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Real Estate Law: Property Tax Appeals in Michigan

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Over the last four years, the State of Michigan, in general, and the communities of Mid Michigan, in particular, have been hard hit by the ongoing national recession.  In addition to high unemployment and a shrinking economy, we experienced unprecedented reductions in real estate property values.

As a result of the recession, municipalities and assessors are placed in a unique and unfamiliar position.  Rather than raising assessments and property taxes to correspond with historical increases in property values, assessors are being forced to decrease assessments.  These changes in the real estate market have reduced municipal budgets and require a change in the way municipal assessors conduct business.

Many property owners are also experiencing a new and previously unthinkable phenomenon; property taxes are increasing while property values continue to plummet.  Until 1994, property values were determined by calculating 50% of the property’s fair market value.  As such, property taxes could fluctuate widely from year-to-year in proportion with increases or decreases in the underlying property value.

Proposal A created a new basis from which property taxes would be calculated; the “taxable value.”  Although a property’s fair market value, also known as true cash value, may increase or decrease without limitation, its taxable value can only increase by five percent or the rate of inflation, whichever is lower.  Thus, Proposal A protects property owners from significant increases in property taxes from one year to the next.  This new mechanism allowed property values to increases significantly throughout the 1990s and early 2000s without a corresponding increase in property taxes.  No matter how much the value of a property increases each year, its taxable value can only increase by a maximum of five percent.   Property owners who have not made improvements or transferred property have reaped the benefits of the property tax cap commonly referred to as Proposal A.

Unfortunately, Proposal A also allows underlying property values to fall without a corresponding decrease in property taxes.  Under Proposal A, property taxes have remained artificially low, or capped, while fair market values have, until 2007, increased significantly.  This method of capping property taxes has made it possible for property taxes to actually increase while true cash values fall.  Though this result is sometimes correct, it is not always warranted.

Even longtime property owners who have enjoyed the benefits of Proposal A’s cap may successfully challenge their tax liability.  Owners of real estate in Michigan have the right to appeal their assessments whether they own their property outright, are paying off a mortgage, or are purchasing under a land contract.  In order to appeal an assessment to the Michigan Tax Tribunal, residential property owners must attend the municipality’s local board of review in March.  An appearance at the local board of review is a prerequisite for taking appeal for certain classes of property to the Michigan Tax Tribunal.

It may be advisable to consult with a real estate attorney prior to appearing at the local board of review.  A knowledgeable attorney can help you understand your municipality’s rules and procedures for the board of review, as they vary widely.  An experienced attorney can also help you understand your Notice of Assessment, and the information it contains.  If the proper procedures are not followed, you may be prohibited from appealing your property tax liability to the Michigan Tax Tribunal.

There has never been a better opportunity for homeowners throughout Michigan to review and challenge their assessments due to these new economic realities.  Please contact Shinners & Cook today if you would like assistance with your property tax appeal.

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