MICHIGAN’S PROPERTY TAX TRAP: EFFECT ON MORTGAGE PAYMENTS
By Kurt O'Keefe, Attorney at Law on May 28, 2007 in General Bankruptcy Information, Michigan
Along with the national surprise of increased monthly mortgage payments due to the expiration of teaser ARM rates, many new home buyers in Michigan get an added jolt to the pocketbook.
Usually undisclosed by realtors and mortgage companies, property tax bills can jump 100% or more in the first year.
The allowable annual increase in the taxable value of residences in Michigan is fixed at basically no more than 5% per year, so long as you own your home. This can be re-set by the government when a home is sold. The effect now is, if you buy a home from someone who has owned it for 15 or so years, your property tax will be double what they were paying. This is usually not pointed out to the prospective purchaser by realtors, or mortgage brokers or companies.
So, you sign up for a mortgage, with taxes escrowed, the payment is calculated on what the owner paid last year. When the escrow is re-calculated based on your actual tax payment, your monthly payment can increase $100, $200, $300, or more. This becomes a double whammy if you purchased the home with an adjustable rate mortgage. These always have artificially low “teaser” rates for the first 6 or 12 months. So your payment will go up even without a property tax adjustment.
If you bought from a long time owner, you will get hit twice, possibly pushing the payment to more than you can afford. Current bankrupty law does not help with either issue.
So, look before you leap, talk to the local tax authorities before you purchase.
What if you pay less than the taxable value? Will your assessment go down?
Governments like to have their cake and eat it too; in cases of falling home prices, as now persist in Michigan, they do not have to lower the taxable value to the purchase price. If it is to their advantage to just stay with the annual percentage increases, they can do so.
That can be challenged at the assessor’s office, after the sale.
The overall effect is to reduce demand for houses, further decreasing home values in Michigan. Be informed ahead of time, check everything before you sign!
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