Detroit homeowners overtaxed $600 million

Christine MacDonald / The Detroit News
Mark Betancourt / Special to The Detroit News

Detroit overtaxed homeowners by at least $600 million after it failed to accurately bring down property values in the years following the Great Recession, according to an investigation by The Detroit News.

City Hall completed a state-ordered reappraisal of every residential property in 2017 to correct the problem, but the pain of its past mistakes remains with thousands who today face foreclosure over back taxes. 

Anna Bolden, 55, talks about the challenges she faced regarding property taxes and assessment after buying her home at auction in 2011.  She bought it for $4,800 and it was taxed that year as if it was worth $57,000.  (address intentionally blurred)

Of the more than 63,000 Detroit homes with delinquent debt as of last fall, more than 90% were overtaxed—by an average of at least $3,700—between 2010 and 2016, according to calculations by The News. The debt owed on about 40,000 of those homes is less than the properties were overtaxed over those seven years. 

The inflated bills have been an added burden to homeowners in the poorest big city in the nation, and call into question a tax system that has foreclosed on a third of city properties since 2008. 

The News recalculated seven years of tax bills by substituting the home values the city put in place after its 2017 property-by-property reappraisal.

► INTERACTIVE: How much did Detroit overtax your home between 2010 and 2016? Search our online database to see an estimate

Detroiter Anna Bolden knew something was wrong with her tax bill after she said she bought her west side brick bungalow in a tax foreclosure auction for $4,800 in 2011. That year her bill was $2,600, with the city taxing her as if the house was worth $57,000. 

"My taxes shouldn’t be this high," the 55-year-old first-time homeowner remembers thinking when getting her bills, "My house was only $5,000, why am I paying this money?"

A year later assessors valued it at $52,000, followed by $45,500 and $36,000 before the city finally lowered it to about $28,000 in 2017, after the reappraisal.

Meanwhile, according to the property data company ATTOM, the median home sale prices in Bolden’s ZIP code were rising during the same time period, indicating the city's reductions likely were the correction of an inflated value.  

"I went down (to city and county offices) to ask questions, but it’s like everybody is giving you the runaround," she said. "It makes you feel like they are cheating you ... but what can you do?"

The News analysis, which was completed with help from Reveal from The Center for Investigative Reporting, is the first to estimate how much Detroit homeowners were overbilled. It indicates that Bolden's house was overtaxed by at least $4,100 between 2010 and 2016. She owes the Wayne County Treasurer about $4,600 in back taxes and worries she could lose it to foreclosure.

Breck Stevenson, 61, sits in the living room of his east-side Detroit bungalow and talks about how the City of Detroit overtaxed him. Stevenson was overtaxed by $5,300, more than the $4,200 he currently owes in back taxes on the home.

The News recalculated seven years of tax bills by substituting the home values the city put in place after its 2017 property-by-property reappraisal. That state-required review hadn't been done by Detroit officials in decades.

Among the The News' findings:

♦ Of 173,000 Detroit homes reviewed, more than 92% were over-assessed between 2010 and 2016, and overtaxed by an average total of $3,800. Nearly 96,000 of those properties were taxed twice as much as they should have been in at least one of those years.  

♦ Of the over-assessed homes, city records show about 79,000 properties have had the same owner since 2010, meaning those homeowners bore the full brunt of the overtaxation. More are likely to have felt the impact because buyers often purchase homes with prior years of unpaid taxes they must pay.

♦ At least 59,000 homes that were overtaxed still have back taxes today—a total of $153 million, which includes interest and fees. Those same homes were overtaxed by at least $221 million over the seven years, according to the analysis.

►MORE: How we reached our conclusions

State law mandates that assessments reflect the home's market value. Taxpayers can appeal, but housing advocates say the process is difficult to navigate for most owners, and many are not aware they have the option.

City officials have acknowledged their predecessors failed to fix the over-assessment problem quickly enough, but Mayor Mike Duggan said he can't correct those past mistakes, in part because current law doesn't allow it and the post-bankrupt city can't afford it. 

“I think the rates should have come down sooner. But I dealt with what we had and moved as quickly as we could,” Duggan said.

Anna Bolden, 55, talks about the challenges she faced regarding property taxes and assessment after buying her home at auction in 2011.

“Folks had a process by which they could appeal it. Those years are closed. I don't know any lawful way to go back and say to all the taxpayers of the city who did follow the process, 'We're going to raise your taxes to pay the taxes for people who didn’t.'”

Thousands of homeowners are struggling with property tax debt despite low-interest repayment plans designed to help in Detroit. 

Many who got inflated bills were unable to pay them, and now that debt is gathering interest. Others have fallen behind on recent taxes to pay past bills and avoid foreclosure. Wayne County forecloses after taxes go unpaid for three years.

About 28,000 of the overtaxed homes The News identified have been foreclosed since 2013, the first year those inflated tax bills could have contributed to foreclosures.

For most owners, the home is their main financial asset. Tax foreclosure, which transfers a property’s deed to the county for sale at auction, results in a total loss of that equity.

Duggan, first elected in 2014, and other leaders are pushing state legislation that could bring relief for low-income homeowners who qualify by wiping away large portions of their debt. And this week they announced they would raise the qualifying income limits to include more people.

But many, like homeowner Breck Stevenson, think the city should do more to help. His east side bungalow was overtaxed by at least $5,300—more than the $4,200 he owes in back taxes. He says his family’s disability income would be too high to qualify them for the relief, even under the expanded eligibility rules. 

"It’s (the city’s) responsibility," Stevenson said. "It was their mistake. It’s their responsibility to take care of it and make things whole with the citizens."

'Legitimate way' to measure a past problem

The News’ analysis was developed with input from former officials at the city, county and state levels and uses city data obtained through the Freedom of Information Act. 

It also was only possible after staff at Reveal wrote code that scraped delinquent tax amounts from the county's website, data for which Wayne County Treasurer Eric Sabree wanted to charge The News $235,000.

The 173,000 properties The News analyzed did not include properties with Neighborhood Enterprise Zone tax breaks. For those properties, the city taxes the land and structures separately. Properties now owned by the government, including the Detroit Land Bank Authority, were also excluded. The goal was to capture all currently viable homes that get tax bills.     

Detroit's current City Assessor Alvin Horhn and Chief Financial Officer Dave Massaron told The News that they couldn’t verify the $600 million overtax figure, but didn’t dispute it. 

Median sales of single-family homes citywide and in most ZIP codes were rising between 2010 and 2017, according to ATTOM data. Given that upward trend, the analysis presumes that when the city lowered an assessment in 2017, it was because the city's value was too high and not because the property’s worth had decreased.

This is the home on Asbury Park in Detroit that Anna Bolden bought at auction in 2011. She bought it for $4,800 and it was taxed that year as if it was worth $57,000.  (address intentionally blurred)

Massaron cautioned that Detroit’s housing market varies by neighborhood, and some areas may have seen genuine losses in value over the time period analyzed by The News. Properties in those areas could appear in the analysis to have been overtaxed more than they were.

Officials acknowledged they don't have sufficient records to identify those properties.

Gary Evanko, Detroit’s chief assessor from 2013 to 2016, called The News analysis a "legitimate way" to measure the past problem. 

And Michigan State University professor Mark Skidmore, who was one of the researchers to first identify Detroit's over-assessment problem, believes the opposite trends of declining taxable values and rising sale prices likely means The News' method underestimates the problem. 

“It is a useful, conservative estimate of over taxation,” Skidmore said.

'Sad state of affairs'

Evanko was not surprised by The News’ findings.

“Obviously, it was a sad state of affairs,” he said. “In my guts, I knew that a lot of people were paying more than they should have in the past."

Prior to the city’s bankruptcy, Detroit’s Office of the Assessor was plagued by a shortage of qualified staff and poor record keeping. After a Detroit News investigation drew attention to the problem in 2013, the State Tax Commission took oversight of the assessors office and ordered the reappraisal, which took more than two years and cost $5.85 million.

Evanko, whom the city hired to oversee the reappraisal, called the state of the city’s data when he started in 2013 “deplorable.” 

Median home sale prices in Detroit had plummeted 87% by 2009, only a few years after the housing crash began, according to ATTOM. But city assessments didn't begin to reflect the market until nearly a decade later. The assessors made annual reductions during that time but applied them across large areas, and the reductions were too small. Duggan continued those broad reductions until the 2017 reappraisal was completed.

The ACLU of Michigan and the NAACP Legal Defense and Education Fund sued the Wayne County Treasurer to stop the tax auction in 2016, claiming the foreclosures were based on the city's "unlawfully" inflated tax assessments. State law requires that assessments not exceed 50% of a property’s market value. The claims against the county were thrown out when a judge ruled the Michigan Tax Tribunal had oversight, not the court.

Property owners had the right to appeal their assessments, both at the city level and through the state Tribunal if necessary, but few did.

Evanko said Detroit couldn't have handled the volume of appeals if all of the Detroiters whose homes were over-assessed had challenged their assessments. 

“There's just no way that this skeleton staff (could have), even on their best efforts, accommodate(d) the number of appeals that would be derived during that period of time,” he said.

The former Chair of the State Tax Commission Doug Roberts said state and Wayne County officials knew there were problems with Detroit’s numbers “but didn’t know how bad” they were prior to 2013. 

Breck Stevenson, 61, sits in the living room of his east-side Detroit bungalow and talks about how the City of Detroit overtaxed him. Stevenson was overtaxed by $5,300, more than the $4,200 he currently owes in back taxes on the home.

“No one paid as much attention as we should have,” Roberts said. “We should have (intervened) sooner.”

Once the scale of the problem was clear, the commission worked with the city and county to make sure the reappraisal was done, he said.

The News’ analysis makes a “compelling case” and there should be an effort “to resolve the issues as equitably as possible.”

“That’s what government exists for,” Roberts said.

'It should not be this hard'

Bolden never knew she could challenge her bill.

She borrowed money from her 89-year-old mother to avoid foreclosure and is now on a payment plan for the remaining $4,600. 

Bolden said she and her husband's brick home on Asbury Park was the "worst house on the block" when they moved in and kicked out squatters in 2011. The inside was painted bright construction-cone orange, a hill of soiled diapers had collected in the backyard and a dead pit bull was in the garage.  

Neighbors celebrated when they moved in. 

But the string of foreclosure notices and the stress of trying to find help has often brought her "to tears," said Bolden, who is on disability and suffers from seizures. 

"It should not be this hard," Bolden said. "That would hurt. Our first house, we lose it? What would we do then? ... There’s nothing like having your own." 

The tax foreclosure crisis helped drop the percentage of blacks who own their own homes in Michigan more than any other state, down to 40% in 2016 from just over half in 2000, according to a national report. Experts say Detroit once had one of the highest rates of black homeownership in the nation. 

Bolden found out in December for the first time that she qualifies for the city's Poverty Tax Exemption, which waives property tax bills for those whose incomes qualify. She won't have to pay most of 2019’s $1,500 tax bill. But even though she likely qualified in past years, the law doesn't allow the break to be applied retroactively. 

Few homeowners have been aware of the tax break. More than 39,000 Detroit homeowners on average could qualify, based on U.S. Census data between 2012 through 2016, according to University of Michigan researchers. Last year, about 7,600 were granted the exemption, an increase of 30% from the previous year through improved outreach efforts. 

► GRAPHIC: Home sales across the city dropped from their peak in 2006 to the low point in 2009, and they have slowly recovered since. Even as sale prices rose again, the city's assessors were lowering their estimated values in order to calculate tax bills more accurately.

Detroit 'wronged a lot of people'

Duggan said the new “Pay As You Stay” legislation proposed in October is the government's best chance to reduce the impact of over-assessment on delinquent homeowners. The plan would waive interest and fees for those who qualify, and cap their total debt at no more than 10% of their home’s taxable value.

Legislation to create the program passed easily in the Michigan House in December, and is in a Senate committee. Only homeowners who get the yearly Poverty Tax Exemption would be eligible for the program, which has waived either all or 50% of their taxes for each year they get it.

This week the city announced they have expanded the exemption program, which would also allow more families to qualify for "Pay As You Stay."

Now a family of four making $31,930 can get a 25% tax break on their current taxes and qualify for the debt relief, if the legislation is enacted. 

Some housing activists have wanted more, including at least halting the tax auction until outstanding debt can be recalculated to reflect past home values. But city and county officials have dismissed that possibility.

“The city of Detroit, going into bankruptcy, did a lot of things wrong and wronged a lot of people,” said Massaron, the city's CFO. In addition to homeowners being overtaxed, retirees lost benefits, and city services, from emergency response to streetlights, were lacking, he said.

And forgiving overtaxed residents who still have debt would be unfair to homeowners who paid their bills, city and county officials have argued.

“At the end of the day, a number of residents over the last decade have paid their taxes,” Massaron said. “Over-assessed or not, they paid their taxes. And we need to be sensitive to the fact that those residents paid into the continued city operations.”

“The bankruptcy was designed to be a reset so that the city could provide services at a particular level, and there is nothing in the plan of adjustment that provides for the repayment of any claim that was prior to that bankruptcy.”

But Stevenson said he and others who were overtaxed should not be held responsible for the city’s mistakes, either.

“If you were allowed to wipe it clean via the bankruptcy, then you should wipe it clean from the homeowners,” he said.

Research and reporting for this story was supported by the Fund for Investigative Journalism.

Detroit News reporter Christine MacDonald can be reached at 313-222-2396 or cmacdonald@detroitnews.com.

How to apply for a Poverty Tax Exemption 

The city of Detroit is taking new applications for the 2020 Poverty Tax Exemption. Click here for the application. For more information, call 313-224-3560 or email assessors@detroitmi.gov.

Appeal your tax bill

Taxpayers can appeal their assessments during the February Assessors Review, Feb. 1-22. For more information, call 313-224-3035.

Hear a radio story

Listen to a radio story about Detroit's tax debt crisis from Reveal from The Center for Investigative Reporting and PRX. The story, as well as the full Duggan interview with Reveal host Al Letson, was produced in collaboration with The Detroit News.

Listen online here. Or listen at 8 p.m. Sunday on Michigan Radio WUOM 91.7 FM, or at 2 a.m., 11 a.m. or 11 p.m. Tuesday on WDET 101.9 FM.