Homestead Exemptions a Tax Loophole

Appraisal district processing relies mostly on homeowners statements, not scrutiny

Part 2 of a series
Data Research by Brandon Roberts

Two hundred eighty eight thousand dollars.

And counting.

That’s how much homeowners have been charged for back taxes so far as a result of The Austin Bulldog’s investigation of improperly granted residence homestead exemptions.

As important as it is to collect these back taxes, in the long run it may be more important to staunch the bleeding of tax dollars that would’ve gone on unabated had it not been for this investigation.

This investigation has spurred numerous actions by the Travis Central Appraisal District to validate existing homestead exemptions, but numerous significant barriers exist that prevent more effective screening of new applications. (More about that later.)

Homestead residence exemptions lower the taxable value of a home. (The amount of exemptions granted by local taxing entities were published in Part 1 of this series on December 20.) When improperly granted, these exemptions cause the homeowner to be under-billed for property taxes.

Texas law entitles homeowners to have a residence homestead exemption on only one home per tax year. The exemption is authorized for the home that is the owner’s primary residence on January 1.

Although nearly $300,000 has so far been billed for back taxes owed by homeowners who have managed to obtain more than one exemption, correcting the mistakes exposed by this investigation is very much still a work in progress for the Travis Central Appraisal District and Travis County Tax Collector’s office.

As reported by The Austin Bulldog December 20, 2013, several hundred homeowners have obtained homestead tax exemptions on more than one residence—and thus avoided paying the full amount of property taxes that would otherwise be due.

Some 165 of these property owners had more than one home located in Travis County that enjoyed a tax exemption. Additional taxes billed to these homeowners as a result of this investigation totals $143,716 to date. (For details, click on: Homeowners Who May Have an Improper Residence Tax Exemption in Travis County.) As indicated by the questions inserted in “Remarks” (Column Z of this database), not all of these improper exemptions have been removed. Even in those cases where improper exemptions have been removed, it appears that not every homeowner was billed for the correct number of years for back taxes.

Another 120 homeowners dodged taxes by obtaining exemptions in both Travis County and another Texas county. (For details, click on: Homeowners Who Had an Improper Residence Homestead Exemption in Travis County or Another County.) The Travis Central Appraisal District eventually removed the inappropriate exemptions and initiated billing for back taxes totaling $144,367 for these properties.

Appraisal District corrective action

To its credit, the Travis Central Appraisal District—upon receiving The Austin Bulldog’s public information requests for the applications these homeowners filed to obtain residence homestead exemptions—initiated action to remove many (but not all) inappropriate exemptions and notified the Tax Collector’s office to collect back taxes.

Denise Pierce, customer service director for the Appraisal District, said in a December 16 interview, “Once the (public information) request was filled, then we did go back over those property owners where exemptions should not have been in place. We did go back through and start removing exemptions.”

To date, these actions have resulted in additional property tax billings totaling more than $288,000. Stated another way, The Travis County Tax Collector has been able to initiate recovery of an aggregate total of 397 years of back taxes from these homeowners.

Based on The Austin Bulldog’s analysis, an aggregated 514 years of back taxes may yet be collected as the Appraisal District continues to follow through. The amount of back taxes that may be recouped from these additional collections is not clear at the moment.

What is clear is that more than 900 years of back taxes will never be recouped from these homeowners because the law permits collection of back taxes for a maximum of five years. Homeowners who had inappropriate exemptions longer than that cannot be billed for those years. Some have had improper tax exemptions for decades.

The homeowners who skated on paying their full share of property taxes and have finally been billed for back taxes will not be charged even one dime in penalties or interest if, once billed, they remit timely payment for the full amount due.

Inattention, systemic problems

Obviously it’s important to correct these longstanding problems with inappropriate homestead exemptions and collect as much of the back taxes as possible. The larger question is why these problems exist.

This investigation identified a number of significant factors, as follows:

Lack of identification—Legislation was enacted in 2009 to require that homeowners show identification consistent with the address of the home for which an exemption is sought. Before that the Travis Central Appraisal District’s scrutiny was minimal. In effect the applications were processed on an honor system by taking the application more or less at face value.

The 2009 legislation required residence homestead exemption applications to be accompanied by a driver’s license number (or personal identification certificate number or social security number), and a vehicle registration certificate in which the addresses were the same as the homestead address in the application. (In 2011, legislation deleted the requirement for applicants to provide vehicle registration documents.)

While furnishing a driver’s license or other proof of residency will help prevent the approval of improper residence homestead exemptions going forward, it does little to prevent granting a new exemption to a person who already has an existing exemption—because, Appraisal District officials said in an interview, most of their records do not contain driver’s license numbers associated with homesteads that already have exemptions.

Owners names inconsistent—The Appraisal District’s records reflect the names of property owners taken from deed records.

The Austin Bulldog’s investigation shows that of the nearly 300 improper residence homestead exemptions identified, a high percentage of the deed records do not reflect identical names on both properties. Properties that are owned by two or more individuals rarely list the owners’ names exactly the same way, or in the same order.

Even properties owned by a single person are sometimes not listed identically in deed records.

One common trait in deed records is for a couple’s name to be listed with the husband’s name first in one deed and the wife’s name first in the second deed. This is important because of limitations that currently exist in the Appraisal District’s software and search-engine limitations.

Software limitations—The Travis Central Appraisal District’s software, made by True Automation Inc., requires the names of all owners of a property to be entered all together in one field, regardless of the number of individuals with an ownership interest.

The owners’ names are routinely truncated because the number of characters allowed to be entered into the field is often insufficient.

Search engine limitations—The publicly available online search engine for locating the owners’ names is capable of finding only the name of the first-listed owner for a property.

This problem seems to be inherent in the software from vendor True Automation Inc., as the Bexar Appraisal District uses it too, and suffers the same shortcoming in searchability.

Travis Central Appraisal District officials said in an interview that these search limitations also hinder the staff’s ability to search internally.

If the Appraisal District’s software were modified to allow listing in separate fields the first, last, and middle names of every person with an ownership interest, that would help to prevent the granting of residence homestead exemptions to applicants who already have an exemption on another property in Travis County.

Application form revised—Homestead residence exemptions are granted upon application to the Appraisal District for the county in which the home is located. Although proof of residency has been required since the law was changed in 2011, tens upon tens of thousands of existing homestead residence exemptions in Travis County that were previously approved have never been required to furnish such proof.

The Application for Residence Homestead Exemption, Property Tax Form 50-114, has been frequently revised over the years by the Texas Comptroller of Public Accounts. Although the application was tightened in recent years by requiring a driver’s license (or other identification) with an address identical to the property for which an exemption is sought, the current form no longer contains key information that might prompt the exemption applicant to do the right thing.

For example, until the form was revised about 2005, it contained a check-box and a line labeled “DELETE EXEMPTION ON.” Space was provided to enter the address of a property for which an existing exemption should be removed when granting a new exemption.

Although there is no longer a place on the form to indicate that an existing exemption needs to be deleted, the homeowner nevertheless “has a duty to notify the chief appraiser when the applicant’s entitlement to the exemption ends,” per Property Tax Code Section 11.43(f).

The current edition of the form retains an important feature that requires the applicant to sign a statement “that you do not claim a residence homestead exemption on another residence homestead in Texas, and that you do not claim a residence homestead exemption on a residence homestead outside of Texas.” But it’s up to the Appraisal District to make sure that an applicant is truthful before granting an exemption. That’s a task that’s fraught with obstacles.

Application form unalterable—Travis Central Appraisal District officials stated in an interview that because the State Comptroller prescribes the content of the form, the district is not permitted to modify the form to require additional information from applicants for a residence homestead exemption, such as marital status.

Kevin Lyons, press secretary for Texas Comptroller Susan Combs, said in an e-mail that although Appraisal Districts are not required to use the model forms published by the Comptroller, the content of the forms used must comply with the most recently prescribed form, per Texas Adminstrative Code, Rule Section 9.415(c).

The marriage problem—Married homeowners are entitled to a only one, single residence homestead exemption, anywhere in the state or in the country. Application forms, however, do not require the applicant to state whether the applicant is married and, if so, to identify the spouse’s name and the date of the marriage.

In an interview with The Austin Bulldog, Travis Central Appraisal District officials conceded the Customer Service Department, which processes exemption applications, does not consistently check the Travis County Clerk’s website for marriage searches. And even if they did so, anyone married outside Travis County would not be found there.

Indexes of marriage license applications in Texas may be found by searching CourthouseDirect.com if those marriages occurred between 1966 and 2011, but that database, which is compiled from records maintained by the Vital Statistics Unit of the Texas Department of State Health Services, is not complete. Discrepancies are often noted when checking these records against the Travis County Clerk’s records, for example.

In addition, there is no free resource for finding records of marriages that took place outside Texas.

No statewide database—The Texas Comptroller of Public Accounts, which promulgates instructions for the administration of residence homestead exemptions, does not maintain a statewide database of residential properties that have obtained such exemptions.

Each Central Appraisal District annually submits a database to the Comptroller’s office, but those files do not include the names of property owners, the property addresses, or mailing addresses, James Nolan, associate deputy general counsel for the Texas Comptroller, stated in a January 3 e-mail.

An appraisal district in each of the state’s 254 counties maintains its own records. Most if not all districts publish a searchable online database of the properties in their county, and those records reflect any exemptions granted to the property owner. However, each Appraisal District selects its own software vendor and, as a result, the search capabilities vary widely from district to district.

Applications for a residence homestead exemption received by the Travis Central Appraisal District do not require the applicant to identify a previous residential address or disclose property owned elsewhere.

So even if the Travis Central Appraisal District chose to do research to identify applicants who already owned a home with an exemption in another Texas county, it would be impractical to do so.

Lack of criminal enforcement— As reported in Part 1 of this series on December 20, the Travis Central Appraisal District has never pursued an investigation to enforce criminal penalties for an applicant who may have submitted false information to obtain improper residence homestead exemptions.

Nor is the Texas Comptroller’s office aware of an applicant being charged or convicted for filing false information on an application, according to press secretary Kevin Lyons’ e-mailed response to The Austin Bulldog’s query.

This despite the fact that, when signing an application for a residence tax exemption, applicants are warned of the Penal Code provision and swear they have read and understand the penalty for making a claim containing false statements.

The toothless enforcement of criminal penalties for making false statements in applications for residence homestead exemptions constitutes an open invitation to abuse the system.

In actual practice, anyone caught with an inappropriate exemption will at most be billed for up to five years of back taxes and then go scot-free. They will not have to pay their full share of property taxes in any previous years in which inappropriate exemptions were enjoyed.

There’s neither a penalty nor a penny of extra interest for those who—once an improper exemption is discovered and cancelled—pay the bill for back taxes on time.

The Bulldog investigation

The Austin Bulldog’s investigation of inappropriate homestead residence exemptions involved going far beyond the kinds of research that’s routinely done by the Travis Central Appraisal District.

The Austin Bulldog’s investigation included extensive research to locate marriage records. In addition to online search engines hosted by the Travis County Clerk and CourthouseDirect.com, the investigation reading deed records, which may indicate whether the homebuyers were married at the time of purchase and, if so, to whom.

Voter registration records—The Austin Bulldog’s investigation included cross-checking property owners’ names through a database of registered Travis County voters purchased from the Travis County Voter Registrar’s Office and a similar database purchased from Williamson County. Voter registration records in Bexar, Dallas, Houston and Tarrant counties were checked either online or by calling the voter registrars in those counties.

Pinpointing the addresses where property owners are registered to vote provides a strong indication of where they may actually live—and that may not be in the home for which they have obtained an exemption.

Travis Central Appraisal District officials have conceded they do not consistently research voter registration records when reviewing applications for residence homestead exemptions.

Utility service customers—The Austin Bulldog’s investigation included cross-checking the addresses of properties located within the City of Austin with a residence homestead exemption against a database of the customers who purchase water and/or wastewater service from the city. That database was obtained through a public information request.

When utility records indicate that a non-owner pays for water and/or wastewater service at a residence for which the owner enjoys a residence homestead exemption, it raises a red flag that perhaps that exemption should be questioned.

The Austin Bulldog’s public information request for a database of Austin Energy customers was denied because under state law that information is permitted to be kept confidential for competitive reasons.

Tools used inconsistently

Chief Appraiser Marya Crigler and Customer Service Director Denise Pierce said in a December 16 interview that last summer the Appraisal District purchased user permits for three employees to have online access to the LexisNexis database.

Travis Central Appraisal District officials have conceded they do not consistently use LexisNexis data and have no written procedure to do so. Only a fraction of the customer service representatives who process applications for residence homestead exemptions even have access to LexisNexis.

Routine use of LexisNexis would greatly assist the process of screening applicants for residence homestead exemptions by providing information such as marital status, previous residential addresses, and related information that would help to identify leads for further research or raise questions about whether an exemption should be granted.

The bottom line is that tax exemptions should be granted only when due diligence indicates that an application meets the requirements of law. The results of this investigation indicate that in hundreds of cases the due diligence is lacking.

Further, taking action to cancel inappropriate exemptions would assist the Appraisal District in accomplishing its mission (as stated on its website) which is in part to “ensure that each taxpayer pays only their fair share of the property tax burden.”

By the same token, no taxpayer should pay less than their fair share. When a homeowner enjoys an undeserved exemption, it comes at the expense of those homeowners who pay taxes required by law.

Positive actions being taken

In a December 16, 2013, interview, Chief Appraiser Crigler said the Appraisal District has begun work to review some of the 171,000 properties with residence homestead exemptions in Travis County.

She said letters were being sent to owners of properties for which exemptions had been in effect for a long time. The letters ask the homeowners to reapply if they are still qualified for the exemptions. The chief appraiser is authorized to do this in accordance with Property Tax Code Section 11.43(c). If a homeowner fails to reply to a letter within the specified time limit the Appraisal District will cancel the exemption.

“This is the first time in my memory that the Appraisal District has ever done anything like that,” said Crigler, who has been employed by the Appraisal District since January 1990 and was appointed chief appraiser in November 2011.

But more trouble may be in store in the future, as Denise Pierce, the customer service director who supervises the employees who review exemption applications, said the Appraisal District was mailing applications for residence homestead exemptions to some 11,000 homeowners who might be eligible to apply.

Given the numerous limitations that currently hinder complete scrutiny of applications, a high volume of new applications may only invite further tax evasions.

Public help invited

Crigler closed the December 16 interview with some helpful advice and an appeal.

The helpful advice is for anyone who inherits a property that happens to have a property tax exemption—and particularly properties that have exemptions for an owner who was over the age of 65. School taxes are frozen for these seniors, resulting in significantly lower tax bills each year. Heirs should promptly notify the Appraisal District to have those exemptions removed.

But, if the exemptions are not detected until later, “It can be a significant burden to heirs for back taxes,” Crigler said. Allowing those exemptions to remain in effect until discovered by the Appraisal District could result in getting billed for tens of thousands of dollars in back taxes.

In addition, Crigler said, “If the public is aware of anybody claiming an exemption who should not be claiming an exemption, if you contact our office and let us know we will take it seriously and research it.”

Such reports may be e-mailed to [email protected].

This report was made possible by contributions to The Austin Bulldog, which operates as a 501(c)(3) nonprofit to provide investigative reporting in the public interest. You can help to sustain The Austin Bulldog’s reporting by making a tax-deductible contribution.

Related Bulldog coverage:

Homestead Exemptions Rife With Abuse: Honor system applications and inadequate scrutiny for hundreds of homeowners not billed for full taxes, December 20, 2013

Appraisal District to End Records Suppression: New policy will give property owners 45 days to qualify for confidentiality, November 22, 2011

Appraisal Records Hidden From Public View: Agencies suppressing online records the law doesn’t deem confidential, November 18, 2011