Preventing Owner-Occupied Property Tax Foreclosures in Detroit: Improving Access to the Poverty Tax Exemption
Download PDF of the policy brief, compiled by Ryan Ruggiero
Download PDF of the comprehensive research report
Michigan state law (MCL 211.7u) requires local governments to make a Poverty Tax Exemption (PTE) available to owner-occupants with low incomes. In Detroit, the PTE is implemented as the Homeowners Property Tax Assistance Program (HPTAP). Homeowners living near or below the Federal Poverty Level (FPL) may apply annually to this program to have their property tax bill reduced by half or eliminated. Despite the availability of the PTE in Detroit, a low proportion of eligible homeowners gain access to this critical relief. To better understand this gap in access, U-M researchers conducted semi-structured interviews with PTE-eligible Detroit homeowners who received tax foreclosure counseling assistance with the United Community Housing Coalition in 2017.
Findings reveal that low awareness, burdensome application procedures and limited institutional accountability act as barriers that restrict access to the exemption. Many residents who were eligible for but did not receive the PTE in past years face considerable tax debt and remain at high risk for foreclosure. The intent of this brief is to inform efforts that state and local governments can take to ensure that the PTE is readily available, easily obtainable and equitably provided to all eligible homeowners, in order to strengthen this policy’s ability to prevent property tax foreclosure among homeowners with low-incomes in Detroit and statewide.
- The HPTAP offers critical relief to homeowners who face severe housing affordability problems. Eighty-two percent of participants indicated spending at least half of their household income on housing, and most frequently cited property taxes as their largest housing cost. Sixty-eight percent had faced a utility shut-off in their current home, and 72% indicated having to decide between paying for housing and other necessities, like food or medical care, during the past year.
- HPTAP-eligible owner-occupants face tax debt and foreclosure for taxes they could have been exempt from paying. Eighty-seven percent of participants owed back taxes to the Wayne County Treasurer, and 62% were subject to foreclosure in 2017. The average “tax delinquent” participant owed a total average amount of $4,709, which included an average of $1,305 in interest and fees alone. Eighty-two percent of participants who had never previously applied for the HPTAP indicated that they qualified for the exemption for at least the past three years. Eighty-four percent of these participants owed back taxes for one or more of those years and 70% were subject to foreclosure in 2017. All participants who lost their homes in 2017 were eligible for the HPTAP in past years.
- Limited program awareness is a significant barrier to program access. Seventy-percent of participants never previously applied for the exemption, but 91% indicated they would have qualified for the exemption at some point during the past three years. Seventy-six percent of those who indicated being eligible for HPTAP in previous years did not apply for the exemption because they did not know it existed. Only 3% of participants indicated that they heard about the exemption directly from a governmental source.
- Awareness does not guarantee access. Nearly one-quarter (23%) of participants did not obtain the HPTAP application within three to six months of enrollment. Many indicated that they had not applied for the exemption because they were focused on paying off back taxes and avoiding foreclosure. Misunderstanding often stemmed from a lack of clear information about the relationship between city and county tax obligations and the difference between available relief options.
- Complex and procedurally demanding application procedures are burdensome and restrictive. Homeowners faced considerable barriers at each stage of the application process that prevented them from receiving the exemption. Participants commonly faced challenges related to the application’s overall complexity and specific paperwork requirements. Some participants indicated difficulty understanding the application’s language or gathering supporting paperwork (which often required them to make multiple trips to and from various offices to finalize their applications). Many participants experienced mobility limitations stemming from poor access to transportation—an impediment that was often exacerbated among participants living with physical disabilities.
- Counseling services improve awareness and approval, but place burden on residents and nonprofit organizations. Counseling services remain important—and in many cases critical—to ensure that homeowners are informed about and successfully complete the HPTAP application. The majority of participants (56%) found out about the HPTAP from UCHC. Ninety-two percent of participants who completed the application did so with assistance from UCHC. In receiving this assistance, 43% required two or more trips to the office. Ninety-two percent of those who received UCHC assistance submitted their application and 89% were approved for the exemption. Of those who chose to complete the application on their own, 83% submitted it, but only 40% were approved for the exemption. Although participants frequently expressed that UCHC’s services enabled them to understand and complete the application, obtaining assistance served as an additional step in the application process that contributed to its overall burden.
- Communication and accountability procedures may exclude eligible applicants. Twenty-three percent of participants who submitted the application received notice from the Board of Review stating that further information and/or documentation was required for their application to be reviewed. In some cases, these notices led to confusion among participants, particularly when communication was by mail. While the majority (86%) of the participants who successfully submitted the application were granted the exemption, a number of participants received no notice regarding their application and were excluded from the program.
Increase awareness of tax relief programs
- In-person, online and at tax payment kiosks, the Wayne County Treasurer can provide information and actively promote local poverty tax exemptions, including the HPTAP, to homeowners who face tax debt and foreclosure. The Wayne County Treasurer should also conduct outreach to homeowners currently in payment plan agreements. Each year, the Wayne County Treasurer can provide cities with a list of homeowners who have an Interest Reduction Stipulated Payment Agreement and are on the foreclosure petition, so that outreach can be done to those homeowners most in jeopardy of losing their homes.
- The Office of the Assessor can promote the Principal Residence Exemption (PRE), a precondition for the HPTAP, to ensure all homeowners receive notice of tax relief options. At the same time, local and state governments can take actions to identify and deny fraudulent PREs, helping to offset revenue loss associated with greater HPTAP use and limit abuse by non-homeowners.
Remove programmatic barriers
- To further reduce documentation requirements and ease administrative demands, local and state governments can coordinate data sharing across governmental departments and agencies to verify program eligibility; for instance, the Wayne County Register of Deeds can provide the Board of Review (BOR) with free access to ownership documents, rather than requiring applicants to provide copies.
- The BOR can develop an online platform for application completion, submission, and tracking.
- The BOR and City Council should translate the application and other required documents (such as the PRE), at a minimum, into Spanish and Arabic.
- City Council can amend the HPTAP ordinance to remove the application’s notarization requirement entirely.
Provide support for counseling assistance
- To sustainably improve HPTAP access without placing a burden on community-based organizations, the Mayor can promote the HPTAP through the Department of Neighborhoods and offer designated office hours for application assistance at recreation centers across the city.
Strengthen institutional communication and accountability procedures
- Upon application submission, the Board of Review should issue a timestamped receipt to the applicant and include a timeline for when the applicant can expect to receive a decision.
- The BOR can simplify notices of approval to more clearly inform residents of their decision as well as their reduced tax obligation.
Extend support for the Right of First Refusal (ROR) program
- The Michigan State Housing Development Authority (MSHDA) can allocate a portion of the remaining Step Forward funds to ensure adequate funding for the ROR program.
- Through the Department of Neighborhoods, the mayor can coordinate ROR program outreach (e.g., mailers and doorto-door canvassing) to occupied foreclosed properties.
Expand access to Step Forward
- MSHDA should work with the BOR to determine multi-year HPTAP eligibility criteria, allowing MSHDA to waive the income requirement for Step Forward funds.
- The mayor can advocate for this change at the state and local levels to ensure that homeowners can access the funds before they expire at the end of 2019.
Make the PTE retroactive for qualifying homeowners
- State legislators can amend MCL 211.7u to allow local communities the discretion to make the PTE retroactive, so that homeowners can be relieved of tax debt and the threat of foreclosure for years they legally qualified for relief.
Permit multi-year poverty exemptions
- To reduce the burden of yearly application submission for groups who face chronic poverty, such as seniors and residents with long-term disabilities, state legislators can amend MCL 211.7u to allow local governing bodies the discretion to issue a multi-year exemption.
Download PDF of the policy brief
Download PDF of the comprehensive research report