BANK CLAIMING PRINCIPAL RES. EXEMPT. S.B. 532:
COMMITTEE SUMMARY
Senate Bill 532 (as introduced 9-19-13)
Sponsor: Senator Jack Brandenburg
CONTENT
The bill would amend provisions of the General Property Tax Act under which a bank or other lending institution may retain the principal residence exemption on foreclosed property, to delete requirements that the bank or lending institution pay what it otherwise would have paid in school operating taxes, as well as an administration fee.
Under the Act, a principal residence is exempt from the taxes levied by a local school district for school operating purposes under Section 1211 of the Revised School Code (which typically are 18 mills). To claim the principal residence exemption (PRE), the homeowner must file an affidavit with the local tax collecting unit. The owner must rescind the claim of exemption when the exempt property is no longer used as a principal residence, although he or she may retain it for up to three years under certain circumstances.
The Act also allows a bank, land contract vendor, credit union, or other lending institution (referred to below as a "bank") to retain the PRE on property that the bank owns as a result of a foreclosure or forfeiture of a recorded instrument, if the property had been exempt immediately before the foreclosure. The property must be for sale, must not be occupied by or leased to anyone other than the person who claimed the PRE immediately before the foreclosure or forfeiture, and must not be used for any business or commercial purpose.
If a bank retains the exemption, it must pay an amount equal to the additional amount it would have had to pay under Section 1211 of the Revised School Code if a PRE had not been retained. The payment must be collected by the local tax collecting unit at the same time and in the same manner as taxes are collected under the Act, and must be distributed to the Department of Treasury for deposit into the State School Aid Fund.
In addition, the bank must pay an administration fee equal to the property tax administration fee imposed under Section 44 of the Act, which the local tax collecting unit retains. (Section 44 allows a local tax collecting unit to add a fee of up to 1% of the total tax bill for taxes paid before February 15 of the following year, and allows additional amounts for delinquent taxes.)
The bill would delete the requirements that a bank, land contract vendor, credit union, or other lending institution retaining the PRE pay the amount it would have had to pay under Section 1211 of the Revised School Code and pay an administration fee.
MCL 211.7cc Legislative Analyst: Suzanne Lowe
FISCAL IMPACT
The bill would increase School Aid Fund expenditures by an unknown amount and/or reduce revenue to local school districts by an unknown amount. The value of property that is currently under foreclosure and that could be affected by the bill is not known, although in the 12 months ending in August 2013, foreclosures had been completed on 59,535 homes in Michigan. Assuming an average taxable value of $40,000 for these homes, the bill would reduce local revenue generated by the 18 mills of property tax by $42.9 million if a bank or other lending institution retained the principal residence exemption on all of these homes. School Aid Fund expenditures would need to be increased to maintain current per-pupil funding guarantees. To the extent that per-pupil funding allowances were affected by the changes, revenue to local school districts would be reduced.
Local unit revenue also would be reduced by an unknown amount, due to the loss of administration fee revenue on the affected amounts. Using the example above, the reduction would total a maximum of $0.4 million.
This analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent.