Policy Brief: Preventing Owner-Occupied Property Tax Foreclosures In Detroit: Improving Access To The Poverty Tax Exemption

December 2018

By Alexa Eisenberg and Roshanak Mehdipanah, University of Michigan School of Public Health; Ted Phillips and Michele Oberholtzer, United Community Housing Coalition Brief compiled by: Ryan Ruggiero, University of Michigan

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OVERVIEW

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. A full report of the study’s findings and policy recommendations can be found here.

KEY FINDINGS

THE HPTAP OFFERS CRITICAL RELIEF TO HOMEOWNERS WHO FACE SEVERE HOUSING AFFORDABILITY PROBLEMS.
82% of participants indicated spending at least half of their household income on housing, and most frequently cited property taxes as their largest housing cost. 68% had faced a utility shut-off in their current home. 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.
87% 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. 82% of participants who had never previously applied for the HPTAP indicated that they qualified for the exemption for at least the past three years. 84% 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.
70% 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. 76% 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 a 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 A 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. 92% 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. 92% 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.
23% of participants who submitted the application received notice from the BOR 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.

Please download the printable version (Adobe PDF) for the full content of the policy brief.