Taxed Out: Illegal Property Tax Assessments and the Epidemic of Tax Foreclosures in Detroit

Abstract

Detroit is experiencing historic levels of property tax foreclosure. More than 100,000 properties, or one-in-four throughout the city, have been foreclosed upon for nonpayment of property taxes since 2011. Simultaneously, there is strong evidence that the City is over assessing homeowners in violation of the Michigan Constitution, calling into question the record number of property tax foreclosures. This Article is the first attempt to measure the impact of unconstitutional tax assessments on property tax foreclosures. Controlling for purchase price, location, and time-of-sale, we show that residential properties with higher assessment ratios sold in Detroit since 2009 were more likely to experience a subsequent tax foreclosure We estimate that 10 percent of all these tax foreclosures were caused by illegally inflated tax assessments. Moreover, since lower priced homes were over assessed at a greater frequency and magnitude than higher priced homes, we estimate that 25 percent of tax foreclosures among homes in the bottom price quintile (less than $9,000 in sale price) were due to unconstitutional property tax assessments. Consequently, property tax malfeasance has unjustly displaced thousands of Detroit homeowners, most of whom are African-American. While the numbers in Detroit are extreme, there is reason to be concerned that similar practices are widespread.

Keywords: property, Detroit, property tax, housing