Proposal Aids Housing Slump
LANSING — A proposal currently before the State House aims to give the state’s struggling housing market a short-term boost while assisting Michigan residents struggling to meet mortgage and tax bills.
The multi-bill package was proposed by House Democrats on Monday, and will likely face stiff opposition on some issues.
The first prong of the bill — and the least controversial — is an 18-month moratorium on the “pop-up” tax that occurs when a homestead is sold. Under current law, the assessment of a home cannot increase by more than 5 percent or the rate of inflation, whichever is less in a given year. When a property is sold, the taxable value returns to 50 percent of market value, typically creating a pop-up in taxes from what the former owner paid.
Democrats estimate the moratorium, to run from March 1, 2007 to Sept. 1, 2008, could save a buyer $1,513 in taxes on a $100,000 home and $3,405 on a $225,000 home, based on average statewide tax rates.
Bill Martin, CEO for the Michigan Association of Realtors, stated that the key to the proposal was to act quickly. Otherwise, the legislation could become a disruptive force, influencing buyers to hold off purchases pending the outcome of the bill.
Included in that legislation (HB 4440) is a proposal to create a state and private partnership to allow workers who have lost their jobs to apply for a second mortgage that would go toward paying their first mortgage and tax bills for a period of six months. Banks would not be allowed to foreclose on a property if the person becomes delinquent on this second mortgage. If a default does occur, the state would buy the debt from the bank and assume the risk of foreclosure.
Enjoined to that legislation is House Bill 4441, a corresponding tax increase to offset the homestead moratorium. It raises the real estate transfer tax from $3.75 to $4.25 for every $500 of property value for the 16 month period beginning May 1, 2007. If a home costs $225,000, the buyer would pay $1,912 instead of $1,688. That revenue, estimated at $42 million, is earmarked to municipalities for public safety expenditures.
Separate from the other bills, but included in the overall proposal, House Bill 4442 changes the way the Headlee rollback on millages is determined by including the pop-up taxable value in the equation. This rollback on property taxes is required when property value rises above the rate of inflation. The revenue is also earmarked for municipal public safety.
The House Republican Caucus was skeptical of the tax increases proposed in the latter two bills. The Michigan Suburbs Alliance spoke out against the package as a whole, stating that the measure further undermined municipalities’ ability to provide services.