Oberstein v. Adair County Bd. of Review

• Decision Date: 24 February 1982
• Docket Number: No. 65326,65326
• Citation: 318 N.W.2d 817
• Parties: Barry J. OBERSTEIN and Norman S. Oberstein, Plaintiffs-Appellees, v. ADAIR COUNTY BOARD OF REVIEW, Wayne Sheriff, Chairman; Walter Kniep and Fred Mertes, Members, Defendants-Appellants.
• Court: Iowa Court of Appeals

Page 817

318 N.W.2d 817

Barry J. OBERSTEIN and Norman S. Oberstein, Plaintiffs-Appellees, v. ADAIR COUNTY BOARD OF REVIEW, Wayne Sheriff, Chairman; Walter Kniep and Fred Mertes, Members, Defendants-Appellants.

No. 65326.

Court of Appeals of Iowa.

Feb. 24, 1982.

Willard W. Olesen and Jay Howe, Greenfield, for defendants-appellants.

Alan N. Koufer, Des Moines, C. W. Carlberg, Greenfield, for plaintiffs-appellees.

Heard by OXBERGER, C. J., and DONIELSON, SNELL, CARTER and JOHNSON, JJ.

CARTER, Judge.

Defendants, Board of Review and its members, appeal from district court's review and reduction of their tax assessment against plaintiffs' property. They assert 1) that district court erred in determining the property's fair market value pursuant to section 441.21, The Code 1979, by making an adjustment for the negative effect of a long term lease on the property which allegedly was returning less than the current economic rental value; and 2) that plaintiffs did not establish they were entitled to relief from the assessment. We reverse district court's order and confirm the decision of the board of review.

Plaintiffs are owners of the underlying fee interest in real property situated in Greenfield, Adair County, Iowa, which consists of land and a building subject to an outstanding lease. The building was specifically designed and constructed in accordance with the United States Postal Service's specifications for the purpose of leasing it to the Postal Service. The lease between plaintiffs and the Postal Service was executed on June 8, 1962, and provided an initial term of ten years with an annual rental of $5,944, together with an option granting tenants the right to renew the lease for a maximum of four five-year periods at a similar rent.

In the latter part of 1977, the Adair County assessor appraised and assessed the property for the purpose of determining its valuation effective January 1, 1978. Using a cost or cost-less depreciation method as set forth in the Iowa Real Estate manual, he determined the value of the land was $15,210 and the value of the building was $36,887 for a total value of $52,097. He gave no consideration to the lease encumbering the property.

On July 17, 1978, plaintiffs filed a petition with defendant Board of Review protesting the assessment. The board, with the concurrence of the assessor, consequently lowered the assessment to $46,422 based upon additional depreciation. Plaintiffs thereupon appealed to the district court. The plaintiffs' evidence indicated that the existing lease on the property, executed in 1962, was returning a fixed and ultimately declining rental over the remainder thereof, and, therefore, was a poor investment. It was the opinion of the plaintiffs that the income generated from the lease would be of paramount importance to anyone interested in acquiring the property and a detriment to any sale thereof. Plaintiffs urge that, as a result of the uneconomical lease, the value to be reached upon sale of the property would be less than that otherwise available. Valuation witnesses for the plaintiffs, relying on similar factors flowing from the existing lease, fixed the value of the property at $29,000 to $30,000. Robert P. Hayes, a professional real estate appraiser, testified for the defendants that he determined the value of the property as of the time of assessment on the basis of the assumption that it was free and clear of all liens and leases to be $51,000. The district court found that the assessment should be based on fair market value and, because the property could not be sold without the lease, the value should be based on what a willing buyer would pay if buying the property with the lease still outstanding. Based upon this assumption, the trial court fixed the market value of the property for purposes of assessment at $32,000. The court reconciled the testimony of Robert Hayes by finding that the difference between his valuation and plaintiffs' valuations was attributable to the fact that Hayes had not considered the effect of the unfavorable lease on what the property would bring. On June 27, 1980, district court entered a decree and judgment finding that the fair market value of the property was $32,000 and reduced the assessment. Defendants appeal from this decree and judgment.

I. Scope of Review. Our review of this matter is de novo. § 441.39, The Code 1981; Iowa R.App.P. 4. While we are not bound by the district court's findings, we give weight to such findings. Iowa R.App.P. 14(f)(7).

II. Discussion. Defendants argue that it was improper for the district court to determine the fair market value of the property by making an adjustment for the negative effect of the property lease in existence on the date of valuation. They also argue that there was insufficient evidence to support district court's judgment. For reasons hereinafter stated, we agree with this conclusion.

Section 441.21, The Code, sets forth the standards by which real property shall be assessed. That section states in pertinent part:

... the actual value of all properties subject to assessment and taxation shall be the fair and reasonable market value of such property. "Market value" is defined as the fair and reasonable exchange in the year in which the property is listed and valued between a willing buyer and a willing seller, neither being under any compulsions to buy or sell and each being familiar with all the facts relating to the particular property. Sales prices of the property or comparable property in normal transactions reflecting market value, and the probable availability or unavailability of persons interested in purchasing a property, shall be taken into consideration in arriving at its market value. In arriving at market value, sale prices or property in abnormal transactions not reflecting market value cannot be taken into account, or shall be adjusted to eliminate the effect of factors which distort market value, including but not limited to sale to immediate family of the seller, foreclosure or other forced sales, contract sales, discounted purchase transactions or purchase of adjoining land or other land to be operated as a unit....

When it is impossible to determine the fair and reasonable market value in this manner, section 441.21, The Code, provides an alternative standard to be applied in the assessment.

... In the event the market value of the property being assessed cannot be readily established in the foregoing manner, then the assessor need determine the value of the property using the other uniform and recognized appraisal method, including its productive and earning capacity, if any, industrial conditions, its costs, physical and functional depreciation and obsolescence and replacement costs, and all other factors which would assist in determining the fair and reasonable market value of the property but the actual value shall not be determined by use of only one such factor ...

The theory of the district court and of the plaintiffs on this appeal is based on the proposition that an existing lease affects the amount which a willing buyer will pay for the property, and therefore is a factor in determination of market value. Defendants, on the other hand, urge that the value fixed by the district court and testified to by plaintiffs' witnesses, was not the fair market value of the property subject to tax but rather the fair market value of plaintiffs' interest in that property which, as the result of the outstanding lease, is less than the entire interest subject to tax. We agree with defendants' argument in this regard.

Taxes on real estate in Iowa constitute an entirely in rem claim. Such taxes are not the personal obligation of any person. Laubersheimer v. Huiskamp, 260 Iowa 1340, 1344, 152 N.W.2d 625, 627 (1967); In re McMahon's Estate, 237 Iowa 236, 238, 21 N.W.2d 581, 582 (1946); Lucas v. Purdy, 142 Iowa 359, 367, 120 N.W. 1063, 1066 (1909); Plymouth County v. Moore, 114 Iowa 700, 701, 87 N.W. 662, 663 (1901). See also Helvering v. Johnson County Realty Co., 128 F.2d 716, 717 (8th Cir. 1942). As a result, the taxing authority's lien and right to sell the property for nonpayment of taxes encompasses all interests in the property, even though the party named in the assessment owns less than the entire interest therein. Linn County v. Steele, 223 Iowa 864, 867-68, 273 N.W. 920, 921-22 (1937); Lucas v. Purdy, 142 Iowa at 365, 120 N.W. at 1064-65. The assessment of the property in a particular name is only a matter of administrative convenience. The tax...