Andrew Mills/The Star-LedgerAerial view of the similar bungalow-style homes at the Midway Beach Condominium Association, a small beach community located south of Seaside Park. A small piece of tax code allows assessors to disqualify a property for comparison they believe was sold under financial duress.

When homeowners go to fight their property assessment, the first thing they often do is examine the sales of similar homes around the neighborhood.

It can be the key to a successful tax appeal. If your neighbors’ homes sold for tens or even hundreds of thousands of dollars less than your assessment, you’re likely to win your case.

But as more homes are being sold at cut rates in a sour economy, towns are increasingly ruling those sales as invalid for comparison, making it tougher for homeowners to catch a break on their tax bill.

The culprit is a small piece of the tax code that allows assessors to disqualify a property for comparison they believe was sold under financial duress.

In some towns, “if the assessor gets the slightest whiff” that a home might have been sold under duress, it gets removed from contention, said Jim Bogris, a Fair Lawn appraiser. “I don’t know how many times I’m at tax-board hearings and I see people going in to appeal … and the assessors just blow them out of the water. I believe [the code] is overused.”

Last year, more than 11,000 properties were disqualified on these grounds. That’s good for nearly 11 percent of all properties that were disqualified, up from 8 percent in 2009.

Homes sales are considered usable for comparison if an assessor believes it is indicative of fair market value. But home sales can be disqualified and deemed unusable for myriad of reasons, such as foreclosures, short sales, or when a homeowner is willing to accept nearly any price in order to move because of divorce or a death in the family.

As home prices go down, more and more home sales are now considered “distressed.”

“Ultimately, our courts are going to have to look at that issue because at some point, if you have an overwhelming number of foreclosures in a particular area, doesn’t that make the market?,” said David Wolfe, a property tax lawyer in Livingston.

The state Division of Taxation has caught wind of the issue, and is reversing some appeals after finding assessors who misunderstood or misused the law.

When sales are improperly recorded, “we will change it”, said Thomas Reilly, chief of valuation and mapping for the office.

“Ninety percent of assessors do the right thing, but sometimes there are gray areas. Assessors sometimes misclassify things,” Reilly said.

Staff was added to the office in 2009 partly to address the issue and “educate” officials, he said.

Though several attorneys and appraisers acknowledged the rise of the issue, they said it shouldn’t scare residents off from filing an appeal.

Wolfe said the “undeniable truth” is that there are more distressed sales than there have ever been. But just because an assessor marks a sale as unusable does not mean that the county tax board or the tax court won’t necessarily consider it in an appeal, he said.

“Most assessors try, to the best of their ability, to classify the sale — usable or nonusable — in good faith,” Wolfe said. “That said, you could certainly understand the reaction of assessors to some low sales that they can’t necessarily explain.”

By Stephen Stirling and Sarah Portlock/The Star-Ledger

Star-Ledger staff writer Eric Sagara and Dave Sheingold of The Record contributed to this report.

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