Brian McGuire doesn’t really pay much attention to his mail. A lot of it is junk, and he gets most of his bills online. Then last fall, he missed a letter from the City of Detroit before it was too late, and now he owes thousands of dollars. The same mistake could be affecting homeowners across the city.
These residents are being swept up in a new effort the city says is necessary to stop tax fraud. It carries expensive consequences, even for honest homeowners. The effort also seems unlikely to catch many property speculators committing fraud out in the open.
At issue is the principal residence exemption (PRE). It’s a statewide discount on local property taxes that residents who own and live in their own homes can claim.
You can’t have more than one “principal” residence, so you can’t get more than one of these tax breaks each year. But plenty of property owners are double-dipping, triple-dipping or even more.
Lax enforcement by the city means thousands of property owners are claiming a PRE fraudulently, or even by mistake, and costing the city millions in revenue each year.
There are many ways the city could look for this kind of tax fraud. It could, for example, look into those owners claiming more than one PRE at the same time. A preliminary analysis of publicly available data shows 2,414 residential owners are doing just that.
Instead, the city conducted a small random audit of property owners by mail for the first time last year. It sent about 6,000 letters to homes throughout the city, including to McGuire. Property owners had 30 days to respond — either in person, by mail or email — and prove they were living in the property.
The city and the state aren’t providing clear answers on if an audit needs to be done and why it should be done this way.
Homeowners who missed the deadline can no longer claim their tax discount for 2023. Perhaps even more importantly, the city can require those homeowners to pay back the last three years of PRE discounts.
For McGuire, that would be around $3,800, an amount he says he can’t afford.
“I’m sure I’m not the only one in Detroit not diligently reading their mail,” McGuire said.
Paying back this PRE money, and the fees and interest that can come with it, could put homeowners at risk of tax foreclosure, the Wayne County Treasurer’s Office confirmed.
Do you have the principal residence exemption?
Check by entering your address into the city’s Detroit Parcel Explorer. A “PRE %” of “100” means you do, “0” means you don’t.
To claim the exemption, you can submit the Principal Residence Exemption Affidavit to the City of Detroit Office of the Assessor by mail (2 Woodward Ave, Suite 804, Detroit, MI 48226) or email (assessors@detroitmi.gov).
Two days late
Stephanie Davis, a spokesperson for Detroit’s Office of the Assessor, told Outlier Media in an email that only around 40%-50% of owners responded to the audit. She said that rate is in line with similar audits done by the state and that her office was “pleased” with the response rate, despite hoping to improve it in the future.
That response rate could mean a majority of those owners never deserved to get the PRE tax break in the first place. More likely, it means hundreds of honest homeowners like McGuire are paying money they shouldn’t have to.
McGuire said he was out of town when the letter first arrived. When he finally opened it, he saw it had been 32 days since it was sent — two days past the deadline to respond.
He called the assessor’s office, which told him there was nothing the office could do.
“There wasn’t any warning. There wasn’t a grace period,” he said. “I don’t think the city cares if I deserve (the PRE) or not. This was the plan. A low response rate is a success to them.”
Davis said the assessor’s office will be doing more outreach and public engagement in future phases of the audit.
Other ways to find fraud
There are more straightforward ways to check if a property should have a PRE, but the city isn’t pursuing all those avenues.
Davis told Outlier that more than 110,000 property owners are currently claiming the PRE. The city’s audit has accounted for just 5% of them. Davis added that the city will send out more mailers over the next few years.
Davis said the assessor’s office “considered” cross-checking which owners claimed more than one PRE but then didn’t elaborate on why the office hasn’t tried catching PRE fraud this way.
The city has property data with other red flags of potential PRE fraud. This data is publicly available and shows at least 500 owners who have a PRE have “Inc,” “LLC” or “Trust” in the taxpayer’s name. Dozens of other properties have a taxpayer address that doesn’t match the home address, which shouldn’t be the case for a primary residence.
Davis said the assessor’s office targeted properties belonging to LLCs separately from the audit and that the city is simply following the state’s methodology for conducting PRE audits. Ron Leix, spokesperson for the Michigan Department of Treasury, said the state does not “critique local efforts.”
Stuck with the bill
Tax justice advocates say the audit can cause more harm than good.
“This seems to be another attack on housing from the assessor’s office,” said Joanna Velazquez, who organizes housing advocacy campaigns at the nonprofit Detroit Action.
Velazquez cited persistent overassessments resulting in higher tax bills and homeowners not knowing they could challenge those assessments. She added that sending a single letter in the mail to residents when thousands of dollars are at stake suggests the city is not interested in finding out who really lives in these homes.
“I don’t see how attacking fair and safe housing for those who need the PRE, who need fair assessments, benefits the city at all,” Velazquez said.
McGuire appealed his PRE decision to the Michigan Tax Tribunal, which homeowners can do 35 days after receiving a decision letter from the city. He’s still waiting on a final verdict.
But there has been one small victory already.
Detroit tried to demand money from McGuire’s PRE in 2020, which he said is worth about $1,250. The tribunal told him that Detroit was not allowed to go so far back in trying to claw back PRE money. Municipalities can only remove the exemption from the current year and three previous years. The tribunal ruled that the city had “no authority to deny the property’s exemption for the 2020 tax year.”
Abby Rubley, a spokesperson for the Michigan Tax Tribunal, declined to comment on this issue. However, she said that the number of appeals has risen sharply since 2022, from just eight to 98 so far this year.
The assessor’s office continues to stand by its right to claw back 2020 principal residence exemptions and disagrees with the tribunal’s decision. “There appears to be a misunderstanding regarding the time frame in this case and perhaps others,” Davis said. “If a homeowner received a letter in 2023 (or early 2024), the ‘current tax year’ would be 2023 and according to (the law).”
McGuire is confident the tax tribunal will rule in his favor because he owns the house he lives in. But he’s worried about all the other people who might not have realized there was an issue until it was too late.
“Detroit needs to stop extorting money out of the people who live here,” he said.
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