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.'