‘It’s like they make it difficult for you on purpose’: Barriers to property tax relief and foreclosure prevention in Detroit, Michigan

Abstract

All U.S. states permit local governments to recover unpaid property taxes through a tax lien foreclosure process. Tax relief policies can reduce household tax burdens and prevent the foreclosure of owner-occupied homes, but little is known about their use and effectiveness. Like other cities, Detroit, Michigan, experienced a rise in tax foreclosures following the 2008 deep recession. Michigan law requires cities to exempt low-income homeowners from some or all of their property tax obligation. Implementation of this policy, the Poverty Tax Exemption, nevertheless failed to protect many low-income homeowners from dispossession through tax foreclosure. State-mandated and locally-determined procedures placed the burden of learning about and applying for the exemption on financially stressed homeowners, restricting widespread access to this critical tax relief. Eliminating institutional barriers to tax relief can prevent many owner-occupied tax foreclosures, especially in cities where a high need for tax relief occurs under local conditions of fiscal austerity.

Introduction

Municipalities across the U.S. experienced a dramatic rise in property tax delinquency during and after the deep recession that began in 2008, with the highest rates documented in cities with high levels of household poverty and homeownership (Ginsberg, 2013). All states have tax foreclosure laws that dictate the actions that local governments take when property owners fail to pay property taxes (Rao, 2012). Tax foreclosure laws vary across states but typically authorize first the creation of a lien against property when taxes are unpaid, then the enforcement of that lien through the sale of the lien or the property after a period of delinquency (Alexander, 2000a). These laws aim to ensure that local governments can recover tax revenue necessary to provide essential public services (Marchiony, 2012). When properties are vacant or owners have abandoned them, the sale of tax-reverted property can sometimes facilitate its return to tax-generating, productive reuse (Dewar, 2006, 2015). However, tax foreclosure proceedings also result in loss of homeownership when laws lack adequate protections for taxpayers who are unable to pay (Jacobson, 2014; Rao, 2012).

Little is known about the effectiveness of tax relief policies in preventing the foreclosure of owner-occupied homes. This paper contributes to filling this knowledge gap by examining how the implementation of a tax relief program, the Poverty Tax Exemption (PTE), influenced its access and use among homeowners who were vulnerable to tax foreclosure. This research addresses the question of why so few eligible homeowners obtain property tax relief through Detroit’s PTE program. The first section of the paper summarizes the evidence on owner-occupied tax foreclosures and tax relief policies that may prevent them. The next sections describe the research design and methods and then proceed to analyze the PTE, as implemented in Detroit, Michigan, to investigate why this program has failed to protect many low-income homeowners from dispossession through tax foreclosure. The paper concludes with a discussion of key findings and insights into how tax relief policies can be designed and implemented to prevent owner-occupied tax foreclosures more effectively.

Owner-occupied tax foreclosures

Scholars suggest that two types of owners stop paying property taxes: those electing to abandon their properties and those facing cash-flow or affordability problems (Mallach, 2006; White, 1986). Research on tax delinquency and foreclosure has tended to focus on the first type of owner and has considered failure to pay property taxes as an indicator of late-stage disinvestment (Peterson, 1973; Sternlieb & Burchell, 1973). As residential abandonment escalated in many U.S. central cities during the 1970s and 1980s, much initial research described tax delinquency as resulting from investors’ financial decisions to minimize expenditures in low-income housing markets where tax liabilities were high, rental incomes were constrained, and housing values were expected to decrease (Arsen, 1992; Sternlieb et al., 1974; White, 1986). Because the penalty of tax foreclosure is enforced against the property, not the owner, landlords may opt to take advantage of the lag between nonpayment and confiscation, ceding ownership when the sum of a property’s liens exceeds its market value (Scafidi et al., 1998).

The research linking tax foreclosure to abandonment encouraged policy changes, including shorter redemption periods, which reduce the time that property is subject to delinquency, left vacant or ill-maintained, or vulnerable to destruction (O’Flaherty, 1990; Reeb & Tomson, 1985; White, 1986). More recent research on tax foreclosure has contributed to a consensus view that foreclosure should occur quickly and yield clear title, thus enabling reuse (Alexander, 2000a, 2000b, 2000c; Mallach, 2006). Numerous scholars and policy advocates have recommended reforms to tax foreclosure procedures so that they are more efficient, reduce the negative externalities of abandonment, and allow for the expeditious acquisition and transfer of properties back to the real estate market where they can be reused or redeveloped (Alexander & Powell, 2011; Mallach & Vey, 2011).

Although policymakers have increasingly accepted such reforms as best practice, some scholarship suggests that these procedures fail to distinguish property owners who decide to forgo property tax payments based on investment rationale from owner-occupants who fall behind out of financial necessity (Alm et al., 2014; Dewar et al., 2015). Little scholarly attention has been paid to how tax foreclosure laws that aim to alleviate the consequences of abandonment can avoid harming the second type of property owner, which includes homeowners who may be unable to pay property taxes because of chronically low income, temporary hardship, or disability.

In numerous cities characterized by long-term post-World War II population decline, residential segregation, and weak real-estate markets, property tax foreclosure has emerged as a defining issue. High-poverty cities such as Detroit, Michigan, Cleveland, Ohio, Philadelphia, Pennsylvania, and Baltimore, Maryland, have been among the most severely affected (Dewar, 2006; Dewar et al., 2015; Jacobson, 2014). High levels of poverty increase the number of homeowners who face unaffordable tax burdens, lack adequate savings to weather financial hardship, or own no assets other than their homes (Pew Research Center, 2015). Owing to racial segregation, cities where tax foreclosure has taken the highest toll also have a majority African American and Latino population who were targeted for subprime loans (Hwang et al., 2015; Rugh & Massey, 2010).

These cities also experienced tax base erosion and declines in federal and state transfers (Alm & Leguizamon, 2018; Collins & Propheter, 2013; Pew Center on the States, 2012). This fiscal stress led city officials to prioritize collecting tax revenue in the short term over preventing foreclosure, retaining population, and preserving tax collections in the long term (Miller & Hokenstad, 2014). During the last recession, tax relief could have alleviated excessive property tax burdens when home values fell, downward reassessment of property lagged, and many residents suffered income loss (Hodge et al., 2017; Payton, 2012). The recent wave of owner-occupied tax foreclosures demonstrates the severe and racially inequitable consequences of tax lien enforcement for poor and working-class homeowners, especially during periods of economic downturn (Atuahene, 2018; Jacobson, 2014; Kahrl, 2017; Rao, 2012). In this situation, effective tax foreclosure prevention is essential to preserve homeownership.

Tax relief policies

State governments have enacted a range of property tax relief policies with the intention of aiding targeted groups of property owners, especially homeowners. Tax relief programs take various forms. The most common are property tax exemptions and tax credits; as of 2012, all but three U.S. states had at least one of these programs (Langley, 2015). These policies aim to reduce property tax burdens so that they are more aligned with the owner’s ability to pay (Bowman et al., 2009). By alleviating tax burdens prior to delinquency, such policies may prevent tax foreclosure among lower income groups (Jacobson, 2014; Rao, 2012). The scope of these policies differs widely; while two thirds of states offer relief that considers both household income and property tax liability, most restrict eligibility to homeowners who are elderly, disabled, or veterans (Kenyon et al., 2010). Further, the benefits are not automatic, and accessing them requires the homeowner to know that the relief exists and proactively apply for the benefit by submitting proof of eligibility, often on an annual basis (Jacobson, 2014; Rao, 2012).

Despite pervasive tax relief policies and their potential to prevent property tax foreclosure among vulnerable classes of homeowners, little research has evaluated their use or effectiveness. The limited evidence demonstrates low participation rates among eligible households (Bowman et al., 2009). A survey by the American Association of Retired Persons indicated awareness rates for three types of property tax relief ranged from 20 to 66 percent of eligible respondents, while application rates among those aware ranged from 1.4 to 26 percent (Baer, 1998). Participation varied by income, with lower income households less likely to be aware of and use tax relief programs, especially those that offered income-related relief and required taxpayers to re-apply regularly. Estimates of state-specific participation rates documented gaps in access across the U.S., with substantial variation across programs (Baer, 1998).

This research adds to the limited body of knowledge by examining Michigan’s PTE as implemented in Detroit. State law (MCL 211.7u) requires that local governments make a property tax exemption available to homeowners who live in poverty. In Detroit, homeowners with incomes near or below the federal poverty level may apply annually to have their property tax bill reduced by half or eliminated. However, estimated PTE participation rates in Detroit indicate that the majority of homeowners in need do not receive this benefit. From 2012 through 2016, an estimated 35 000 owner-occupied households (28 percent of the city’s homeowners) were eligible for a full exemption, while an additional 4 000 qualified for a partial exemption.¹ However, less than 12 percent of those eligible applied for and received the exemption each year during this time period (W. Donwell, chair, Detroit Board of Review, personal communication, February 2019).

Lack of participation in Detroit’s PTE program captured the attention of community-based groups, legal organizations, and housing advocates as the rate of owner-occupied tax foreclosures escalated dramatically post-recession (Macdonald, 2016; Steinberg et al., 2015). Observations from Detroit’s principal tax foreclosure prevention nonprofit organization and evidence from a legal complaint that invoked a 2016 class action lawsuit (detailed below), suggested that the city assessor’s administration of the PTE barred access to the program and impeded foreclosure prevention. Why do low-income homeowners eligible for property tax relief through Detroit’s PTE program rarely obtain it? This paper addresses this question by analyzing PTE implementation at the institutional and individual levels. The next section describes the design and methods for this case study.

Research design and methods

Case study design

The study of PTE implementation in Detroit serves as a ‘revelatory’ case study in Yin’s terms (2014, p. 52). The volume of tax foreclosures in Detroit threatened tens of thousands of households, promised to sow blight in most neighborhoods, and therefore made preventing tax foreclosure a major issue for low-income housing advocates. Through a community-academic partnership, the authors had the opportunity to work with homeowners eligible for the PTE in cooperation with the United Community Housing Coalition (UCHC), a nonprofit organization that has provided housing assistance to low-income Detroit residents since 1973 (UCHC, 2018). UCHC established its Tax Foreclosure Prevention Project in 2003 after observing a need for tax foreclosure counseling services and has become the primary resource for tax foreclosure prevention in Detroit, assisting thousands of residents each year. Researchers embedded with UCHC were able to observe homeowners’ experiences in seeking property tax relief and could identify common challenges and procedural problems.

Detroit provides a particularly useful setting for this research. Overhaul of Michigan’s property tax legislation in 1999 sought to encourage the ‘efficient and expeditious return’ of tax delinquent property to productive use, shortening the foreclosure process from seven to three years (Michigan Public Act 123 of 1999). Although policy experts have cast Michigan’s reform as best practice (Mallach & Vey, 2011), Detroit scholars and housing advocates argue that these legal changes paid insufficient attention to preventing property loss (Akers, 2013; Dewar et al., 2015; Oberholtzer, 2017). Therefore, this case can help reveal issues in preventing tax foreclosure under the type of property tax law considered a model nationwide.

Further, high property tax burdens among Detroit’s large population of low-income homeowners intensified with the recession and made the need for relief more urgent. As of 2010, Detroit had the highest effective property tax rate for owner-occupied homes and the highest poverty rate among the 50 largest cities in the U.S. (Lincoln Institute of Land Policy and Minnesota Taxpayers Association, 2011; U.S. Census Bureau, 2010). Home values in Detroit dropped by about 80 percent as a result of mortgage foreclosures and the recession, but Detroit’s tax assessor did not complete a citywide property reappraisal until 2017, contributing to widespread property value overassessments (City of Detroit Office of the Assessor, 2017; Deng et al., 2018). Although the state constitution requires that assessed values not exceed 50 percent of the property’s fair market value, the majority of Detroit’s properties were assessed above the legal threshold between 2009 and 2015, with the most pronounced overassessments documented among the city’s lowest valued homes (Atuahene & Hodge, 2018).

As the need for property tax relief in Detroit heightened, chronic revenue losses imposed severe financial constraints on the city’s government and reduced its ability to deliver basic public services (Reese et al., 2014). The recession exacerbated Detroit’s fiscal distress, culminating in the state’s appointment of an emergency financial manager, who declared municipal bankruptcy in 2013 (Citizens Research Council of Michigan, 2010; Bomey, 2017). These fiscal conditions undermined the city assessor’s capacity to implement reassessment and foreclosure prevention (Lockridge, 2012) but also meant that the tax assessor had a strong incentive not to reduce assessments and not to excuse homeowners from paying taxes.

Thus, Detroit offers an opportunity to observe a case where the population’s need and motivation to seek tax relief are very high, but the city government’s administrative capacity and fiscal incentive to implement relief (and forgo tax revenues) are very low; these opposing circumstances help to expose explanations for the success or failure of efforts to obtain tax relief that are less observable elsewhere. Detroit’s PTE offers relief that is greater and more immediate than tax relief policies that have been previously studied (Baer, 1998). If consistently granted, a homeowner’s full exemption from property taxes may effectively prevent the property’s foreclosure. Thus, low-income homeowners and their advocates may be particularly inclined to seek this relief, compared to other property tax reduction programs not substantial enough to merit the effort of seeking the aid.

Three propositions about PTE implementation, access, and use guide this case study. First, as UCHC staff observed, few homeowners in need of tax foreclosure counseling know that the PTE exists or that they qualify. Hence, low participation may be a symptom of poor PTE awareness. Second, the PTE’s complicated application process presents a series of procedural and logistical demands that can prevent even those who know about the program from applying successfully. In 2016, several legal organizations² filed a class action lawsuit against the City of Detroit and the Detroit Board of Review, the entity that reviews applications and makes decisions about granting the PTE, on behalf of four eligible homeowners who had unsuccessfully sought the exemption between 2013 and 2016. The lawsuit alleged that Detroit’s administration of the PTE presented ‘needlessly complex and impenetrable application procedures’ and ‘unduly burdensome documentary requirements’ that prevented low-income homeowners from receiving the exemption they were lawfully entitled to, violating their due process rights (MorningSide v. Sabree, 2016, p. 3). Under the second proposition, burdensome application procedures may limit PTE access among homeowners who are aware of the program. Third, the tax assessor’s interest is in collecting revenue; especially under conditions of municipal fiscal austerity, no incentive exists to assure low-income households receive the PTE, which lowers tax revenues in the short term. According to this third proposition, little publicity about the program, barriers to applying, and lack of transparent and capable administration of the program may indicate a lack of institutional capacity and/or city officials’ unwillingness to implement tax relief effectively.

Tax foreclosure prevention in Detroit

Under Michigan’s reformed tax foreclosure process, unpaid taxes to the City of Detroit are transferred to the Wayne County Treasurer for collection each year (Michigan Public Act 246 of 2003). Besides shortening the time required for tax foreclosure to three years, the 1999 legislation set in place an annual interest rate of 18 percent per year (plus administrative fees) on delinquent taxes and mandated two auctions for the sale of foreclosed properties. The interest and fees quickly increase so that the amount owed to the City of Detroit for an unpaid summer tax bill of $700 becomes $994 by the end of December. With the addition of the winter tax bill of $250, the total amount due by February is $1 645, $695 more than the bills would have been if paid on time.³ In March the delinquent bill is forwarded to the county treasurer for collection, where the law requires a 4 percent administration fee and 1 percent per month interest. One year later the property is forfeited; a $175 fee and $30 in recording fees are applied, and interest increases from 1 percent per month to 1.5 percent per month, back to the date the taxes became delinquent. By the time the circuit court enters a judgement of foreclosure in March of the third year, an initial tax bill of $950, if no taxes are paid, climbs to $2 523.⁴ The legislation allowed a foreclosing government to withhold a property from foreclosure if the owner was experiencing ‘substantial financial hardship’ (Michigan Public Act 123 of 1999, Sec. 78h(3)(b)) but did not require cities or counties to offer programs to prevent tax foreclosure. The implicit assumption in tax reform seemed to be that few owners would fail to pay taxes due to continuing hardship.

That assumption was incorrect. Between 2010 and 2017, more than 47 000 properties with occupied structures entered the foreclosure auction⁵ (data obtained from the Wayne County Treasurer, 2017 through Freedom of Information Act request by J. Paffendorf, CEO, Loveland Technologies). Tax foreclosures peaked in 2015, when 62 000 Detroit properties entered the foreclosure process, of which a journalist estimated more than 36 000 were occupied homes (Cwiek, 2014). Among the 15 400 homes offered at auction in 2015, local officials estimated that more than 9 111 were occupied, including 6 408 thought to be owner-occupied (City of Detroit Office of the Assessor, 2018). Among a convenience sample of 5 404 residents (83 percent of whom were owner-occupants) whose properties were issued a foreclosure notice in 2015, more than half reported having an annual income of less than $28 000 per year, with nearly a quarter having income below the federal poverty line (Yu, 2015).

Tax foreclosure among Detroit homeowners has persisted despite state and local tax relief policies designed to reduce tax burdens for low-income owner-occupants.⁶ Most notably, Michigan offers a Homestead Property Tax Credit (a ‘circuit breaker’) which refunds homeowners for some property taxes paid in a past period if the amount owed exceeds 3.5 percent of household income (Kenyon et al., 2010).⁷ Homeowners with an annual income of less than $50 000 may apply annually to receive this benefit, which is issued as a refundable state income tax credit; homeowners who are elderly, disabled, or veterans are eligible for larger credits (Michigan Legislature, 2017). Although Michigan’s circuit-breaker policy is one of the most progressive in the country, it is implemented in conjunction with the state’s income tax, leaves non-elderly homeowners responsible for a 40 percent ‘copayment’ of their excess property tax burden, and requires claimants to pay their property tax bills up front (Bowman et al., 2009, p. 25). As a local exemption, the PTE reduces a homeowner’s property tax bill before it is owed and thus has potential to provide more timely and adequate tax relief to impoverished homeowners, who may fail to receive the homestead credit due to their lower likelihood of filing an itemized tax return (Prante, 2007).

After property taxes become delinquent, homeowners have little opportunity to reduce their tax debt, increasing their difficulty avoiding tax foreclosure. The PTE only offers relief from current-year taxes and is not retroactive. Wayne County offers a one-year foreclosure deferral to homeowners experiencing financial hardship, but interest on back taxes continues to accrue in the interim and, without the use of tax relief programs, the city assessor continues to levy new tax bills. A temporary change to state law in 2015 permits the county to offer five-year, interest-reduced payment plans to owner-occupants (MCL 211.78q(5)).⁸ Between 2015 and 2018, the county treasurer reported, 36 000 owner-occupied households, primarily in Detroit, entered into this repayment agreement (Cavanagh, 2018). To avoid foreclosure under these agreements, homeowners must make regular installment payments to the county treasurer toward their back taxes, while also ensuring that they do not fall behind on current-year city tax bills.

Thus, property tax administration makes low-income owner-occupants particularly vulnerable to tax foreclosure under the state’s accelerated reversion process. At the same time, Michigan offers more generous tax relief than many other states. These measures, especially the PTE, can alleviate unaffordable tax burdens and may reduce foreclosure risk for low-income homeowners. By examining homeowners’ experiences with the PTE and situating the policy within its broader institutional framework, this study explains how a policy as seemingly advantageous as the PTE can be ineffectual in the context of such pressing need.

Methods

We used two approaches to assess implementation, access, and use of the PTE. First, we examined legislative records, court cases, and administrative documents to understand the historical development of Michigan’s PTE policy and describe its administration in Detroit. Second, semi-structured interviews with eligible homeowners allowed us to assess and classify the primary barriers to PTE access and use in 2017.

We recruited participants from a group of Detroit homeowners who sought walk-in tax foreclosure counseling from UCHC in 2017. Counseling hours take place three mornings per week at UCHC’s office, located near downtown Detroit. While the UCHC office is centrally located, the neighborhoods where most PTE-eligible homeowners live tend to be located several miles from the city center. As part of regular services, UCHC counselors use income data (self-reported by the client at intake) to identify homeowners who may be eligible for the PTE, inform them about the program, advise them to apply, and offer assistance in obtaining and completing the application. To recruit participants, UCHC counselors asked clients whom they identified as PTE-eligible to participate in a study that would involve a brief phone call within three to six months of study enrollment. Eligible participants included homeowners whose self-reported annual household income fell below the maximum thresholds specified by Detroit’s PTE policy and guidelines in 2017 (Detroit Board of Review, 2017). In rare cases where household income fell above the maximum threshold, participants could be eligible if they provided evidence of extenuating circumstances, such as high medical debts, that affected their ability to pay their taxes.

Semi-structured interviews were guided by a series of closed-ended questions about PTE awareness, application processes (success in obtaining, completing, and submitting the application), and outcomes (whether the exemption was granted). Responses prompted a series of open-ended probes to explore potential barriers and pathways to PTE use within the process outlined. The interviews focused on the 2017 PTE application process, but one question asked about experiences in past years. Interviews concluded with a series of questions about homeownership, housing cost burden, and recent hardship experiences. Participants who had obtained, completed, and submitted the application but had not received a decision at the time of their interview were called again within the next three months. Participants who had not submitted their application by their interview did not receive a follow-up phone call; this is because the interviewer provided a reminder about the program (and in some cases, additional information on how to apply) that may have prompted participants to apply who may otherwise not have done so. Property-level data on tax delinquency and foreclosure status were extracted from the Wayne County Treasurer’s website and UCHC data files. The property’s 2017 assessed value from the City of Detroit Tax Assessor indicated whether the exemption was granted and was used to corroborate participant responses or provide an outcome when the participant could not be reached for follow-up. To analyze qualitative responses, a codebook was developed and used to identify themes across codes. Any discrepancies in coding decisions were resolved through discussion within the research team.

Findings

The next section presents findings from the examination of the legal sources. The section that follows presents findings from the semi-structured interviews.

Implementation of the Poverty Tax Exemption

The PTE was added to Michigan’s General Property Tax Act (GPTA) in 1980. The amendment stated: ‘The real and personal property of persons who, in the judgement of the supervisor [chief assessor] and board of review, by reason of poverty, are unable to contribute toward the public charges is exempt from taxation’ (Michigan Public Act 142 of 1980). As exemptions reduce the amount of property value subject to taxation, provision of this relief came under the authority of the local assessing unit–the township’s or city’s chief tax assessor and board of review (BOR), a group of three to nine appointed members charged with certifying, correcting, or appealing the assessment and valuation of property so that the tax roll complies with the GPTA (MCL 211.28). While the original law presumed some form of poverty judgement, it did not establish eligibility standards or procedures the BOR should use to implement the exemption (Nicholson v. Birmingham Board of Review, 1991).

Since its enactment, the PTE has undergone numerous amendments that affect implementation. First, local units must annually adopt policy guidelines that specify the total household income and asset level used to approve or deny exemptions (State of Michigan Tax Commission, 2017). While statute requires that the income levels shall not be set lower than the federal poverty level, local governments can determine their own asset test. Second, the law allows for exemptions ‘in whole or in part,’ which permits local governments to specify a maximum allowable percentage of the property’s taxable value that may be exempt from taxation (MCL 211.7u). Lastly, the law requires that eligible homeowners must annually file a completed application form with the local assessing unit. At a minimum, this claim must be accompanied by federal and state tax returns for all persons living in the household. Prior to 2012, applicants whose earnings fell below the minimum income requirement for filing a federal tax return (meaning those whose incomes were sufficiently low to guarantee PTE eligibility) had to file and produce a tax return in order for their application to be considered (State of Michigan Tax Commission, 2010). In response to rising tax foreclosures, legislators amended the law in 2012 to allow applicants who are not required to file tax returns to submit an affidavit attesting to this fact as an alternative (Michigan Public Act 135 of 2012). In addition to tax returns, a BOR can require claimants to provide additional documentation to complete their application. These changes grant the local government discretion over specific application requirements and implementation procedures, as well as the extent of relief it offers.

In Detroit, local implementation of the PTE is referred to as the Homeowners Property Tax Assistance Program (HPTAP). The Detroit City Council approves HPTAP policy and guidelines annually, but the Detroit BOR, a nine-member panel appointed by the City Council within the Office of the Assessor, implements the program. Detroit offers either a full or a 50 percent exemption to homeowners, depending on household income. Detroit’s BOR adopts alternative income eligibility guidelines for the program, extending the opportunity for relief to households living above the federal poverty guidelines. In 2017 the federal poverty level for a single-person household was $12 060, whereas the HPTAP guidelines were $16 660 (137 percent of federal poverty level) and $19 160 (158 percent of federal poverty level) for a full and partial exemption, respectively (Detroit Board of Review, 2017; U.S. Department of Health and Human Services, 2017). The asset limit for the exemption is $12 000, excluding equity in the owner-occupied home. However, the BOR may deviate from its guidelines on a case by case basis to grant an exemption for reasons that are ‘substantial and compelling’ (Detroit Board of Review, 2017). The BOR makes exemption decisions three times per year, in March, July, and December (State of Michigan Tax Commission, 2018).

Detroit’s PTE application process involves numerous steps and additional requirements that homeowners must satisfy in order to access the exemption. First, eligible homeowners must know that the program exists and that they qualify for relief. However, the BOR has stated that it has no advertising budget (W. Donwell, chair, Detroit Board of Review, personal communication, January 2019). Next, the homeowner must obtain a copy of the application from the City of Detroit Tax Assessment Division. Prior to 2016, applicants were required to file an in-person request for the application to be mailed to their homes (MorningSide Community Organization v. Sabree, 2016). Starting in 2017, the application became available at the Assessor’s Office and on the city government’s website. The 2017 application was eight pages long, including two pages of instructions. In addition to completing a paper application, an applicant must provide copies of all supporting documents. Detroit’s application requires many documents not dictated by state law, including (at a minimum) proof of the following: recorded property ownership, residency for all owners and occupants (photo-ID for adults, report cards for children), all sources of household income (e.g., wages, pensions, Social Security benefits), and all monthly household expenses (e.g., utility bills, medical expenses, home insurance).⁹ Further, the homeowner must sign the application in the presence of a notary and submit it by the final review period in December (Detroit Board of Review, 2017). Prior to 2016, the BOR printed a deadline on applications it mailed to homeowners; in some instances, applicants received an application within a few days of this deadline or after it had passed (MorningSide Community Organization v. Sabree, 2016). In 2017, the BOR advised applicants to submit the application in person to the assessor’s office to ensure its receipt, citing concerns that the department has failed to receive mail in the past (W. Donwell, chair, Detroit Board of Review, meeting, September 2017). Finally, the BOR reviews submitted applications, decides whether to grant a full or partial exemption for the current tax year, and issues a final decision to the applicant by mail.

Homeowners’ experiences with the PTE

Interviews revealed what homeowners experienced in applying for the PTE. A total of 144 participants were called for an interview. One hundred six participants were interviewed, and a total of 105 Detroit homeowners were included in the analysis (one participant was excluded because the person was not the homeowner). Of the 38 participants who required a follow-up phone call, 68.4 percent were successfully contacted. Participants were predominantly (88.2 percent of the 85 who responded) African American with an average age of 52.2 years. The average household size was 2.1 persons, but more than half of participants lived alone. Household membership and length of homeownership varied. Most participants owned their homes outright (95.1 percent of the 101 who responded), while 4.9 percent had a land contract.¹⁰ Table 1 describes the sample’s demographic and household characteristics more fully.

Table 1.

Sample household characteristics.

Sample characteristics	Percent of reported	Number reporting
African American head of household	88.2	85
Female head of household	65.4	101
Household membership
Included a senior (62+)	27.6	105
Included a child (0-17)	33.3	105
Included a member with a disability	31.4	105
No household members employed	66.3	101
Length of homeownership
< 5 years	21.9	96
5-9 years	36.5	96
10-19 years	12.5	96
>20 years	29.2	96
Type of ownership
Own outright	95.1	101
Land contract	4.9	101

Note: The total number of households interviewed is 105.

Participants commonly experienced housing affordability problems to which high property tax burdens contributed. Seventy-seven percent of participants (94 responded) indicated spending more than 50 percent of their income for housing, which the U.S. Department of Housing and Urban Development considers severely cost-burdened (U.S. Department of Housing and Urban Development, 2018). Compared to all other housing expenses, participants most commonly reported property taxes as being larger than individual expenditures for their land contract, electricity/gas, water, home insurance, and repairs/maintenance.

Participants often associated property taxes with the threat of housing loss and indicated that avoiding foreclosure took precedence over other needs. As one participant recounted, ‘Paying my taxes is more important than food. If I could take the $85 I get in food stamps and put it towards my taxes I would do it. It’s more important to keep a roof over my head.’ Of the 98 respondents, most participants (77.6 percent) indicated having to decide between paying for housing and other necessities, like food or medical care, during the past year, and 72.5 percent had faced a utility shut-off. Recent hardship experiences were common, with 83.7 percent reporting job loss, reduced income, a medical emergency, a large and unexpected expense, a death in the family, or another difficult event during the previous year.

Upon study enrollment, 86.7 percent of participants owed a minimum of one year in back taxes to the Wayne County Treasurer, and thus were at high risk for tax foreclosure. Those with tax debt owed an average of $4 709, including an average of $1 305 in interest and fees.¹¹ Participants commonly expressed difficulty reducing their tax debt once it had accumulated, what one participant referred to as ‘bit[ing] off a piece of the elephant.’ Another participant described his tax debt as an unceasing burden by stating, ‘I manage to save up some money, $500, and take it down [to the treasurer’s office]. Then I find out that the money I took was just to pay the late fees. It doesn’t bring down what I owe.’

Most participants in the sample (61.9 percent) were subject to foreclosure in 2017, meaning they owed taxes for the year 2014 or earlier. To avoid foreclosure, UCHC staff advised most participants to enter into repayment agreements with the county treasurer. Many participants indicated that the PTE would be critical for them to pay off their tax debt and stabilize their housing. According to one participant:

If I didn’t have to pay my 2017 taxes…it would feel like the city is working for the people…. It’s not like I’m doing nothing, I have a job, but I also have three children. The biggest stress in my life is just the question mark: am I going to be able to save my home? If I had that money I would use it to pay my monthly plan.

Still, for some it was too late to save their homes: 7.7 percent of participants who were subject to foreclosure in 2017 were unable to stop their homes from entering the foreclosure auction.

Given the intent of the recruitment process, all participants were eligible for and aware of the PTE. Table 2 provides PTE outcomes for the sample (N=105).¹² PTE access was restricted at each stage of the application process. The primary barriers to program access described by participants were related to: (1) prior experience with the application; (2) limited awareness; (3) insufficient information; (4) application complexity; (5) mobility restrictions; and (6) lack of administrative accountability.

Table 2.

Outcomes at each step in the PTE application process.

Steps to access PTE	Number of homeowners who completed this step	Percent of all homeowners who completed this step	Percent of homeowners who completed this step out of those who completed the previous step
Informed about PTE	105	100.0	Not applicable
Obtained applicationa	81	77.1	77.1
Completed applicationb	78	74.3	96.3
Submitted applicationc	71	67.6	91.0
Application reviewed & approvedd	61	58.1	85.9

^a22.8 percent of those who were informed about the PTE had not obtained an application when interviewed.

^b92.3 percent of those who completed applications did so with UCHC help.

^c22.5 percent of those who submitted an application received notice that it was incomplete.

^d63.9 percent of those whose applications were reviewed and approved received written notice of the approval. 21.3 percent received no written notice. 14.8 percent could not be reached for a follow-up interview.

Still, nearly 86 percent of homeowners who successfully obtained, completed, and submitted their applications were granted the exemption (Table 2); many expressed appreciation for the program and stated that they would recommend it to other homeowners. One participant described the PTE as providing a sense of security and a pathway out of a cycle of accumulating tax debt:

It was a lot of steps to get there, but I was glad I got it…. It’s not just the amount of money that I’m saving…it’s a help knowing, with me not having the funds to pay, it’s not so much of struggle…. I’m actually paying them [back taxes] monthly, I still have a couple of years to pay off. It will help me going forward, not having to worry so much.

Prior experience with the application

Thirty percent of participants had applied to the program in previous years. These participants often recounted an inconsistent application history and negative interactions or miscommunications with personnel at the tax assessor’s office when requesting, seeking assistance with, or inquiring about their application. One participant explained:

They hadn’t been mailing me the application. I call and call–they don’t know what I’m talking about or they transfer me to another department or it just rings and rings…. I cannot get downtown to pick it up; it’s too difficult for me [because of my disability], so I didn’t apply and that’s why I owe so much today.

Others forgot to apply or did not know that the application needed to be resubmitted annually.

Approval was also inconsistent across years, and participants indicated having applications rejected or never acted upon. Approximately one third of previous applicants recalled at least one instance when they ‘never heard back’ or their application ‘didn’t go through,’ and they were later billed for their taxes. One homeowner described how his negative experience deterred him from applying again: ‘When I went down there the first time they put me through so much crap that I skipped the next year.’ Another participant explained how she ‘gave up’ after several failed application attempts, concluding, ‘It’s like they make it difficult for you on purpose.’

Limited awareness

More than half of participants first learned about the exemption in 2017. Of the 99 respondents, 59.6 percent of participants found out about the exemption from UCHC, 19.2 percent from friends, family or neighbors, and 18.2 percent from another source, including other nonprofit organizations, outreach materials, or word of mouth. Only 3 percent of participants heard about the PTE directly from a government source, such as the tax assessor’s office.

Of the 70.5 percent of participants who had not applied for the PTE before 2017, 91.8 percent indicated that their income level would have qualified them for the program at some point during the past three years; most of these previously eligible homeowners said that they did not apply because they did not know about the PTE.¹³ Many participants experiencing tax debt or pending foreclosure expressed frustration and regret after learning that they could have been exempt from paying taxes in prior years. One participant who was unable to save her home attributed this loss to the fact that she did not know about the exemption:

I wouldn’t be facing this foreclosure. Because I didn’t get the right information, because I didn’t know, I wouldn’t be dealing with this…. By the time I actually got the knowledge for how it [the PTE] could help me, it was sad that it was too late.

Nearly one quarter of participants who were eligible, but had not applied, knew about the program prior to 2017. However, some were reluctant to apply, did not think they were eligible, or doubted that a city program would help them. Uncertain whether the PTE was ‘real or not,’ one participant stated, ‘Sometimes they make you fill out forms and they don’t mean anything.’ Another homeowner described how the program’s requirements discouraged her from applying: ‘I read about this before but they make it so complicated, I thought I could never apply for it…. Even though they have these programs they make them so difficult people don’t even try.’

Insufficient information

Awareness did not guarantee access. Participants who did not obtain the application within three to six months of study enrollment (Table 2) attributed this to a lack of clarity about what the program does, as well as when, where and how to get the application. Focused on paying their tax debt and avoiding foreclosure, some homeowners did not recall being told about the PTE or could not differentiate it from other property tax relief programs. According to one participant:

There was so many different programs they [UCHC] were bringing up and telling me about and showing me flyers for. The payment plan was what I understand the most; that was what seemed more important. I knew I needed to pay that every month and stay current on my taxes.

Another participant recalled being told about the PTE but described UCHC as ‘fast and crowded’; after she received a letter from UCHC saying that her foreclosure was avoided, she assumed that she was ‘good for the year’ and did not pursue the PTE.

Misunderstanding about the PTE often stemmed from confusion about the tax foreclosure process and the difference between city and county tax obligations. As described by one homeowner: ‘They [the city and county] are all different entities but they are all tied together. I was confused about what was in charge of what.’ Several participants said they did not seek a PTE application because they were unsure how it could benefit them or because they had difficulty prioritizing it while also dealing with the immediate need of avoiding foreclosure. As one participant explained, ‘When they [UCHC] told me about it, I was thinking “I need help with my back taxes, not my current taxes.” I was dealing with so much at the time, I brushed it off.’ Insufficient information affected homeowners throughout the application process. Several participants who completed but had not yet submitted their application said that they did not know where to submit it.

Application complexity

Nearly all participants who received a PTE application completed it (Table 2). Nevertheless, participants faced challenges related to the application’s complexity and paperwork requirements. As one participant described: ‘Everything isn’t always in layman’s terms…. It was frustrating to understand all the things that I needed…all the paperwork and not understanding the technical terms in the application.’ Some considered these requirements exclusionary and unnecessary, as described by one participant:

There are so many opportunities to mess up and get disqualified…. Once you qualify, you’re not going to win the lottery, you know? Once you’re poor and elderly and sick, there are very few chances to make any more money…. If you are already well below poverty level, why do they need to know that you’re getting $100 in food stamps? … It just seems like a barrier.

Most who completed the application did so with the assistance of UCHC. One participant described how her apprehension about the application’s complexity led the person to seek UCHC counseling, stating: ‘I’ve always had problems filling out forms…they need a lot of information and a lot of papers.… It was then I decided to go to UCHC…people there knew what they were doing, they’ve done this before, they help you make copies.’ While participants frequently said that UCHC’s services enabled them to confidently and accurately complete their applications, they also described the process as ‘time consuming’ and ‘a lot of leg work.’ Several participants expressed difficulty in gathering supporting paperwork, which often required them to make multiple trips to various offices. ‘I had to go there [to UCHC] three times to gather the right paperwork. Sit in that room, wait on this, wait on that…didn’t have any transportation, had to bike there and back…it’s really frustrating.’ Of those who received assistance from UCHC, 43.7 percent required two or more trips to the office.¹⁴

Although seeking assistance from UCHC placed considerable time and resource burdens on applicants, the provision of counseling services was often critical to ensure that participants successfully completed their applications. Among those who received assistance with UCHC, 91.7 percent submitted their applications, 89.4 percent of whom were later approved for the exemption. Of the small number of participants who completed their applications on their own, 83.3 percent submitted, of whom only 40 percent received the exemption.

Mobility restrictions

Throughout the application process participants described poor access to transportation, an impediment that was often exacerbated among participants with physical disabilities. The requirement of in-person submission meant that mobility restrictions posed the greatest challenge to participants when submitting their applications. Still, participants who faced mobility restrictions often described these as conditions of daily life rather than barriers to program access. For example, one participant explained, ‘I had to walk there [the tax assessor’s office] from UCHC. It’s not that far. I have nerve damage in my legs and my feet. What am I going to do? I have no choice.’ Another participant expressed frustration:

It’s terrible going down there [the tax assessor’s office]. You hate to go. There’s nowhere to park; you need money to park. You have to get someone to take you; you need to pay them for gas; and there’s always a long line. It’s a mess down there; you shouldn’t have to go through that.

For others, mobility restrictions precluded application submission. One participant, when asked why she had not yet submitted her completed application, responded: ‘I just haven’t been able to do it. I’ve been sick, not mobile. I wasn’t able to walk.’ Another stated, ‘I am disabled, and I haven’t been able to get downtown. I’m trying to get some sort of transportation.’

Lack of administrative accountability

Although the majority of those who applied received the exemption (Table 2), the BOR’s poor communication left applicants uncertain about whether their applications were received, reviewed, or granted. Prior to receiving a decision, some participants who submitted an application received notice from the BOR stating that their application was incomplete or that more information was required for it to be considered. In some instances, this notice led to concern or confusion among participants, particularly when communication was by mail (letters from the BOR requested that the missing information be faxed within five business days). Some participants reported requests for information they could not provide, such as proof of income they had not received or a utility bill for service that had been shut off. Several homeowners stated that they were unsure how to correct their application or unclear whether the documents they had sent were received, or had difficulty contacting the BOR for clarification.

The BOR communicates application decisions by mail. While most participants who were approved for the program stated that they received written notice, many stated that they received no such notice. BOR decision letters are not specific to the PTE program, but rather provide notice that the property’s assessed value has been adjusted.¹⁵ Among those who received written approval, 23.1 percent reported that they did not know that the letter they received was meant to indicate their approval. One participant described her unanswered questions: ‘What does this [approval letter] mean? It doesn’t say in clear letters…. How much do I owe? How long do I have to pay it?’

Despite submitting the complete application, ten participants (14.1 percent of those who submitted) were not granted the exemption (Table 2). Among them, only two reported receiving written denial delivered by mail. Four had no contact with the BOR at any point during the application process. Two of these participants inquired about their application with the tax assessor’s office in 2018 and were told that there was no record of their application being submitted. According to participants, in both instances the tax assessor’s staff admitted no fault and provided no redress. One participant explained: ‘I go down there. The lady tells me she don’t know what happened with my paperwork. Gave me another application to fill out this year.’ Participants expressed disappointment and a sense of incredulity over this lack of accountability, describing the process as ‘ridiculous’ and ‘disheartening.’ The remaining participants who were not granted the exemption could not be reached for a follow-up interview.

Discussion

Detroit’s PTE failed to protect low-income homeowners from the state’s foreclosure laws in the context of pressing need. Among a sample of eligible homeowners informed about the exemption–many of whom were at risk of tax foreclosure–a combination of state-mandated and locally determined implementation procedures imposed barriers that acted cumulatively to restrict program access. Through a series of administrative shortfalls and bureaucratic obstacles, city officials placed the burden of responsibility for foreclosure prevention on individual owner-occupants and the nonprofit agency they depended on. While the PTE provided critical relief to those who successfully navigated these barriers, the process left applicants at best over-burdened and at worst excluded and increasingly vulnerable to housing loss.

To explain the PTE’s ineffectiveness in Detroit, this study relied on three propositions about PTE implementation, access, and use; evidence supported the first and second propositions and indirectly supported the third. While low PTE participation is partly a problem of poor awareness, even if all eligible homeowners were informed of the opportunity to reduce their taxes, access would be limited; less than 60 percent would receive the exemption they are entitled to. The program’s complex and burdensome application process is largely responsible for this gap in access. While this research did not directly examine processes internal to the BOR and the assessor’s office, our results suggest that city officials’ opaque and improper administration of the PTE further restricts program effectiveness.

As homeowners interviewed for this research were already connected to counseling services, obstacles to PTE access are likely more severe in the rest of the eligible population. In 2017 and 2018, philanthropic and neighborhood-based organizations coordinated a city-wide tax foreclosure prevention effort; partners went door-to-door to more than 60 000 tax delinquent properties, informed eligible homeowners about the PTE, and held monthly workshops where homeowners could seek assistance with their applications (Dixon, 2017). Despite this significant outreach, participation rates in 2017 and 2018 were below 17 percent (U.S. Census Bureau, 2017a, 2017b; Donwell, chair, Detroit Board of Review, personal communication, February 2019).

This research preceded a number of legal changes intended to improve PTE access. In 2018, the city defendants settled a class action lawsuit filed on behalf of class of Detroit homeowners eligible for the PTE (American Civil Liberties Union of Michigan, 2016). The settlement requires the Office of the Assessor and the BOR to promote the PTE through annual mailings, revise the application to require less paperwork, and implement training and management procedures to improve customer service and application tracking (MorningSide Community Organization v. Sabree, 2018).

These changes will likely result in more successful applicants, but such reforms do little to address a wider set of institutional constraints that limit the city assessor’s and elected officials’ capacity and incentive to administer the PTE to the large population of eligible homeowners. Although the state requires local governments to offer a PTE, it does not reimburse them for forgone property tax revenues; the law does, however, allow significant local discretion over benefit levels, eligibility requirements, and application documentation. Detroit exited bankruptcy in 2014 and was released from state financial oversight in 2018 (Williams, 2018). While financial conditions and public services have improved, the city government remains under significant pressure to maintain balanced or surplus budgets in order to meet the terms of its fiscal restructuring (Ferretti, 2018a). Focused on strengthening revenues, city leaders may be inclined to keep barriers to PTE access in place out of concern that wider participation will threaten financial recovery (City of Detroit Office of the Chief Financial Officer, 2018).

City officials demonstrated resistance to increasing PTE access when a coalition of community-based organizations urged Detroit’s City Council to codify the terms of the settlement and enact changes to simplify the application process further (Gross, 2018). For instance, the proposed ordinance sought to remove the requirement that the PTE application be signed in the presence of a notary; Detroit’s tax assessor and representatives from the mayor’s office publicly opposed this change, citing concerns over potential fraud (Ramirez, 2018). Prior to the vote, Detroit’s Chief Financial Officer¹⁶ submitted a letter to city council stating concerns about loss of revenues if every eligible household applied for and received the exemption under current law, which he estimated as $20.7 million in city general fund property tax revenue (Hill, 2018; M. Sheffield, President Pro Tempore, Detroit City Council, discussion, November 2018). City Council ultimately passed the ordinance with several changes, including a more flexible notary requirement (Detroit City Code, art. III 18-9).

The Chief Financial Officer’s concern about the fiscal consequences of exempting more households from property taxes through the PTE was misplaced for at least two reasons. For one, his estimate of tax revenue loss assumed an unrealistic counterfactual: if households did not receive the PTE, they would all pay their property taxes. A more realistic assumption would have been that a large fraction of low-income, homeowner households would not pay taxes and many would experience tax foreclosure. Tax foreclosure and subsequent auction sales result in a decline in owner-occupied households (Dewar et al., 2015). The majority of residential structures sold at auction in past years have gone to multi-property investor-buyers and speculators who may have little interest in maintaining property, returning it to reuse, or safely and affordably housing tenants (Akers & Seymour, 2018). Many of the houses that go through tax foreclosure are vacant, vandalized, and tax delinquent within a few years, often requiring demolition with public funds (Coenen, et al., 2011). Research on vacant and mortgage-foreclosed properties has shown that the loss of households and resulting property neglect lead to nearby property value declines that reduce property tax revenues (Harding et al., 2009; Rogers, 2010; Schuetz et al., 2008; Whitaker & Fitzpatrick, 2013); tax foreclosures likely have similar impacts. In the long term, property tax revenues are likely to be greater if the PTE helps preserve homeownership and deter the property destruction associated with vacant houses.

Second, the property tax revenues lost to the general fund if every homeowner in poverty received the PTE is a small share of the total, although all revenues are important to the city’s finances. The amount of property taxes that owner occupants pay is about 2.5 percent of total general fund revenues.¹⁷ Owner occupants eligible for the full PTE make up about 28 percent of all owner-occupied households and another 4 000 owner occupants are likely eligible for the 50 percent reduction in property taxes (see footnote 1). In a scenario where all eligible homeowners received the PTE, forgone property tax payments would be at most between .7 and .8 percent of total general fund revenues for the City of Detroit, or about $7 million in fiscal year 2018.¹⁸

However misguided, the reluctance of city leadership to reform the PTE exposed the tension between revenue collection and foreclosure prevention under local fiscal austerity conditions and raises questions about whether municipal governments are motivated to prioritize programs that aim to keep low-income residents in the city. As city governments have become both victims and perpetrators of urban austerity, city officials confronted by structural fiscal imbalance are likely to oppose a tax policy that weakens the property tax base at least temporarily in order to retain low-income residents who disproportionately rely on public services (Peck, 2012; Donald et al., 2014). City officials may be especially wary of programs that appear to redistribute the cost of municipal services to middle and upper-income residents at a time when the city’s administration promises to increase the city’s population and economic base (Dolan, 2014; Ferretti, 2018b). Hence the case of PTE implementation in Detroit lends broader insight into how the politics of urban austerity are realized in municipalities and how the costs of fiscal retrenchment are borne by low-income groups (Phinney, 2018).

Findings from this study have implications for the design and implementation of tax relief policies that can more equitably and effectively prevent tax foreclosure and dispossession among homeowners in all cities, but especially those that have endured rising poverty rates and prolonged revenue loss. Local governments can preserve homeownership, retain population, and reduce neighborhood disinvestment by embracing tax relief measures for low-income owner-occupants as key components of property tax administration and foreclosure policy. State governments play a critical role in requiring or encouraging local governments to implement tax relief policies that address the needs of their most vulnerable residents (Langley, 2015). However, unfunded state mandates on local governments are unlikely to be embraced or effectively administered in cities where many homeowners need tax relief, but fiscal health is poor. State funding for local tax relief policies is therefore necessary to ensure that tax relief is widely available to low-income homeowners across localities. In the case of the PTE, the state could reimburse cities for the amount of taxes the homeowners did not have to pay. State and local policy makers could make enrollment in tax relief programs automatic or permanent under some circumstances (for instance, owner-occupied homes under an assessed value threshold); they could also introduce strategies to promote awareness, simplify program requirements and renewal procedures, and provide immediate and retroactive relief to improve program effectiveness. In strong-market cities and neighborhoods undergoing gentrification and rising home values, the implementation of tax relief programs for low- and moderate-income homeowners could aid efforts to stem displacement of long-term residents if state law does not already impose caps on the rise in assessed value.

Still, this research is consistent with other studies that have found low participation in relief programs among vulnerable classes of homeowners (Baer, 1998). Even generous, state-funded programs (such as Michigan’s Homestead Tax Credit) and programs that offer permanent relief (such as Michigan’s Principal Residence Exemption) can suffer from low participation, despite having simpler application processes.¹⁹ This raises concern over whether any application-based programs can serve the needs of low-income, elderly, or disabled populations. Addressing this concern will require broader changes to property tax administration systems–and perhaps, US local governments’ reliance on the property tax as a major source of revenue–to provide property tax relief that values the long-term stability of homeowner households over short-term city revenue gains.