Starting on Jan. 1 foreclosed properties will now be subject to state and municipal conveyance taxes, according to language approved in the state budget passed three months ago.
It’s a policy change which will hit a vulnerable population and it has lawmakers on both sides of the aisle concerned.
“It was not a policy decision,” Sen. Bob Duff, D-Norwalk, said Tuesday. “My guess is people were looking at various places for revenue.”
According to the state budget the conveyance tax on foreclosures is expected to generate $24.7 million for the state and $12 to $14 million for municipalities over the next two years.
While the policy change itself may sound simple, lawyers, real estate agents, and bankers told the legislature’s Banking Committee Tuesday just how difficult it may be to implement in the real world.
Attorney Denis Caron of the Connecticut Bar Association told the committee it’s unclear based on the language in the bill if the tax will be applied to the entire value of the property or the bid.
Caron urged the Banks Committee to seek some clarification on the issue since many foreclosure sales have been scheduled by the courts after Jan. 1.
Duff said the legislation seems to be silent on those issues. It simply deletes the exemption on foreclosures by sale, he said.
Strict foreclosures where the debt exceeds the fair market value of the property are still exempt from conveyance taxes.
Eugene Marconi, of the Connecticut Association of Realtors said, there’s a misconception that the banks are going to be paying this tax. He said that’s simply not true because the banks have the ability to ask the courts for a deficiency judgment. If they’re awarded a deficiency judgment “you’re saddling those folks with an additional tax that’s going to follow them around for the next 15 years,” Marconi said.
It’s a tax on what little equity these foreclosed homeowners are walking away with, he said. It’s a tax that will “hit the most vulnerable members of the property owning population.”
“As a matter of policy this is a bad policy,” Marconi said.
Even David Wiese of the Connecticut Bankers Association agreed.
“This is just a further anchor on their ability to get back to their lives,” Wiese told the committee.
“I really believe this is pouring salt into the wound,” Rep. Bill Hamzy, R-Terryville, said adding that in his 15 years as a legislator he’s never attended a committee meeting after a policy change has been enacted.
The only one in favor of the new application of the tax was Ron Thomas of the Connecticut Conference of Municipalities. He said the new revenue source provides some much needed assistance to cities and towns when other sources of state funding have dried up.
“The law should have an opportunity to work before it’s thrown out,” Thomas said.