This legislation should be signed by Governor Snyder in the next few days. It's a victory for home buyers wishing to purchase foreclosed homes, often in lower price ranges and on tight budgets. It allows banks to claim and maintain the Principal Residence Exemption (PRE) during the listing period. That means that prospective buyers will be able to get the lower Homesteaded property tax rate. Why is that important?
Since many buyers of foreclosed homes are younger and on tighter budgets, and because their loans usually require property tax and insurance escrows, having the house homesteaded keeps their tax escrow smaller. Many such buyers have been knocked out of qualification due to the extra property tax burden on a non-homesteaded, foreclosed upon house. Local municipalties often switch homes to non-homestead status after foreclosure, triggering the higher proerty tax rate.
The bank will have to apply for this exemption, and at least in the beginning they probably won't be aware of it, so agents like myself that list foreclosed homes will need to explain the process to them and get them to understand that this will help market the properties to owner occupants.
The bill also changes the old May 1st homestead application deadline to June 1st, and also adds another date of November 1st each year so buyers that do purchase non-homesteaded properties won't have to wait a full year to get the homestead benefit.
Some of you are probably thinking, "Why should banks be let off the hook! They should pay the higher rate even if a new owner gets the lower rate", I'm betting. Well, guess what? They're not off the hook. They will still pay the non-homestead rate as a separate line item on the closing statement.
The very best thing would have been for 'instant' homestead exemptions for owner-occupant buyers at closing, but procedurally that wasn't possible, so this really is the next best thing. Municipalities will get the taxes owed and new homeowners will not be penalized for long periods of time.
Thanks to the Michigan Association of Realtors for their efforts in getting this legislation passed.
UPDATE: Gov. Snyder signed this bill into law on Tuesday, May 1, 2012.