In the last five years, the number of chronically tax delinquent homeowners in the city has fallen 60%, from 17,000 in 2017 to 6,300 this year. Most often, it is Detroit homeowners, not landlords or the owners of vacant property, who are catching up on old property tax debt.
After years of half-measures aimed at slowing down tax foreclosure for owner-occupants that made the problem worse or just didn’t help enough, there’s now a suite of programs and enough money to make it possible to exit the vortex of delinquency and foreclosure that has devastated neighborhoods for more than a decade.
We have heard much of the over-assessments that led to Detroiters’ inflated property tax bills. But it is likely that not even accurate assessments would have kept Detroit’s tens of thousands of homeowners with poverty-level incomes from tax delinquency and tax foreclosure. These residents needed the 100% property tax exemptions they qualified for but did not know existed.
I am the vice president of Research and Development at the parcel data firm Regrid. Using parcel level data in Detroit from 2019 through the present day, I’ve put together a look at how and why property tax delinquency for Detroit homeowners has declined during the pandemic. I’ve also used Regrid’s U.S. Postal Service residential vacancy data in my analysis to establish which tax delinquent homes are occupied or vacant as well as data from the City of Detroit’s Office of the Assessor.
The data from Regrid allows a granular analysis of how Michigan’s tax delinquency and foreclosure system unfolds in Detroit and what has worked to tamp down its destruction. It also raises questions that need to be answered for progress around tax delinquency to continue and to help solve new challenges confronting Detroit homeowners.
GETTING OUT OF THE DEATH SPIRAL
After the height of the tax foreclosure crisis that began in 2008, when one-third of all property in Detroit underwent tax foreclosure, city leaders celebrated their progress in reducing the number of owner-occupied homes headed to the auction block. In his 2018 State of the City address, Detroit Mayor Mike Duggan lauded an 88% reduction in tax foreclosure of owner-occupied homes. But the number of homeowners who owed delinquent property taxes at that time — what puts someone at risk of tax foreclosure in the first place — had remained dangerously high for well over a decade.
The next year, when I was the director of housing stability at the Rocket Community Fund (the philanthropic arm of Rocket Mortgage), we put out a report showing that while tax foreclosures had plummeted 88% since 2015, the number of tax delinquent homes had declined by only 13% over the same period.
Generally, tax foreclosure occurs after a property tax bill has gone unpaid for three years, although payment plans can extend that timeline for years. The longer tax bills linger and accumulate, the harder it is to shed the delinquency and the more likely a taxpayer will eventually find their home in foreclosure. The best way to avoid foreclosure is to eliminate tax delinquency altogether.
As recently as three years ago, the elimination of Detroit homeowners’ property tax debt seemed unlikely. The most commonly used tax foreclosure prevention tool at the time, called the Interest Reduced Stipulated Payment Agreement (IRSPA), was a failure.
While the IRSPA kept many homeowners out of tax foreclosure auctions, most wound up accumulating more property tax debt while enrolled in the payment plan.
The vast majority of homeowners who owed property tax debt in Detroit should never have been charged those taxes in the first place because they qualified for the City of Detroit’s 100% property tax exemption (the Homeowners Property Tax Exemption, or “HOPE”) due to having household incomes below the poverty line.
The 2020 edition of Rocket’s Neighbor to Neighbor report found 87% of the 14,000 tax delinquent homeowners interviewed during the door-to-door outreach qualified for the City’s HOPE program, but more than half had never heard of it due to insufficient outreach.
A program was needed to address that so few Detroiters knew about property tax help and that the help available often made matters worse.
A STAY OF FORECLOSURE
In March 2020, when the coronavirus pandemic took hold of the country, Michigan Gov. Gretchen Whitmer signed House Bill 5124 putting into law “Pay As You Stay” (PAYS). Homeowners who were granted a HOPE property tax exemption would be able to enroll in PAYS and reduce their property tax debt by, on average, about 70%.
It was not the full retroactive property tax exemption many tax foreclosure reformists and advocates wanted, but it was a step in the direction to reduce property tax debt for homeowners who would have qualified for HOPE in years past. But PAYS still left property tax debt to be paid and was yet another payment plan for people to manage. The monthly payments were far lower than those in the failed IRSPA plans, but it was not a complete solution to tax debt owed by Detroit homeowners in poverty.
A year later, in March 2021, the Gilbert Family Foundation announced the creation of the $15 million Detroit Tax Relief Fund that would pay off remaining post-PAYS property tax debt for Detroit homeowners. In effect, this created a fully retroactive property tax exemption for Detroit homeowners in poverty.
Between 2017 and 2021, behind the coordinated efforts of dozens of community organizations, philanthropy and government agencies, the number of HOPE exemptions granted to Detroit homeowners increased 200%. Thousands of homeowners would see not only their current year’s property taxes eliminated but their back taxes paid off by the Detroit Tax Relief Fund as well.
In February of this year, the Michigan State Housing and Development Authority (MSHDA) began offering another program to help eliminate tax debt. The program, known as MIHAF (Michigan Homeowner Assistance Fund) dedicated federal American Rescue Plan Act funds to eliminating property tax debt for Michigan homeowners, many of whom wouldn’t qualify for HOPE due to income requirements. It can also be used for mortgage delinquencies, utilities, broadband internet access and more.
WHAT COMES NEXT
For years, the constant threat of tax foreclosure for tens of thousands of homeowners left little time to deal with other housing issues. How can you replace a roof if you’re about to lose your home altogether? Progress in reducing property tax delinquency means there is time to move on to other critical issues facing the city’s homeowners — like home repair, probate planning, predatory real estate practices and tax reform.
It’s also certain that new threats will emerge even as tax foreclosure, hopefully, continues to recede.
The issues and opportunities above are far from comprehensive. I present them because they are important topics to confront and also to make the point that the easing of property tax delinquency levels is not a reason to rest and wait for the next homeownership crisis to erupt.
Instead, all levels of government, community organizations and philanthropy should take this opportunity to aggressively pursue the next wave of housing issues — whatever they may be — that will surely confront the city’s residents.
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