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Homestead cheaters rob millions in taxes

Author johnbsims3
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#1 - Posted: 18 Oct 2006 20:44 
Homestead cheaters rob millions in taxes

State, county officials do little to uncover fraud

By MAURICE TAMMAN
maurice.tamman@heraldtribune.com

In 2001, a hitman gunned down Miami Subs founder Konstaantinos "Gus" Boulis in a gangland-style slaying on the streets of Fort Lauderdale. His murder made national news, was featured in a book and joined mafia lore as an unsolved murder mystery.

Away from the limelight, however, no one noticed that a waterfront home in the name of a dead man was still receiving a homestead break.

The illegitimate homesteading tax benefit lived on until this year. It saved his estate -- and cost Broward County taxpayers -- thousands in taxes on the $1.25 million waterfront home.

The case is not unique.

Some Florida property appraisers say illegitimate and fraudulent homesteading are among the largest problems they face, resulting in tens of millions of lost tax dollars every year.

People bend or break the rules in various ways: Part-time residents rent out their homes while claiming residency; husbands and wives buy two properties and claim exemptions on both; and owners claim a homestead in Florida and a second one elsewhere.

The catalyst of such fraudulent claims is the 10-year-old Save Our Homes constitutional amendment, which limits the annual increase of a homesteader's taxable property value.

Qualifying for a homestead -- and thus a Save Our Homes tax break -- can result in a savings of tens of thousands of dollars in just a few years.

In a booming real estate market, the incentive for property owners to cheat the system is huge and growing.

The issue is compounded by the vague laws and standards that counties use to determine who qualifies for a Florida homestead exemption.

And while the incentive to cheat the system has grown, neither the state nor most counties have done much to combat a new breed of tax cheats.

In fact, state officials haven't taken the most basic steps to help counties identify owners claiming more than one exemption in Florida. In some counties, screening for homestead cheaters means little more than checking that the applicant's previous address isn't homesteaded in their name.

"No one knows how big it really is," Orange County Property Appraiser Bill Donegan said. "This has become a cottage industry. ... It's bigger than anyone could imagine."

Millions of lost tax revenue

If Orange, Broward and a handful of other counties that aggressively target tax cheaters are any indication, the money lost statewide is staggering.

During a push in Broward this year, investigators identified up to $150 million of untaxed property because of illegitimate homesteading, potentially adding $2.9 million to county tax coffers.

In recent years, Pinellas County officials have recovered $4.5 million. Since 2002, Orange County has recovered at least $1.5 million.

The amount of tax revenue lost is at most a fraction of the $14 billion county governments and schools collected last year. But property appraisers say cheaters force everyone's taxes up.

Even if illegitimate breaks amounted to just $10 million in lost taxes, that is more than the 2004 county and school tax revenue for 16 Florida counties.

"Every time someone fraudulently receives a homestead, somebody else has to pay the difference," said Lee County Property Appraiser Kenneth Wilkinson, one of the architects of the amendment.

"The problem is huge. The fiscal impact is huge."

Recently, his office took the rare step of referring two suspected homestead fraud cases for criminal prosecution. Usually, county officials place a lien on property for back taxes and penalties.

"For the last two or three years, we've seen it increase because of the impact of Save Our Homes," Wilkinson said. "And each year we are stepping up our enforcement."

Cost, benefit analysis

Homestead cheaters play a high-risk, high-reward game.

In addition to losing their accumulated Save Our Homes dividend, officials can go back 10 years and collect all taxes for the period the exemption was illegitimately claimed.

For each year, state law also allows for a 50 percent tax penalty and 15 percent annual interest on the unpaid balance.

Consider the case of Barbara Thode. She first claimed a homestead on her Venice condominium in 2000, and from 2000 to 2004 saved $8,600 in taxes.

In 2004, the Sarasota County Property Appraiser's Office discovered she had also claimed a homestead in South Carolina since 1999. They denied her exemption renewal and stripped her of four years of tax benefits.

Thode paid $15,000 in taxes and penalties. She did not return telephone messages left at her Hilton Head home.

Most people argue that they don't know that they don't qualify for the exemption, said Luis Guinart, managing director of the Sarasota County Property Appraiser's Office.

"But sometimes they lie."

Confusion

And sometimes they don't know. A 72-year-old man shuffled onto the front porch of his bungalow at the wrong end of Las Olas Boulevard in Fort Lauderdale.

Hans Gidlund cupped his right hand around his ear to hear. He grasped and shook a visitor's hand passed over a rotting stoop and through a hole in a tattered screen door. He wore red boxers, nothing else. A cane hung on his left arm.

A Broward County investigator had already visited his home, but he still seemed confused.

"Homesteaded? ... Illegal? ... Fraud?"

Even by Florida's vague standards, Gidlund's case is clear.

He has lived in the home since the mid-1990s, when he moved in to care for former owner Vera Olsson. She died in 1999 and left him the house, and because he never transferred the title, he has paid her discounted taxes.

But Gidlund isn't permitted to take advantage of the Save Our Homes constitutional amendment dividend that Olsson enjoyed. Now he faces paying all the back taxes, interest and penalties.

Last year, he paid, in Olsson's name, about $300 in countywide property taxes. This year's tax bill -- in the name of Olsson's estate -- will be about about $2,400.

"I had to take care of her," he said. "I paid all bills. Yeah, the taxes, I paid the taxes. I keep paying the taxes."

The vanguard

Finding people like Thode and Gidlund is largely the responsibility of 67 elected county property appraisers.

The state Department of Revenue provides some help by generating lists of possible cheaters using a massive database of property owners.

In the past, the state generated such lists one county at a time, and only when a property appraiser requested one. (See related story above.)

And unless state and local authorities establish a coordinated plan to deal with homestead fraud, local governments will be forced to continue fighting fraud largely on their own.

Only a few are aggressively tackling the problem.

After Broward County Property Appraiser Lori Parrish took office in January, she hired Ronald Cacciatore, a former organized crime investigator, to lead her push to catch tax cheats.

Cacciatore's investigators matched the names on water bills with property owners and found scores of rented homes with illegitimate homesteads. Many of the owners lived out of state, some in Canada.

"Some (tenants) said the owner hadn't lived in the house for 10, 12 years," Cacciatore said.

Last month, his aggressive methods led to an aggressive response.

Federal authorities arrested a National Institutes of Health worker on charges she threatened to infect the Broward Property Appraiser's Office with anthrax.

The Maryland resident was angry that Cacciatore's office revoked her homestead exemption, costing her $2,300 in taxes this year.

"Homestead fraud is our No. 1 focus right now," he said. "I didn't think it was going to be as large as it was."

He was at his desk in June when one of his investigators brought him a list of nearly 10,000 potential homestead cheaters.

He glanced at the state-generated report.

"Who are they? ... Rich, poor, black, white, green, purple, it's just amazing. It would be hard to categorize who they are."

He started down the list.

The first two names were legitimate homesteaders, on the list because property sales had not yet been recorded in a statewide database of property owners.

But the third was a hit, a man claiming two exemptions, one in Duval County and one in Broward.

Still, most of Cacciatore's leads, including the Boulis case, have come from tipsters turning in their neighbors, not a systematic check of people claiming illegitimate tax breaks.

New cheats, new traps

The tools available to catch cheats have other problems, as well. Some property appraisers are trying to find a way around the limitations.

Like Broward, Orange County's Donegan asked the state this year for a list of potential cheaters. The revenue department's list highlights people named on more than one homesteaded property.

But the list misses several methods of fraud, including husbands and wives putting a separate exemption in each of their names. The state has no way to identify the spouse of a homesteader unless both are listed as joint homesteaders on their property.

That opens the door for married couples to illegally apply for a separate exemption in each name, Donegan said.

So he is working directly with other counties.

He started by exchanging information with neighboring Volusia County and plans to continue adding lists of homesteaders from other counties.

"I'm going to ... see how many husbands have a homestead here and a homesteaded condo on the beach in their wife's name."

Just in Volusia County, Donegan's efforts uncovered 75 suspicious exemptions that did not appear on the state's Rules vary from county to county

Beyond outright fraud and ignorance, the vague laws governing who qualifies for a homestead exemption has created a patchwork of regulations from one county to the next.

What is considered illegal in one county is legitimate in the next.

The discrepancies create ample opportunity for outright fraud and the possibility that property owners would have reason to believe they are following the law when they are not.

About the only standard that everyone seems to agree on is that members of the active-duty military can rent their homesteads.

In Lee County, for example, civilian owners can rent out their home during the first year after they buy it and still maintain their homestead.

Sarasota County permits homesteaders to rent their home for up to six months over a two-year period.

Manatee County does not allow any rentals of homesteaded property.

That could mean trouble for Thomas Beight.

He bought his Bradenton condominium in 1992. Last year, he saved at least $2,000 in property taxes by claiming a homestead exemption on it.

For at least the last two years, however, he rented it for several months while he stayed at his Bethany Beach home on the Delaware coast.

When asked about it by a Herald-Tribune reporter, Beight first denied, then acknowledged that he rented his condo.

"I'm a permanent resident; I have my license, vote and my car is registered there," the retired lawyer said from his Delaware home. "I enjoy the best of the winter down there.

"I'm trying my best to be a law-abiding citizen."

Increasing burden

Monroe County Property Appraiser Ervin Higgs said owners stretching or breaking the homesteading laws in Florida are becoming a burden for his staff.

And the vagaries of how homesteading is interpreted is a large part of his struggle.

"We end up being damn policemen," he complained.

Last year in Monroe County, Higgs thought he had found married couples breaking the law by claiming two homesteads on two properties.

His office denied the homestead renewal for 25 married couples. But each of the homestead exemptions he eliminated were reinstated on appeal.

"The whole thing just fell apart," he said.

Jenny Marguilies' Islamorada homestead exemption renewal was one of those cases. Her husband, Dr. Stanley Marguilies, has a homestead exemption on a Broward County home.

Both names appear on property records on both homes. He even owns a third home, in Broward County, and that tax bill is sent to the home on the Keys.

Marguilies said he and his wife are financially independent and so are entitled to two exemptions.

Marguilies said he researched the issue and concluded it was legal before his wife first claimed a Monroe County homestead in 1998.

Last year, the exemptions saved the couple at least $5,000 in property taxes.

But like many homesteading issues in Florida, that may not be the end of it.


Broward's Parrish said she typically permits a couple to claim two exemptions only if "there was some type of legal separation agreement."

Marguilies remains undeterred: "As a person who pays significant ... taxes, I pay my fair share, but not more than my fair share."

County Property Appraiser and Tax Information Florida Homestead Services -- Florida Homestead Exemption Act MiniBB / County Property Appraiser and Tax Information /
Homestead cheaters rob millions in taxes
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