If you recently bought a home in one of metro Detroit's fastest growing cities or are planning to buy a home, you could be blindsided up to two years after moving in with an increased payment you can no longer afford.
While property values in the region have more than rebounded from the recession, Michigan municipalities are still struggling to recover and new home buyers are taking the hit.
While property taxes have been uncapped and reassessed since the 90s, officials say the size of the tax increase now is bigger than ever before, homeowners are caught unprepared and several cities and counties field panicked calls regularly.
“We weren’t expecting it at all,” says Justin Courtemanche.
He and his wife bought their first home in January 2018 in Berkley, Michigan.
“Two bedroom, two bathroom, just nice for my wife and I,” along with their brand new baby.
Their budget got a blow a couple of months ago when their mortgage company raised their monthly payment by $165 due to tax increases.
“$165 doesn’t seem like a lot, but month after month it adds up,” he says.
He’s one of the lucky ones!
In Ferndale, one viewer messaged me that a year and half after buying, her mortgage payment jumped from $1,180 a month to a shocking $1,753! Nearly $600 more every month after her property taxes were uncapped and reassessed.
“Some people are still paying $1,000 and some people are paying $12,000 and it’s not supposed to be that way in a city,” says Sheryl Stubblefield, Ferndale's director of finance.
She says the problem is complex and new.
“Your parents are like that’s not right because they don’t have experience with it either and so they can’t warn you about it. This is something that happened since the housing market crashed in 2008,” says Stubblefield.
But the stage was set back in 1994 when Michigan's Proposal A was passed. It capped a homeowner’s property taxes, only allowing annual increases at the rate of inflation or 5 percent, whichever is less.
“They put a cap on it, but they didn’t put a floor,” says Stubblefield.
So fast forward to 2008 – when property values plummeted, property taxes plummeted, too.
“Older urban communities in Southeast Michigan really felt the pain hardest because we had a lot of commercial property around automotive and property values really dropped when people left for jobs in other states,” says Ferndale Mayor Melanie Piana.
By 2016, property values had bounced back, but property taxes never did. Property taxes rise much more slowly due to two Michigan laws: Proposal A and the Headlee Amendment.
“We are still below the revenue that we created in 2007,” says Piana.
Ferndale is not alone. Property taxes, can be only be uncapped and reassessed once after ownership changes.
Many Michigan municipalities are hurting financially and they have one chance to uncap and reassess property taxes, after ownership changes.
“If you buy a house that hasn’t been sold for 10 years then you’re going to get that uncapping effect and it’s going to be really high and it’s going to continue to happen until all the houses affected by the housing bubble, until all those houses have sold again,” says Stubblefield.
The uncapping for the assessment happens the December after you purchase your home, but the bill doesn’t come until the following summer or fall. Sometimes a bit longer for municipal systems to be updated. So homeowners can expect the bigger bill about a year and a half after purchase.
The large increase can put your escrow account in the negative and your mortgage company may then require high payments to build your escrow account back up!
Real estate agent Boyd Rudy in Plymouth says he’s been selling a number of homes for people who were caught off guard by the large tax increase and could no longer afford payments. In cities like Livonia, Westland, Trenton and Allen Park.
The state has a link that you can use to estimate your future property taxes. You can find that here..
Editor's note: The current state of property taxes is a multi-layered issue. There are future stories in the works exploring other elements impacting home owners and home buyers. At the bottom of this article is a tool homebuyers can use to estimate property tax increase, so you aren’t caught by surprise and you can better prepare.