Discuss Detroit » Archives - March 2009 » Detroit taxes please explain, re Palmer woods thread « Previous Next »
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Gralr
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Username: Gralr

Post Number: 78
Registered: 12-2008
Posted on Thursday, February 26, 2009 - 12:24 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

I have spoken with home owners, realtors, and others even on this thread. It seems there is really no understanding of the real estate taxes in Detroit, or at least I cant contemplate the system.

On home in Palmer Woods, on the course, for sale at $99,000 had a tax bill of over $20,000 per yer. It was explained to me by a long time community activist and home owner that this tax would basically remain, then the home can be re- assessed it may go up or it may go down, then one can fight the assessed value. It was explained to me that it does not matter what the home sells for it is what the city thinks it is worth.

A realtor also explained that if a person has been there a while his taxes will be lower and that the home's assessed value or tax base will rise after the sale.

The justification for all this is that you get a lot for value for what you buy in Detroit, I agree, but having the city government deciding the future of your home by raising taxes on home owners and forcing some people out of their homes, especially in this difficult time is hard to swallow.

Not knowing when you buy a property what the rate will be is unsettling. It is like the fellow in this forum who said he bought a condo and was then hit with a $5000 tax bill and was in shock.

Now with the auto industry threatened who knows what the future of Detroit finances will be. Will the city keep bleeding it's residents?

Don't get me wrong I think Detroit is really a great city but I , especially after reading this forum has loads of complicated problems. The complications seemed to be generated by the city leadership or lack of it.
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Rjlj
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Username: Rjlj

Post Number: 807
Registered: 11-2003
Posted on Thursday, February 26, 2009 - 12:30 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

Bingo
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Novine
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Username: Novine

Post Number: 1155
Registered: 07-2007
Posted on Thursday, February 26, 2009 - 1:53 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

"Will the city keep bleeding it's residents?"

All of the factors you listed have little to do with what the city is doing. Those are all caused by Proposal A and how it changed the assessment and tax system in Michigan.
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Swingline
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Username: Swingline

Post Number: 912
Registered: 11-2003
Posted on Thursday, February 26, 2009 - 2:02 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

Gralr, it may not be first grade math, but it's not that complicated. There's lots of threads on DYes discussing how Detroit's (and any other jurisdiction's) property taxes work. I think that there is also some explanatory pages on the mich.gov site.

Yes, there are plenty of Detroit foreclosures that have extraordinarily high taxes, e.g. $20-30K. But almost without exception, those homes were victims of mortgage fraud. Think about it. Let's use the house you linked to on the other Palmer Woods thread as an example. A $20k tax bill means that the house has a assessed "taxable value" of $300k (using millage rate of 67). Taxable value can never exceed the assessed "state equalized value (SEV)." SEV's are 50% of true market value. True market value for recently sold houses is established primarily by the sales price of the house. That means that any house sold within the past few years that has a tax bill of $20k must have been sold for $600k! Even in turnkey condition, even in Palmer Woods, that house was never worth $600k. Some Palmer Woods experts probably know for sure, but one can bet that historically there has probably been fewer than 20 homes legitimately sold for that price in Palmer Woods. If the house you linked to was sold for $600k, it was a mortgage fraud transaction and that is why the place is in foreclosure.

If you buy the place for $99k, the taxes will go down next year by over 80%. As for the current exorbitant taxes, they could be used to negotiate a reduction in the sales price with the bank. If any buyer does not have the money to cover the current excessive taxes, they certainly don't have the financial wherewithal to rehabilitate the house.

It may not seem like it, but the assessor in Detroit cannot and does not pick "taxable values" out of thin air. The law is pretty clear about what assessors can do. If a recent buyer knows what their sales price was, there shouldn't be much mystery as to what their tax bill will be.

(Message edited by swingline on February 26, 2009)
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Eastsideal
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Username: Eastsideal

Post Number: 351
Registered: 10-2007
Posted on Thursday, February 26, 2009 - 2:37 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

Novine is exactly right, it's a statewide problem in Michigan caused by Prop. A, which passed back in 1994.

The operative phrase in Prop. A was:
"Limit annual assessment increase for each property parcel to 5% or inflation rate, whichever is less. When property is sold or transferred, adjust assessment to current value."

Here is a little article from Bay City MI that quickly explains the law's effect in a declining housing market.
http://blog.mlive.com/bcopinio n/2008/11/get_ready_for_a_prop erty_tax_s.html

The problem becomes even more acute in Detroit because you have a large city trying to run city-scale services through a multiple whammy of steeply declining housing prices, a quickly declining population, a remaining population disproportionately made up of people with lower incomes - who are eligible to claim the Homestead credit, and of aging people who've been in their houses a long time - meaning their properties haven't been reassessed in a long time, and, if they're seniors, that they get to claim an even larger Homestead credit.
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Eastsideal
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Username: Eastsideal

Post Number: 353
Registered: 10-2007
Posted on Thursday, February 26, 2009 - 3:05 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

Here is a handy proprty tax calculator that may help you to understand better what Swingline is talking about.

https://treas-secure.state.mi. us/ptestimator/PTEstimator.asp

Try plugging different values into the equation and you will clearly see the effect of price bloat and mortgage fraud.
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Mikem
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Username: Mikem

Post Number: 1913
Registered: 10-2003
Posted on Thursday, February 26, 2009 - 3:31 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

Got my assessment in the mail today. Taxable value went up about 1% but my SEV has finally sunk to meet the taxable value. Overall tax went up forty-four bucks.
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Det_ard
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Username: Det_ard

Post Number: 41
Registered: 02-2009
Posted on Thursday, February 26, 2009 - 6:13 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

Swingline, that was a very good explanation of the tax situation but there's one aspect of it that isn't quite right, namely how the purchase price of a house influences the SEV.

Most people assume that if you buy a house for $XX,XXX, that establishes the True Market Value. Unfortunately, no. The TMV is determined by examining comparable sales in the local area. The purchase price of the house is not really used. They're required to use the same process to assess homes that sold last year and homes that didn't. They use the comp approach for both. They do not take the purchase price as the True Market Value. I've fought that battle and lost.

Unfortunately there's absolutely no guarantee that a home bought for $99K will have property taxes in line with that price. It could very well have taxes appropriate for a home worth $400K. The yearly assessment process may bring the value down to reality, or it may not. Often times you have to fight it through the city's Board of Review and then through the Michigan Tax Tribunal.

With the right evidence (a properly done valuation performed by a licensed appraiser experienced in tax challenges) it's not hard to get the assessment lowered to the correct level. Right now however it'll probably take 2 - 3 years to get to the tribunal due to the backlog. The good news is that you get back all the excess tax (plus interest) you pay while you're waiting. The bad news is you have to pay the overinflated amount until you win your appeal.

Homeowners should also know that many cities take a dim view of using foreclosure sales as valid comps, even when that's the vast majority of sales in certain markets (Detroit). There used to be a law that city assessors couldn't use foreclosures as comps. That's been changed now, but many cities still won't use them as comps and they certainly won't just take the sales price of a foreclosure house and agree that that represents the True Market Value of the house. Expect to have to challenge the assessment to get it where it ought to be.
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Swingline
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Username: Swingline

Post Number: 914
Registered: 11-2003
Posted on Thursday, February 26, 2009 - 7:28 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

You are 100% correct, Det_ard. I oversimplified in my post above because foreclosure sales that cause wildly fluctuating comps do cause a hitch in the process that is complicated to explain. You did it well. Foreclosures are a hot button issue among assessors. One thing should be certain though. Comps from the 2001-2006 sub-prime, no doc, interest only days should no be longer valid for assessments. It's a different world out there.
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Novine
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Username: Novine

Post Number: 1157
Registered: 07-2007
Posted on Thursday, February 26, 2009 - 7:52 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

The reason assessors don't use a house's sale price to determine the True Cash Value (legal term for market value) of a property is they have no way of determining whether the sale represents an "arms-length sale". In an arms-length sale, both parties are seeking the best value for themselves which should result in a sales price that reflects the true market value for the house. When the sales is not arms-length, the parties, for whatever reason, might have interests that would skew the sales price to something other than the true market value of the house. With no way of making this determination on a single property, the assessors look to a range of sales to see whether the sales price reflects the sales in the overall market. This is also why they try to avoid using foreclosure sales. The banks or mortgage holders often have incentives to unload a property that have nothing to do with the market value of the property. I know in my current house that my first assessment after the pop-up was below what I paid for the house. From the viewpoint of the assessor, I overpaid for my house based on the existing market and surrounding sales. I didn't agree with that but in that case, I had no incentive to seek a higher assessment.
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7051
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Username: 7051

Post Number: 197
Registered: 02-2006
Posted on Friday, February 27, 2009 - 1:26 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

In addition, Oakland and probably Wayne county assessors, are using a 1 year instead of a 2 year value period. This would include all sales for Sept30, 2008 back to Oct 1, 2007 for 2009 assessments. When appealing prop. taxes one is entitled to used comparables closest to "tax day" - December 31, 2008. Therefore, a prop. tax challenger should look for comparables between Oct. 1, 2008 and December 31, 2008 for your 2009 assessment appeal as the assessor has not used these. I know this last point sounds bizarre but that is how MI prop. tax law is written. Please correct me if I'm wrong.

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