Lower Interest Rates on Michigan Delinquent Property Taxes

In most states if you don’t pay your property taxes when they are due, the county will take your property.  In Michigan you have to skip payment for three years before they will seize your property and sell it at auction.  One aspect of this process is that in addition to paying the back taxes, property owners are also responsible for an interest charge on what is owed.  I was astonished to learn the interest rates that were being charged on these delinquent tax bills. The Michigan Legislature just passed a law to give county treasurer’s the latitude to lower the interest payment on these back taxes to 6%.

To me 6% seemed high, so I wanted to find out what had been being charged before this went into effect. It turns out interest rates rose to 18% on back taxes!  The rates were set in the early 1980s and the legislature never adjusted them.  I am surprised that they don’t just tie the rate to the prime interest rate, like credit cards do, then these adjustments wouldn’t have to take place.  For the first year taxes were delinquent they were charged a 12% interest rate, then the rate went to a retroactive 18%, meaning that 18% was effectively charged from the date the taxes became delinquent.  State and Federal government officials occasionally talk about unscrupulous lenders in the home loan, student loan and payday loan sector, but rarely point the finger at themselves.

For a house with a $1,000 tax bill, three years of delinquency at 18% would add $540 to the bill. At 6% three years of delinquency would carry interest charges of $180.

Assessments: Another major problem with Michigan property taxes is the assessment.  Many homes, especially in areas like Detroit are grossly over-assessed.  Houses that wouldn’t sell for $10,000 are assessed as being worth $100,000. If the assessed value on your home seems out of whack, appeal your property taxes for a re-assessment.  Although the $300 – $400 cost of an appraisal is a lot of money, a major reduction in assessed value can result in substantial savings. When I had a property I bought at the tax auction reassessed they dropped the assessed value from $23,700 to $7,800. In Michigan the assessed value is supposed to be half the market value of the house.  This re-assessment taking the market value of the home from $47,000 to $15,000 saved me $1,000 a year in property taxes. I wonder if the previous owner had re-assessed his property would he have been able to avoid tax foreclosure?

Action Steps If Behind On Property Taxes:

1. Get a hold of your county treasurer to see if you can work out a payment plan.  Berrien County is eager to work out payment plans with homeowners to keep them out of foreclosure.

2. Check your property tax assessment.  In Michigan the “assessed value” is supposed to be 1/2 the true market value of your home.  If this seems off, contact your county assessor’s office to challenge the assessment. It may be worth ordering an appraisal to challenge the assessment.  Most appraisals cost between $300 and $400 and may be well worth getting to permanently reduce your property taxes.

3.  Don’t let your tax bill go to the back burner.  Loosing a home to property taxes is throwing away money.  This is one of the few situations where I think it makes sense to borrow money, or even take money from a 401K or IRA. People lose homes worth $50,000 over $1,000 all the time.