Michigan Home Sellers Can Have 2 Primary Residences For Tax Purposes

Michigan homeowners need to be aware of the law that exists to provide tax savings to anyone who has a home for sale but has purchased another home. You can claim both properties as your Principle Residence and receive Homestead millage. This law went into effect for homeowners in 2008, as relief for Michigan home sellers who have moved and have not been able to sell their home in Michigan.
The law is called PA 96 of 2008, and it is a HUGE tax break for people in Michigan that expands the Principal Residence Exemption on unsold homes. If you live in Michigan, and own a home you are allowed to claim one house for a primary homestead exemption. Non-Homestead Tax millage is 18 mills higher than Homestead that is approximately 30% higher.
Now the legislature has allowed you keep two exemptions "if" you move from one home in Michigan to another one and are still trying to sell the previous home. The home must be vacant and for sale. You can claim this exemption for a maximum of 3 years by filing a Conditional Rescission of Principal Residence Exemption form.

Why Are Taxes So High on Foreclosures?

There are many factors that are going on there. More often than not, when a property goes to foreclosure sale, the Twp or local tax authority equalizes the Taxable Value to match the SEV. (Often grossly out of whack from realistic market value because the SEV is based on the last purchase price & other factors such as state formula). So bottom line, the Taxable value jumps considerably at the time of foreclosure sale! Also at that time to add insult to injury, the taxing authority reverts the property to the Non-Homestead Tax millage- 18 mills higher than Homestead for a double whammy! The non homestead tax rate is approx 30% higher than the homestead rate. This is termed Principle Residence Exemption

Other times the Twp or County does not catch the foreclosure sale and make the change right away. It is hard for them to keep up with all the foreclosure sales. So the taxes remain reasonable.

New legislation was just passed to prevent this problem by allowing a foreclosure to remain Homestead for a maximum of 3 yrs or until purchased before adjusting the homestead exemption

This is why you are seeing such a wide range of taxes on foreclosed properties.

In any case, when you purchase a foreclosure - the taxable value will again be adjusted and will revert to Homestead millage ( if the Principal Residence Exemption form is filed prior to May 1st). The townships will NOT automatically drop it to 1/2 the sales price because all taxing authorities are in need of money. Usually it is advisable to dispute the taxable value in the spring at the Tax Review Board within your local taxing authority's specified dates and times.

If any particular property interests you, be sure to ask a real estate professional or mortgage lender to verify the taxes because it will greatly affect your pre-approval amount and ultimately monthly payment. It is better to be well informed than to jump into a home and realize the taxes put you in the 'poor house.'

Redemption and Deficiency

Sellers facing foreclosure in Michigan have it better than any other state, as Michigan is a Redemption state. This means even once a foreclosure sale (sheriff sale) has taken place, the seller has the legal right to live in the home for 6 months to 12 months mortgage free (depends on amount of acreage attached with the home). This statute provides home owners in default the ability to redeem the property back in good standing. This way, property owners are afforded every opportunity to seek alternatives to foreclosure during this redemption period.

Michigan is also a Deficiency State. Being as such, a debtor or borrower who does not produce sufficient funds to pay the mortgage balance in full or negotiates terms to "satisfy" the loan, then the creditor has the right to pursue or sell the debt for 7-10 years. Many homeowners do not realize this applies to foreclosures, short sales and deeds in lieu unless specific language expressly states the loan has been satisfied or cancelled. Otherwise a deficiency judgment can be placed on your credit or this deficiency amount can be sold to a collection agency. Typically a deficiency judgment, until this is paid off, will not allow another home purchase through a lender.

This does not mean that the lender WILL pursue the debt, but provides them the right to. As of right now, every state except California and Oregon are deficiency law states.

Sounds of Sharing

On crisp starry nights, with tiny snowflakes gently falling, you can hear the unmistakable sound of tinkling bells faintly ringing at nearly every storefront & street corner. This comforting sound of Christmas is the Salvation Army Bell Ringers. Since 1891, volunteers have been standing in the bitter cold, ringing the golden bell and possibly even singing a Christmas carol or two. Amongst the hustle and bustle of the holiday season, passersby are encouraged to donate to this nation’s second oldest charity by dropping loose change into the red kettle and hear it cling and clang. However, if you are like many American’s today, you are probably carrying plastic including ATM & gift cards. This Christmas, we encourage you to make an effort to pull out your green, silver & copper and donate to those less fortunate. Add a jingle to that signature red Salvation Army bucket!! Happy Holidays to all our friends and family from the MacIntyre & Cowen Real Estate Team.