers on Tuesday at the next meeting of the Governors Foreclosure Task Force.

What are your experiences with foreclosures in the Harrisonburg-Rockingham area?  What are your questions and insights?