Falling Home Prices Have Little Effect on Property Taxes

Many homeowners have been taken by surprise when home values suddenly plummeted as a result of the real estate market implosion. Suddenly they were stuck owing far more than their homes were worth. Desperate to find some kind of a silver lining inside this cloud of disaster, many thought that this precipitous drop in property values would result in a proportionate drop in their property taxes. However, homeowners have found that this is generally not borne out.

In some cases; homeowners have been shocked to discover that, far from decreasing, property tax bills have actually increased. For homeowners who are already struggling to pay underwater mortgages, these property tax hikes have only added insult to injury.

This situation has arisen as a result of the complex manner in which property taxes are calculated. In many areas, property tax increases were capped during the housing boom, largely as a result of taxpayer revolts when elderly long-term residents were being forced to sell paid-off homes because their fixed incomes could not keep up with property tax increases that resulted from on-paper appreciation in value. When property values suddenly plummeted, the laws that were supposed to protect people from taking a tax hit actually prevented them from benefitting from the sudden collapse in property values.

Widespread foreclosures and mortgage defaults have also exacerbated the problem. When a property is in foreclosure, property taxes aren't being paid. As long as there are only a few properties in foreclosure at any given time, they represent a minor problem. But when large portions of entire neighborhoods are standing empty because of foreclosures and the inability of banks to resell them, it represents a major problem for municipalities, which generally depend upon property tax revenues to fund many important services. As a result, local governments resist allowing properties that are still occupied to be reassessed downward to reflect shrinking property values.

Unfortunately, this situation can actually exacerbate the downward spiral. If a local government has to start cutting services as a result of property tax revenue from homes stuck in foreclosure, the community becomes less desirable for home-buyers, meaning that it becomes even more difficult for banks to unload their surplus inventory. And if property taxes being kept artificially high lead to further foreclosures, it can actually cause the property tax base to shrink further.

One example of a local government trapped in this sort of situation is Detroit, Michigan. Once a lively city with a strong tax base, where reliable jobs in the automotive industry and powerful unions meant that working-class people could expect to own their own homes within a few years of beginning their working lives, it has become a hollow shell of itself as more and more auto plants leave the area. Whole neighborhoods are in foreclosure, and many of the houses have stood vacant for so long that they are probably going to have to be torn down because they have deteriorated to the point they aren't worth rehabbing.

As the rate of defaulted loans and foreclosures continue to soar in many locations, numerous counties have discovered that the rate of unpaid properties taxes is also on the rise. The metro Detroit area, in particular, is experiencing a record high rate of unpaid property taxes. Detroit is currently considered to be one of the worst housing markets in the United States based on the decline of housing prices and increase of foreclosures. The lack of jobs and weak economy in the greater Detroit area are considered to be the primary factors contributing to the housing crash in the area.

Even if property owners are paying their monthly mortgage payments on time they could still be at risk for losing their properties through foreclosure if they fail to pay their property taxes for three years in a row. In such situations, the county would then take control of the home and auction it off to pay the balance of taxes owed. Counties in the Detroit area are currently struggling to recoup hundreds of millions of dollars in unpaid property taxes. The issue has had significant repercussions on counties in the greater Detroit area.

Property owners who find they are behind on the property taxes can take some steps to stave off foreclosure. The first step is to begin making payments on their taxes. Many homeowners make the mistake of thinking they are doomed if they cannot pay off all of the taxes owed and thus pay nothing at all. Keep in mind that making any payment, even if you cannot pay all of the taxes, is better than paying nothing at all. If you are not able to pay all of the taxes; at least try to pay off your oldest taxes first. Remember that taxes which remain unpaid for three years consecutively places you at risk for foreclosure. Pay off the oldest taxes first to combat this risk.

You might also check with your county to determine whether you may be eligible for an extension for property taxes which are unpaid. In some situations, the county treasurer may be able to grant you an exemption for your taxes if you are able to demonstrate extreme hardship. It is best to do this as early as possible; however, as there are commonly deadlines for the exemption applications.

In addition, check with your mortgage company or bank to find out whether they offer any type of program or loan that can provide you with the money needed to cover your taxes. It is never in the best interest of the bank to have the county take over the property, so they are often willing to work with the homeowner to avoid having this happen. Keep in mind; however, that when you do this will you will be taking on an increased debt burden.

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