Terfloth v. Town of Scarborough

• Decision Date: 08 April 2014
• Docket Number: No. Cum–13–110.,Cum–13–110.
• Parties: Marc B. TERFLOTH v. TOWN OF SCARBOROUGH.
• Court: Maine Supreme Court

90 A.3d 1131

2014 ME 57

Marc B. TERFLOTH

v.TOWN OF SCARBOROUGH.

No. Cum–13–110.

Supreme Judicial Court of Maine.

Argued: Nov. 20, 2013.

Decided: April 8, 2014.

John C. Bannon, Esq., and John B. Shumadine, Esq. (orally), Murray, Plumb & Murray, Portland, for appellant Marc B. Terfloth.

James N. Katsiaficas, Esq. (orally), Perkins Thompson, P.A., Portland, for appellee Town of Scarborough.

Panel: SAUFLEY, C.J., and ALEXANDER, LEVY, SILVER, MEAD, GORMAN, and JABAR, JJ.

SAUFLEY, C.J.

[¶ 1] Marc B. Terfloth appeals from a judgment entered in the Superior Court (Cumberland County, Mills, J.) affirming a decision of the Scarborough Board of Assessment Review denying his tax abatement request for property located in the upper Prout's Neck area of the Town of Scarborough. See36 M.R.S. § 841(1) (2013). Terfloth argues that the Board's decision was manifestly wrong because the Board was compelled on the record before it to find that the Town's assessment substantially overvalued his property. ¹ We agree that the Town substantially overvalued Terfloth's property and vacate the judgment.

I. BACKGROUND

[¶ 2] In 2009, Terfloth purchased a house on 0.65 acres of land on the corner of Sanctuary Lane and Black Point Road in the upper Prout's Neck area of the Town. Although the ocean is visible from the house, the property has no shore frontage and sits outside Prout's Neck's gated community. The Town's assessor had valued Terfloth's property at approximately $3.5 million in 2005 and did not reassess it after the 2008 market downturn. During the three years before Terfloth purchased the property, it was intermittently listed for sale. Its listing price decreased each year as follows:

June 23, 2006

$6,200,000

December 28, 2006

$5,700,000

June 8, 2007

$4,700,000

April 4, 2008

$4,500,000

September 2, 2008

$3,700,000

June 22, 2009

$2,900,000

Terfloth purchased the property on December 23, 2009, for $2,435,000. Terfloth is not related to the sellers and did not purchase the property at an auction or in a foreclosure sale.

[¶ 3] On October 8, 2010, after the Town's assessor valued Terfloth's property for tax year 2010–11 at $3,503,800, the same assessed value as set in 2005, Terfloth paid the assessed property tax of $44,252.99 and filed an application for a tax abatement.²See36 M.R.S. § 841(1). In his application, Terfloth asserted that the property's purchase price of $2,435,000, not the Town's assessment of $3,503,800, was the true measure of its market value, such that the Town's estate valuation should have been reduced by $1,068,800. In a letter dated January 3, 2011, the Town's assessor denied Terfloth's abatement request, stating that “[t]here were very few sales in [the Town] for the last year that fell 30% below [their] assessed value and most were distressed and [/]or foreclosures;” that the Town's assessment of Terfloth's property is “fair and equitable” when compared with others in the neighborhood; and that the Town will decrease the assessment of Terfloth's property if future sales in his neighborhood reflect a general decrease in property prices.

[¶ 4] On March 4, 2011, Terfloth filed an application for assessment review with Scarborough's Board of Assessment Review, arguing that the Town's assessment was manifestly wrong because it substantially and unjustly overvalued his property. The Board held a hearing on May 26, 2011, and on June 1, 2011, issued a written decision concluding that Terfloth “did not meet his burden of showing that the property has been substantially overvalued relative to its market value.”

[¶ 5] At the Assessment Review hearing, the Town presented, together with other evidence, the assessor's valuation report, which identified Terfloth's purchase as an “Arms Length Sale.” During the hearing, the assessor qualified that statement, indicating that he believed that the sale of Terfloth's property was not quite a foreclosure, but “in that range of foreclosure sales.” The assessor provided no evidence on that point. The assessor also testified that he assessed Terfloth's property using a method he called the “square root of the fractional acre.” This formula—which the Town has used since 1958—yields a valuation for property-tax purposes based on a zone-specific price for a half acre and the square root of the acreage of the property being valued. The use of the formula on Terfloth's lot resulted in an assessment of $3,503,800, which has remained unchanged since 2005. The Town's own evidence, including the list of assessment-to-sales ratios for other Prout's Neck properties, disclosed that the Town had assessed Terfloth's property at 144% of its sale price—a substantially higher ratio than for any other Prout's Neck property.³ The assessor explained variation among the assessment ratios by stating that (1) land over one acre is treated as excess acreage, (2) lots with the same owner are treated as one lot, and (3) the variance from the baseline valuation is inversely proportional to the size of the lot.

[¶ 6] The Board found, among other things, that properties similarly situated to Terfloth's property that sold in the Prout's Neck area in the five years preceding Terfloth's purchase were sold for over three million dollars and that the 144% ratio between the sale and assessment values of Terfloth's property “does stick out, but one sale does not make a market.” The Board further stated, “It is just likely he got a good deal. His purchase price seems under what has been typical.”

[¶ 7] On June 7, 2011, Terfloth requested that the Board reconsider its denial of his appeal.⁴ The Board held a hearing on June 23, 2011, and voted to deny Terfloth's motion for reconsideration. Terfloth appealed the Board's decision to the Superior Court, which remanded the case to the Board in a judgment entered on December 30, 2011, seeM.R. Civ. P. 80B; 36 M.R.S. § 843(1) (2013), finding that the Board had failed to state adequate conclusions and findings of fact.

[¶ 8] On February 9, 2012, the Board issued fifteen factual findings and two conclusions after reconvening in an executive session to comply with the court's decision. The Board found, among other things, that the Town's assessment formula is reasonable as applied to Terfloth's property; that the price Terfloth paid for his property, although significantly below the assessed value, does not justify deviation from the assessor's methodology; that the price Terfloth paid for his property “was an aberration in light of other sales” in Prout's Neck; that Terfloth failed to present “sufficient credible evidence” as to why his purchase price was lower than general sale prices in Prout's Neck; and that “it was not clear ... that the sale was an arm's-length transaction because of the length of time the [p]roperty was on the market.” The Board concluded that Terfloth failed to demonstrate, first, that the Town's valuation was manifestly wrong or so irrational or unreasonable that the property was overvalued and, second, that the Town's “valuation was the result of unjust discrimination and that the Assessor used systematic and intentional methods to create a disparity,” or that the assessor's method or assumptions were unfounded or arbitrary.

[¶ 9] On March 7, 2012, Terfloth again appealed the Board's decision, alleging that the Town's assessment is unjustly discriminatory and that the Board erred when it concluded that the sale to Terfloth was not an arm's-length transaction. SeeM.R. Civ. P. 80B. On January 31, 2012, the court, referencing the very high burden that a taxpayer must overcome on appeal, affirmed the Board's denial. Terfloth timely appealed pursuant to 14 M.R.S. § 1851 (2013) and M.R. App. P. 2.

II. STANDARD OF REVIEW

[¶ 10] “When a party appeals a decision of the Superior Court in an action seeking review of a [tax assessment], we review the Board's decision directly for abuse of discretion, errors of law, and sufficient evidence.” UAH–Hydro Kennebec, L.P. v. Town of Winslow, 2007 ME 36, ¶ 10, 921 A.2d 146. “That the record contains evidence inconsistent with the result, or that inconsistent conclusions could be drawn from the evidence, does not render the [Board's] findings invalid if a reasonable mind might accept the relevant evidence as adequate to support the [Board's] conclusion.” Town of Vienna v. Kokernak, 612 A.2d 870, 872 (Me.1992).

III. DISCUSSION

A. Burden of Proof and Standard of Review of the Assessment

[¶ 11] The Maine Constitution provides that “[a]ll taxes upon real and personal estate, assessed by authority of this State, shall be apportioned and assessed equally according to the just value thereof.” Me. Const. art. IX, § 8; see Chase v. Town of Machiasport, 1998 ME 260, ¶ 11, 721 A.2d 636. “[F]irst, the property must be assessed at its fair market value.” ⁵Id. (citing Quoddy Realty Corp. v. City of Eastport, 1998 ME 14, ¶ 9, 704 A.2d 407);see McCullough v. Town of Sanford, 687 A.2d 629, 631 (Me.1996) ( “The sale price of property is probative of its market value.”). “[S]econd, the assessed value must be equitable, that is, the property must be assessed at a relatively uniform rate with comparable property in the district.” Chase, 1998 ME 260, ¶ 11, 721 A.2d 636.

[¶ 12] A taxpayer who seeks a tax abatement must prove that the assessed valuation is “manifestly wrong.” Id. ¶ 12 (quotation marks omitted). An assessment is manifestly wrong if the taxpayer can demonstrate

(1) that [the taxpayer's] property was substantially overvalued and an injustice resulted from the overvaluation;

(2) that there was unjust discrimination in the valuation of the property; or

(3) that the assessment was fraudulent, dishonest, or illegal.

Town of Bristol Taxpayers' Ass'n v. Bd. of Selectmen/Assessors for the Town of Bristol, 2008 ME 159, ¶ 8, 957 A.2d 977.

[¶ 13] We focus here on whether the taxpayer's property was substantially overvalued. “We will vacate the [Board's] decision that a taxpayer failed to meet his burden to show one of these three...