Rob and Angie Stillwell were the type of first-time home buyers who wanted to get everything right. After an intense six-week search, they settled on a three-bedroom row house on 14th Street NE, for which they paid $452,000. They closed the deal last November and, not wanting any surprises, hopped on the Office of Tax and Revenue’s Web site to find out what their annual taxes would be. The site spit back a number: $3,800, which sounded about right.
They moved in and were enjoying their new house when they followed some advice from their Realtor and logged back in to check their taxes. This time the site spit out a new number: $12,000—and that was only for half the year.
What happened? Were the Stillwells sold a bad mortgage? Did the tax office low-ball them the first time around? No, it was just the Department of Consumer and Regulatory Affairs decided to get serious about vacant houses.
In August, the DCRA conducted an unprecedented sweep, putting about 3,200 houses on the vacant list, including the Stillwells’. By comparison, the total number of houses declared vacant in 2006 was 800.
“I appreciate their gusto in trying to enforce this law,” Rob Stillwell says. “But when you make a big mistake you should do something big to fix it.”
Once a property is identified as vacant, a higher rate kicks in: $5 for every $100 of assessed value—a rate the D.C. Council is considering doubling. Occupied houses, on the other hand, are taxed at 85 cents per $100. When DCRA came around, the Stillwells’ property was, indeed, vacant. The old owners had left; the Stillwells hadn’t yet bought the place.
By the time the new homeowners figured out the inflated tax bill had passed on to them, their mortgage company had already paid it and increased their payments by $2,000 a month.
Nick Majett, deputy director of DCRA and the head of the Vacant Property Unit, says “of course” the Stillwells never got notification of the reclassification of their home’s status. “The notice went to the former owner who was foreclosed upon. And they’re not going to respond. [Stillwell] wasn’t the record owner at the time it was surveyed.”
The DCRA’s public information officer, Michael Rupert, says his agency isn’t solely to blame. “The same company [the Stillwells’ mortgage company] that is paying those taxes out of the escrow is probably the one that should have done better title research,” he says.
DCRA’s renewed vigor on vacant houses has also hit investors trying to rehab “transition” properties. Phil Guire bought his “first little crackhouse” last June at 11th and D Streets NE.
Prior to his owning it, he says, police found someone using it as a base for a distribution operation. The alleged dealer told police he was taking care of his great aunt, who Guire says was in terrible shape by the time the police got her out.
Guire bought the house for $460,000 and started construction within six weeks. When he got a tax bill for almost $45,000, he wasn’t terribly alarmed. Guire has other properties in the District and has had to correct inaccuracies before. But this wasn’t a typo; Guire discovered the city had not only tagged his place as vacant, it backdated vacant-rate taxes from when the police raided it and boarded it up—three years before he bought it.
As with the Stillwells, Guire’s mortgage company, Wells Fargo, had already paid the bill, since, he says, “no alarms went off in their system that, hey, maybe we shouldn’t pay a bill that’s 20 times what it should be.” Guire went down to DCRA with every scrap of documentation he could find and the agency eventually accepted his exemption, but “at some point Wells Fargo will want their money back.”
Of the 3,200 properties listed as vacant during the sweep, DCRA says about half of their owners applied for an exemption; the great majority of them got it. “Those aren’t mistakes,” says Rupert. “Those are vacant properties, and they’re classified as vacant properties. But they’re exempt from the tax rate.” Exemptions are granted if people can, for example, prove they are actively trying to sell or rent a place, or if it’s under construction.
Majett insists a property is considered vacant only if it is no longer someone’s “place of abode” and if there’s “no intention of [anyone] ever returning.” Mail piling up, a lack of any blinds or curtains in the window, overgrown weeds—all are indications that a home’s gone vacant and can be taxed accordingly.
Every vacant property—even a $6 million mansion—is a “nuisance,” says Majett. Anything that goes wrong has to be attended to by the neighbors or the police: If someone enters without authorization, if the pipes burst, if rats find their way in—it’s a nuisance, he says.
But sometimes properties end up in probate when someone dies and the rest of the family struggles for a while over what to do. Sometimes it takes time, as was the case with the Stillwells, for a family to move in.
Regardless, “the onus is on the homeowner to prove that it’s not vacant,” says Ed Krauze of the Greater Capital Area Association of Realtors.
“If you’re keeping the house up, I don’t see what’s the problem,” he says.
Tell that to Jason and Crislyn Lumia, who were living in their Capitol Hill home for four years, receiving standard tax bills, when they got one for $33,000. Jason Lumia says his “jaw hit the floor.”
His mortgage company, too, had already kicked in money—about half of the bill—when he headed to the DCRA to straighten it out.
“Other than complete incompetence, I do not know why the house was tagged as vacant by DCRA,” he says. “It was vacant prior to us purchasing and rehabbing. But, again, we’ve been in the house for four years, so whichever way you look at it, there is absolutely no excuse whatsoever for this happening right now.”
Because of the error, the Lumias were not able to take their homestead deduction this year, and because they didn’t get that tax benefit, their yearly bill went up to $5,500—twice what they paid last year, says Jason Lumia. They’re contesting that assessment while dealing with a mortgage company that wants to offset what it’s already paid by increasing the couple’s escrow payment by $5,000 a month. In addition, the company wants the couple to put $15,000 back into the escrow account by June 1.
DCRA is in the process of fixing the error. “You’ve been to the DMV,” Jason Lumia says. “I’ll let you picture that.”