Assessed value taxes and city violation in Detroit, Warren, Roseville and more

[Chanie Chriqui]

Just wondering what people do when they come across these 2 issues that I have been having with my properties: 

1) The real estate taxes jumping really high after the new assessed value comes out? We filled to have them lowered, but no luck. They are 6-8% of the assessed value, is that normal? I thought its usually around 2% 

2) How do you get around the city violation? Every year in Detroit and nabourghing cities you need to get a rental certificate, and every year they threw at us a large list that cost so much to fix. Since we have a property manager, all these things cost more and we are not even doing things that raise the value of the property. 

All suggestions would be appreciated 

[Drew Sygit]

@Chanie Chriqui if you're dealing with ANNUAL Detroit city inspections, you must have 3+ unit properties. 1-2 units are only inspected every 3 years. In Rosevelle & Warren, 1-4 units are every 2 years, 5+ units every year.

Regarding property taxes, most Detroit properties are actually UNDER taxed. The SEV value is supposed to be 50% of the Market Value (NOT sales price). Check yours and you'll probably find your SEV is less than 50% of the Market Value.

Read on for a better understanding of how Michigan property taxes work:

Michigan has some of the most complicated property taxes in the USA. Here’s what to know.

State Equalized Value versus Taxable Value

Back in 1994 Michigan passed the Headlee Amendment:

(http://www.legislature.mi.gov/(S(k5m2va1uyfgwtbyjf4nqb1bx))/mileg.aspx?page=LoadVirtualDoc&BookmarkID=6536)

that capped annual increases to the Taxable Value of a property to the lower of 5% or Michigan's Cost of Living increase. This was done to protect senior citizens on fixed incomes from being forced to sell their homes due to unaffordable property tax increases.

Since the passing of this amendment, all properties in Michigan have two property tax values associated with them:

1. State Equalized Value (SEV): supposedly equal to 50% of the market value of a property, not based on recent sales price.
2. Taxable Value: the SEV annually capped as long as there is not a transfer of ownership.

City Assessors are charged with determining how much property values have changed each year. Since they can't do each property individually, they use comparable sales to make broad generalizations to determine percent changes. Then these are applied to all properties in that area of the city.

Property owners get an annual update on their SEV & Taxable Values with their city property tax bill, typically sent in December.

So now, the city assessor tracks the SEV, but homeowners are taxed based upon the capped Taxable Value. These two numbers diverge over time as the SEV increases with property value, but the Taxable Value is capped. The Taxable Value is uncapped and equated to the SEV upon a sale or other transfer of property ownership, with limited exceptions.

Homestead versus Non-Homestead Millage Rates

Counties & cities in Michigan are allowed to set their own millage rates, with one restriction – a primary residence (Homestead) is exempt from up to 18 mills of school taxes on their Homestead property. A property qualifies as Homestead for this exemption if an eligible owner files a Principal Residence Exemption (PRE): https://www.michigan.gov/taxes/0,4676,7-238-43535_43539-210891--,00.html#:~:text=Section%20211.7cc%20and%20211.7,purposes%20up%20to%2018%20mills.

Many investors have gotten an ugly surprise when they bought a property that was a primary residence of the seller for the last 20 years. The removal of the Taxable Value cap and the switch to Non-Homestead millage rates can double, even triple, the property taxes. By the way, the cutoff date is June 1 of each year for these changes.

City & County Tax Bills

Most Michigan properties receive TWO annual tax bills - one from the city and one from the county. Many banks handling tax escrow accounts for mortgages have mistakenly thought there was one tax due twice/year or totally missed one of the taxes.

Investors should research the SEV and the Non-Homestead property tax millage rates to project what the property taxes will be after adjustment.

You can use this tool to estimate future property taxes: https://treas-secure.state.mi.us/ptestimator/ptestimator.asp

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