Tax lawsuit looms over Fulton's coffers

By Johnny Edwards

The Atlanta Journal-Constitution

With all she owes in back taxes and unpaid liens, Catherine Johnson, 84, may not be able to hold onto Cat's Corner. She ran the soul food restaurant on Martin Luther King Jr. Drive for four decades until two knee replacement surgeries put her out of business.

"All I have is Social Security," she said. "I don't have enough to pay all those taxes."

R.J. Morris is offering her a morsel of hope.

Sitting in her dining room with file folders and stacks of papers spread out on a red tablecloth, Morris, a real estate investor and Fulton County anti-tax activist, tells her he's almost certain he can get the tax value of the old restaurant lowered from $120,600 to around $15,000 and the value of her adjacent rental house lowered from $50,000 to $15,000. That could cut her yearly tax bills from about $3,000 to $530.

"I will never charge you a penny," he says, "and I'll put that in writing. I do it because it's fun to hurt the county."

Morris, founder and president of the Georgia Property Taxpayers Committee, is offering to argue on Johnson's behalf when she appeals the values to the county's Board of Equalization. If he has his way, he'll soon also be representing her neighbors and thousands of residents in six urban zip codes in a class-action lawsuit, a sweeping assault on the county's tax collection process.

Last spring, Morris filed suit against the Fulton County Board of Tax Assessors, alleging the county inflated values in scores of neighborhoods by using foreclosures seizures as comparable sales. The seizures, termed credit-bid sales, represent not money changing hands, but unpaid mortgages when a bank takes over a house. He also says appraisers are disregarding valid sales and arbitrarily setting neighborhoods' average prices.

Morris and his lead attorney, John Woodham, have begun a process that could take the lawsuit into uncharted and, for the county government, potentially treacherous territory. Morris is seeking the right to sue not just over the value of an investment property he owns on Pegg Road near East Point, but on behalf of every overvalued residential property owner in four -- and possibly six -- high-foreclosure zip codes who hasn't already appealed.

That would include Johnson's zip code (30310). According to data Morris compiled through open records requests, the county used nothing but credit-bid sales and threw out  real sales when it set values in her neighborhood near Westview Cemetery.

One case involved Federal National Mortgage Corp. taking over a house on Tiger Flowers Drive with $131,809 left on the mortgage, which later sold for $8,000.CitiMortgage Inc. seized a house on the same street with $277,838 remaining in unpaid debt, which later sold for $43,500.

A Superior Court judge has to approve class-action status, and the case is in front of Judge John J. Goger. A conference held Friday launched the discovery process, which will culminate in a hearing later this year.

If Morris succeeds, Fulton County could be facing tens of millions of dollars in payouts. He not only wants to see the valuation system fixed, but also to have every over-charged taxpayer sent refund checks for tax years 2009 and 2010.

What the tally could be is difficult to pin down.

Morris claims two years of refunds in zip codes 30310, 30315, 30331, 30349, 30318 and 30311 would cost Fulton between $100 million and $200 million. He said his estimates are based on data from the county, First Multiple Listing Service and City-Data.com.

Atlanta Neighborhood Development Partnership Executive Director John O'Callaghan, whose group commissioned a study last year examining market values vs. appraised values, said he couldn't estimate how much mass refunds would cost. The group determined that Fulton assessors systematically used unpaid mortgage amounts to set fair market values and that in 2010, Fulton zip codes of 30310, 30349 and 30331 were poised to overpay by $34 million.

"To find just what the [overall] liability to the county would be would be about a $10,000 research project," O'Callaghan said.

"My gut feeling," Georgia State University real estate professor Alan Ziobrowski said, "is it's a lot of money."

Chief Appraiser Burt Manning has admitted that his office used foreclosure seizures to set values, but he blames the state Legislature for using the term "foreclosure" when it amended the tax law for 2009, something that has since been clarified.

Asked about Morris' suit earlier this week, Manning said he would have to check with the Board of Assessors' attorneys before commenting. Lead defense attorney Allison Humphrey did not return telephone calls seeking comment.

Emory University law professor Richard Freer, an expert in civil procedure, said the argument for class-action status seems reasonable in this case, so long as Morris' circumstances are common to every other overtaxed homeowner. There's likely to be enormous political pressure on the judge not to make a decision that could devastate the county's finances, but it's his job to uphold the law, Freer said.

"If the county's cheating, the county ought to be held liable," he said. "My guess is that if the class is certified, they're going to get out the checkbook and try to settle."

County Commissioner Robb Pitts brought up pending lawsuits when he tried in vain to convince the commission to keep more money on reserve when setting the 2011 budget last month. Though he met with Morris last summer, he said he wasn't referring to his suit when he cautioned the board about millions in potential lawsuit payouts.

Pitts said he understands Morris' arguments, but he's not sure a judge would agree. He said he also wonders what's in it for Morris.

"Vengeance," Morris said when asked that question. He said he's been at odds with the county since 2009, when the assessors' office and the Board of Equalization wouldn't lower the nearly $6 million total value on 73 of his investment properties to the $2 million he paid for them..

"Vindictiveness without reason is wrong," he said. "But vindictiveness with purpose is how you help your fellow man."

Marcella Vinocur, of Portland, Ore., said she could use that help. She and her husband own two rental houses in depressed Atlanta neighborhoods. One, on Montreat Avenue (30310), they bought in 2009 for $15,000 and the county has it valued at $124,100. The other, on Fair Street near Morehouse College (30314), they bought the same year for $16,000 and the county values it at $137,600.

The Vinocurs paid about $4,000 in taxes on the two houses last year. If the county assessed them at their sale prices, which will be the maximum under a new law that went into effect this year, starting with 2010 sales, their taxes would be about $550.

"Everyone needs to be compensated for paying taxes above and beyond what they should be," Vinocur said. "It's robbery."