From the Ground Up

by Phil Hardwick

Published: July 22,2002

During the past few months the newspapers and other media have been filled with items that relate to government control of real estate. We are talking taxation, zoning, permits and condemnation. It’s enough to make a real estate professor want to take the class on a field trip.

Let’s start with taxation. The folks in one county went into proverbial orbit when they recently received notices of the assessed valuation of their real estate. One would think from reading the news that they did not want their property values to go up. Of course, what they really did not want was for their taxes to go up.

What many people did not know is that there are two factors involved — the value of the property and the millage rate set by the taxing authority. Property values might go up, but property taxes could actually go down if the millage rate was reduced. The basic formula to compute property tax is assessed value x millage rate = tax. If the value goes up and the millage rate stays the same then the taxes will go up. In general, the taxing authority, be it the County Board of Supervisors, the City Council or the school district, sets its budget for the coming year then adjusts the millage rate so that the tax revenue equals the budget. Pity the poor tax assessor who has to explain all this to the property owner. And that is before tax exemptions kick in.

Last week the annual notices of delinquent property taxes appeared in newspapers all over Mississippi. In August some of those parcels will be sold to collect the taxes. In Mississippi there is a three-year redemption period during which the owner may “redeem” the property by paying the person who bought the property at the tax sale. The old owner must pay taxes plus interest.

Another way that government controls real estate is through building codes. These laws and regulations govern such things as how far a residence must be from the property line to what type of plumbing must be used. Then there are building permit requirements. The media had a fascinating story about a property owner who built a structure in his front yard, apparently without a permit, and was later told by the local government that he had to tear it down. The owners defense was a noble one that consisted of several factors: (1) he asked the local government before he built the structure and was told he did not need a permit; (2) a government employee saw the structure and did not say that it had to come down; (3) the structure was useful and pretty and (4) the neighbors like it. I suspect that the property owner would not feel any better if he met the property owner in New York City who was ordered to remove the top 12 floors of a building because it violated height restrictions. That owner even had a building permit from the city!

Then there is the condemnation, which is the right of the government to take private property for public use.

In such cases the owner must be paid market value for the property and the taking must be for a public use — or is it public purpose? That is the issue in a case in the condemnation story of the year, which I won’t go into except to say that it has the potential of defining condemnation law in Mississippi.

Zoning laws are government controls on the types of uses of real estate. For example, one area of a community might be limited to residential use, while another for industrial or commercial use. In short, an owner cannot use his or her property in a manner inconsistent with the zoning laws.

There are other government controls on real estate, escheat being one, but we will wait until it makes news before offering commentary.

The things discussed here are just the government controls on real estate. There are also private restrictions on the use of real estate. Deed restrictions and covenants are just two examples of private control of real estate.

In summary, that old saying about a person’s home being the castle is just that — old. In today’s world real estate is controlled a great deal by the government.

Phil Hardwick’s column on Mississippi Business appears regularly in the Mississippi Business Journal. His e-mail address is phil@philhardwick.com.


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