Washtenaw County expecting $30 million in unpaid property taxes as hundreds face foreclosure
Being in the tax collection business has grown increasingly difficult in today's economic environment, says Washtenaw County Treasurer Catherine McClary.
McClary told the Washtenaw County Board of Commissioners Wednesday night her office estimates the total amount of unpaid 2010 real property taxes in the county will be about $30 million on March 1 — exclusive of interest, fees and penalties.
Nationwide, 2.2 million households are in foreclosure, with another 2.1 million at least 90 days past due, according to LPS Applied Analytics.
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As a result, commissioners authorized issuing up to $50 million in general obligation bonds to borrow against any actual delinquent property taxes come March 1.
"The amount takes my breath away as well," McClary told commissioners.
The money borrowed will go into the county's delinquent tax revolving fund and will be used to make sure local units of government — including cities, townships and schools throughout the county — can continue to operate as they've budgeted.
The county treasurer then has a couple of years to pay off the debt through collection of delinquent taxes, with penalty fees and interest added on. If the county can't collect taxes on a property for whatever reason, the cash advance is charged back to the local unit.
McClary said the county has used a similar system every year going back to the 1970s, but the level of delinquent taxes now being seen is unprecedented.
Since 1997, the county has foreclosed on 539 properties for unpaid taxes — and 391 of those foreclosures occurred last year. This year is looking worse, with 900 properties facing foreclosure, McClary said.
"I don't know exactly how many of them are homes, and some of them are vacant homes," McClary said. "But I can tell you that 550 of them are just vacant undeveloped land, so the big change from last year to this year is the undeveloped land."
By that, McClary means swaths of land held by real estate speculators, developers and banks — properties once purchased with hopes of one day developing them — are being abandoned due to miserable economic conditions and lack of available financing and market demand.
"We have an oversupply of housing, and there's not enough credit in the banking institutions that will provide the loans to build more housing when we're overstocked," she said.
McClary said the good news is the amount of delinquent taxes — at least on residential properties — is finally starting to level off. That's a good indicator that the economy is heading toward a recovery, she said.
However, delinquent taxes still are on the rise for commercial properties, as well as for undeveloped land, she said.
The county is seeing about 11,000 delinquent parcels a year, McClary said. After a year, the county is able to collect the taxes owed on all but about 3,000 of them, she said.
The 3,000 that still haven't paid taxes are then targeted for foreclosure, and the county begins a process of working closely with property owners to avoid foreclosure.
"Our focus has always been on tax collection," McClary said. "If we can collect the taxes, we prevent homelessness, we prevent upheaval in a family's life, we prevent neighborhood blight, and we also bring in money to the county. But it is becoming increasingly difficult."
McClary gave a year-end report to the board Wednesday night in which she said the treasurer's office returned $5.5 million to the county from delinquent tax revenue in 2010, including fees and interest — more than double what was budgeted.
McClary, who manages the county's more than $130 million in investments, also reported the county saw a nearly 0.6 percent return on investments for 2010 — or about $737,602. Overall, she said her office brought in $10.6 million last year, including from delinquent tax and investment revenues, the county's accommodation tax, dog licenses and tax searches.
In other action Wednesday, commissioners approved initiating a review of county expenses by an outside vendor. The county will negotiate a contract with Expense Reduction Analysts Inc. to act as the vendor for a cost recovery and cost containment program, which will look to see whether the county is overpaying for services and if cheaper options are available.
The review comes as the county seeks to address a $20.9 million structural deficit over the next two years.
County Administrator Verna McDaniel is expected to present a revised State of the County report to the board in May, with final budget recommendations following in September. The board is expected to adopt a new two-year budget in November.
In other finance matters, commissioners approved a resolution that updates the county's policy on issuance and use of county credit cards. Officials said increased use of credit cards by select county officers and employees created the need for a review and update of the policy to ensure effective internal controls and procedures are in place.
Commissioners also took action Wednesday to reaffirm a memorandum of understanding between the county and the Washtenaw County Trial Court, specifying the rights and duties of each party with respect to budgetary and operational issues.
Under Michigan law, the 22nd Judicial Circuit Court, Washtenaw County Probate Court and 14A District Court — collectively known as the Washtenaw County Trial Court — is a separate branch of government. The county is the funding unit for the court.
The approved resolution provides the contractual framework for the court to be included in the county's biennial budget process, and to cooperate with the county on budget control once the board of commissioners has approved the court's lump sum budget.
Ryan J. Stanton covers government and politics for AnnArbor.com. Reach him at ryanstanton@annarbor.com or 734-623-2529.
Comments
Michisbest
Tue, Mar 1, 2011 : 8:54 p.m.
Blame everyone else but those mortgages were signed by people that couldn't do simple math and were constantly over extending them selves. Many are second mortgages I made less that 25 k a year when I bought my house and paid for it in 15 years in the 90's and early 2000's the bottom line is pay your bills before buying boats cars motorcycles every new electronic for your kid etc by using your house for an ATM. This same thing happened in the late 70's when Jimmy Carter was presidient but it didn't hit the homeowners as much it lead to massive inflation which is the next thing coming.
Chase Ingersoll
Thu, Feb 17, 2011 : 10:55 p.m.
McClary is a really nice person, but her economic optimism is not realistic and the facts in her second sentence contradict her optimism: ......McClary said the good news is the amount of delinquent taxes — at least on residential properties — is finally starting to level off. That's a good indicator that the economy is heading toward a recovery, she said. However, delinquent taxes still are on the rise for commercial properties, as well as for undeveloped land, she said...... "....starting to level off..." is analogous to a clinically obese person claiming that their weight gain has leveled off. Great! They are still clinically obese. In 2009 an Ann Arbor home with a taxable value of $80,000.00 paid $3,600.00 in real estate taxes. Here is the State of Michigan document regarding property tax exemptions due to poverty/inability to pay: <a href="http://www.michigan.gov/documents/treasury/Bulletin7of2010_322157_7.pdf" rel='nofollow'>http://www.michigan.gov/documents/treasury/Bulletin7of2010_322157_7.pdf</a> Also - board minutes from Township of Pittsfield regarding the standards for exemption from Real Estate Taxes: <a href="http://www.pittsfieldtwp.org/bot-minutes-2-10-2010.pdf" rel='nofollow'>http://www.pittsfieldtwp.org/bot-minutes-2-10-2010.pdf</a> I have never seen it mentioned here, but real estate taxes whether paid to the assessor, or paid to a landlord (who is essentially paying a 3% sales tax each year on the value of his property) are possibly the most regressive form of taxes out there. What Assessors and Treasurers always seem to forget in these discussion is that the current tax rates are based upon an inflationary bubble in the housing market and that the housing market bubble translated to a wage and income bubble, which has burst in the private wage and profit sector, but which has not burst in the public sector due to the intractibility of collectively bargained and constitutionally protected wage rates enjoyed by the public sector. To the assessor and treasurer, I would argue that the metric they need to look at is the vacancy rate of residential properties, rather than lateness of tax payments.
Missy
Thu, Feb 17, 2011 : 4:33 p.m.
To KJMClark, you asked, "Is the bank responsible for the back taxes when they foreclose? Is the new buyer responsible for paying those back taxes? At what point does the county write off the taxes as uncollectable?" I wrote a long comment and answered this in detail, but the short answer is the Bank pays the back taxes to the municipality when it transfers ownership to the new buyer. The new buyers do NOT pay.
Roadman
Thu, Feb 17, 2011 : 11:03 p.m.
They do pay indirectly in that it affects the price the bank asks for when marketing the reaty after acquiring legal title. Very often there are water liens and homeowner's assn. assessments that have to be coverred as well.
Chase Ingersoll
Thu, Feb 17, 2011 : 10:58 p.m.
Note that the banks have insurance courtesy of the FDIC which the US Taxpayer is bailing out, to cover any of their "losses" due to foreclosure and in addition to the insurance, they are receiving a tax write off for the "paper" loss of the value of the mortgage that defaulted. That is one reason for record profits in the financial industry even as the unemployment and vacancy rates have remained high. I would ask Stephen Lenzini to wade in on this subject.
David Briegel
Thu, Feb 17, 2011 : 4:25 p.m.
eyeheart, Bush Tax Cuts, Not Bush, We couldn't have handled two more years of him and Paulson looting the treasury!
Chase Ingersoll
Thu, Feb 17, 2011 : 11:01 p.m.
Briegel: FYI - THE TREASURY IS STILL BEING LOOTED and Bush has been gone for how many years? Bush and Obama and Clinton have all had Goldman Sachs Treasury Secretaries, advisors and campaign money. Ron Paul is one of the few elected officials that is clean on this issue.
leaguebus
Thu, Feb 17, 2011 : 3:55 p.m.
David, you forgot the Engler tax cuts. Look how well the state is doing 20 years after those cuts! Don't forget to blame all the problems we are having now on those tax and spend Democrats.
Missy
Thu, Feb 17, 2011 : 1:53 p.m.
Michigan has a 6 month redemption period, where a homeowner can pay all fees, catch up on payments and "redeem" the property. Typically a homeowner has been not making payments prior to the sheriffs sale for 4 months or beyond. The clock to "redeem" the property starts ticking on the day of the sheriffs sale, to the date. During that time, every municipality usually is not being payed the property taxes owed on that home. However, many home buyers escrowed for taxes, and there is "usually" tax money in the escrow account which the bank withdraws from to pay the property taxes. Before a home can transfer ownership to a new buyer all the taxes must be paid, or it is a tax lien on the home passed to the new buyer. This doesn't happen. The back taxes are put on the HUD1 and payed by the bank that bought the home in a sheriffs sale. So in essence, in many cases the City will not have funds collected from the previous homeowner but they will get them. They may not be on time but the City will get paid all that is owed. In Ann Arbor homes sold by the bank in a foreclosure sell very fast and for over the asking price. If you have a home on over 2.77 Ac of land the Redemption period extends for one year.
mbill
Thu, Feb 17, 2011 : 1:52 p.m.
The SEV values for residential property taxes are supposed to be at half a homes value but ours in Sharon Township are almost double what they should be. Trips to the tax board do nothing, they refuse to acknowledge all the foreclosure sales and short sales. These sales are the vast majority of the property sales in our area as most people can't afford to sell their house for what it would bring and then payoff the loan that's more than the sale price. I filed with the Michigan Tax Tribunal over two years ago now. Their statics page show the back log of cases are 4 times what they were 5 years ago. We'll end up having to pay twice the property taxes for several more years until maybe the tribunal can get to us. While our local tax board refuses to accept real values to shore up their tax collection.
David Briegel
Thu, Feb 17, 2011 : 1:44 p.m.
Ten years of those wonderful Bush tax cuts and the economy isn't fixed yet? What gives? We have the lowest tax rates of modern times and record profits. Where is all that trickle down? How is it that our corporations and banksters are doing so well and the rest of society isn't? Oh, another myth!
Do not taunt Happy Fun Ball
Mon, Apr 25, 2011 : 1:06 p.m.
Part of the Taxing ourselves to prosperity crowd . . . .all rich people are evil etc etc etc.
EyeHeartA2
Thu, Feb 17, 2011 : 7:37 p.m.
Right, I had almost forgot the "blame the guy before me" card - which seems to be among the quite popular on both sides of the aisle. I'm voting for the next guy that accepts responsibility for the job he is asking for.
Epengar
Thu, Feb 17, 2011 : 5:31 p.m.
@EyeHeart, the Obama administration has continued Shrub's tax breaks for the wealthy. The top 5% in this country are getting richer at an unprecendented rate, while the middle class stagnates.
EyeHeartA2
Thu, Feb 17, 2011 : 3:47 p.m.
Which 10 years was George W in office for? I seem to only be able to locate 8, the last of which was over 2 years ago. Unless of course you are adding in HW's tenure, which, I believe was prior to 8 (or should I round it up to 10) years of Bubba.
zip the cat
Thu, Feb 17, 2011 : 1:19 p.m.
There was a very informitive article in the detroit news the other day about foreclosures. People think that just because they lose there home and walk away or give it back to the bank,that they are out from under it. Guess again. what you owe when you lost your home will dog you with interest up to 10% for the rest of your life
Chase Ingersoll
Thu, Feb 17, 2011 : 11:02 p.m.
Please provide the link to the article you reference.
WhyCan'tWeBeFriends
Thu, Feb 17, 2011 : 2:29 p.m.
The lender has the right to pursue foreclosed homeowners for the difference between what was owed and what the property sold for as a foreclosed property, not for the entire amount that was owed at the time of foreclosure. I am sure there are plenty of fees and penalties thrown in too, but the previous homeowner may also pursue a 'settled in full' payment of less than that deficiency amount. Get it all in writing before paying anything, if the lender decides to collect the deficiency in the allotted years after the foreclosure.
snoopdog
Thu, Feb 17, 2011 : 1:48 p.m.
"what you owe when you lost your home will dog you with interest up to 10% for the rest of your life" Not true Zip, it is 7 years and if you pay cash moving forward you have no problem. Also, if you keep your current credit cards in good standing you don't always have to use cash. I do agree it is not an easy way to go and it is all too easy to walk away from ones mortgage.
Steve Pepple
Thu, Feb 17, 2011 : 12:53 p.m.
Several comments that ventured into the realm of personal attacks have been removed for further review.
Ellen
Thu, Feb 17, 2011 : 2:16 p.m.
On this site? That's shocking!
KJMClark
Thu, Feb 17, 2011 : 12:25 p.m.
Who ends up owing/paying the taxes on a foreclosure? I know I've read about cases where the bank forecloses, the former residents get kicked out, but then the bank gives up and gives the house back to the former residents. They're surprised to find that they not only own the house again, but also owe years of back taxes on it. Is the bank responsible for the back taxes when they foreclose? Is the new buyer responsible for paying those back taxes? At what point does the county write off the taxes as uncollectable? I don't understand why the county isn't looking to the experience of the Great Depression to see what they should be doing. The 70s wasn't nearly severe enough to use as a model. Those advances to the local units should probably be only 50-80% of original value, or those units should expect to have to pay a good part of that back. OTOH, that's a nice way to kick the can down the road, hoping for better times ahead. But this time the road is downhill for a long while yet, and all of those cans are piling up.
YpsiLivin
Thu, Feb 17, 2011 : 1:38 p.m.
In a bank foreclosure, the owner of record is always responsible for paying the taxes, so the bank is responsible for paying the taxes after it forecloses on a property. I have never heard of a bank returning a property to a foreclosed homeowner, except in cases where a court has found the foreclosure to be unlawful. I have heard of banks refusing to foreclose on properties they don't want to take onto their books, but that's something very different. I have also heard of banks refusing to pay property taxes but that likely happens only on properties where a bank is servicing a loan but otherwise has no ownership stake in the property. Real estate is money, and a bank has to have a really good reason to walk away from money. (Not being able to find a buyer isn't a good enough reason to abandon money.) In a tax foreclosure - one that has occurred merely because the owner failed to pay his/her property taxes - the county passes the payment of back taxes to the new owner as a contingency of the sale. The back taxes are disclosed at the time of sale, and a new deed is not recorded until the taxes are paid.
stunhsif
Thu, Feb 17, 2011 : 12:07 p.m.
"Washtenaw County expecting $30 million in unpaid property taxes as hundreds face foreclosure" But despite that headline and the state of the economy here in Michigan, darn near every city,township and school district is looking for new ways to pick the pockets of the "tapped" out taxpayer. Thank goodness the Rickster is at least bringing some fiscal sanity to this state. The day of reckoning has finally arrived , government employees are finally going to be forced into helping balance the budget. Shared sacrifice by all sectors, public and private. Good Day No Luck Needed
Alan Goldsmith
Thu, Feb 17, 2011 : 11:13 a.m.
Look on the bright side. Everyone getting tossed from their homes will get to use the shiny new multi-million dollar downtown Ann Arbor Court-Police Building for their cases. AND will get to view the new close-to-a-million dollar water 'fountain' too.
Roadman
Thu, Feb 17, 2011 : 11:01 p.m.
That is correct, Alan. The Ann Arbor District Court has jurisdiction over evicting occupants of foreclosed upon homes where the redemption period has expired. The Dreiseitl masterpiece is one object they can behold on their way to the courtroom and also when they leave with their eviction judgments in hand.