Class action lawsuit: Detroiters prevented from appealing inflated tax assessments

Detroit — A coalition of community activists announced Thursday it filed a class action lawsuit in U.S. District Court against Detroit, Wayne County and state officials arguing property owners were "illegally" prevented from appealing inflated tax assessments.

Detroit officials, in response, called the lawsuit "frivolous," saying residents had ample time to appeal their home values.

Activists, experts and city officials gathered at City Hall on Thursday afternoon to announce the lawsuit and push for reforms that would compensate tens of thousands of overtaxed Detroit homeowners. In attendance were U.S. Rep. Rashida Tlaib, D-Detroit, and Detroit City Council Pro Tem Mary Sheffield, along with members of the Coalition for Property Tax Justice.

Chicago law firm Goldman Ismail Tomaselli Brennan & Baum LLP filed the lawsuit against officials with the State Tax Commission, Wayne County and Detroit on Thursday.

"The city of Detroit has overassessed low-valued residential homes for years," a release from the Coalition for Property Tax Justice said. "Additionally, the city has at times failed to mail tax notices to owners in a timely fashion.

"The lawsuit specifically points to data showing that in 2017, all homeowners in Detroit were mailed their tax assessments too late to have a reasonable chance to file a tax appeal. This failure to timely mail tax notices violated homeowners' constitutional rights."

The class action is representing owner-occupants who got “deficient” property tax notices in 2017. They want residents to be allowed to appeal their 2017 assessments and recover damages. And they want Wayne County to halt foreclosures of any properties that did not get proper notice to appeal.

In 2017, the city completed a property-by-property reappraisal — its first in nearly 60 years — ordered by the state after a 2013 Detroit News investigation highlighted the overassessment problem.

City officials pushed back Thursday afternoon, saying the group had its facts wrong. The mailings went out about a week late on Jan. 24, 2017, said spokesman John Roach. On Friday, the city admitted that date was incorrect but didn't provide the date it believes notices were mailed.

Officials said they extended the appeal window by two weeks, so homeowners had the same amount of time to file, which was publicized in various media, he said.

The lawsuit alleges most notices went out "no earlier" than Feb. 14 that year.

"This is a frivolous lawsuit with claims that can be proven false with a simple Google search," City Assessor Alvin Horhn said in a press release. "... The city extended the appeals period by two weeks to last the entire month of February. Numerous media outlets reported this fact based on a press release issued by the city."

State and Wayne County officials declined to comment.

The lawsuit also alleges "unjust enrichment" by Wayne County, which has oversight of Detroit's property assessments. The lawsuit argues the county was "complicit in systemic, illegal overassessment that directly led to unjust delinquency fines and property tax foreclosures, which could have been prevented had homeowners not been denied their tax appeal rights."

Detroit and the county have been challenged in court before over the city's inflated assessments. The ACLU of Michigan and the NAACP Legal Defense and Education Fund sued the Wayne County Treasurer in 2016 to stop the tax auction, highlighting the city's "unlawfully" inflated city tax assessments. Those claims were thrown out when a Wayne County Circuit judge rules the Michigan Tax Tribunal had oversight, not the court.

Tlaib said her office is researching ways to address overassessment in Detroit.

“Behind those numbers, behind those processes, were so many failures that hurt so many families," she said.

Homeowner Vanessa Phillips, 55, never knew she could appeal the value Detroit put on her home that she said she's owned since 1999. The News estimates she was overtaxed by nearly $2,700 between 2010 and 2016.

"I thought it was whatever they said, like a DTE bill," Phillips said.

She said the city should reimburse homeowners and can't "sweep it under the rug."

"I was shocked," Phillips said. "I can't believe you did us like this."

The coalition also released a series of demands beyond the lawsuit:

Across the board assessment cuts for properties valued under $30,000

Asking the Michigan Attorney General and City’s Auditor General to conduct an investigation

Turn Mayor Mike Duggan’s proposed $250 million blight bond into a compensation bond for overtaxed residents

State of Michigan and Wayne County should create a compensation fund for overtaxed owners

Abolish the first step of appealing assessments in Detroit, called an assessor’s review, to make it easier to appeal

The Detroit News published an investigation in January that found City Hall overtaxed homeowners by at least $600 million between 2010 and 2016 after officials failed to accurately bring down property values in the years following the recession.

Duggan has acknowledged past overassessment but said he cleaned up the practice and lowered values after he took office in 2014. The mayor said he can't correct past mistakes because current law doesn't allow it and the city can't afford it.

In a recent memo to the Detroit City Council, Duggan's chief financial officer, Dave Massaron, argued the appeals window to challenge assessments is over and that any effort to repay people would be "so enormous" it would require higher property taxes, costing the city school district and libraries, along with the city.

"A huge property tax increase would be needed to fund the repayment of past property taxes," the memo reads. "The consequence of this burden would certainly trigger an entirely new round of foreclosures as homeowners would be unable to afford the judgment levy assessment."

But the memo does allude to possible help for those who were overtaxed: "We will provide a forthcoming second memo about opportunities to help homeowners who may have been impacted by overassessments."

That second memo hasn't been released to the public as of Thursday afternoon.

A report shared last month by Sheffield and community activists proposed a variety of ideas Detroit could compensate homeowners who lost their properties in "illegal" tax foreclosures due to overassessment, from cash payments to free city-owned homes.

“We understand your frustration and your concerns,” Sheffield told the crowd Thursday. “We are committed to giving you a voice in how you will be compensated.

“We are demanding swift action for affected homeowners throughout the city of Detroit.”

Bernadette Atuahene, a professor at the Chicago-Kent College of Law, concluded the city overassessed 55% to 85% of its properties between 2009 and 2015. She and other researchers said Thursday that Detroit is still overassessing the majority of low-valued homes, although city officials say they are working to make sure that is not happening.

"The burden of these unconstitutional property tax assessments is being born by the most vulnerable of us," Atuahene said.

The News analysis is the first to estimate how much Detroit homeowners were overbilled. State law mandates that assessments reflect the home's market value.

Taxpayers can appeal their assessments, but many are not aware they have the option.

Massaron said he believes The News' analysis is inflated in part because conditions vary by neighborhood, and some areas might have seen actual losses in value over the time period analyzed. Properties in those areas could appear to have been overtaxed more than they were in The News analysis, he argues. The city has not done its own study and doesn't plan to.

Duggan has tried to lower tax foreclosures through lobbying the state Legislature to create low-interest payment plans and new legislation called "Pay as You Stay" that would significantly cut the tax bills of low-income homeowners. The legislation unanimously passed the Senate Thursday, and Gov. Gretchen Whitmer is expected to sign it soon.

The News' investigation last month found that the vast majority of Detroit homes who currently owe debt to the Wayne County treasurer were overtaxed.

Of the more than 63,000 Detroit homes with delinquent debt as of last fall, more than 90% were overtaxed — by an average of at least $3,700 — between 2010 and 2016, according to calculations by The News. The debt owed on about 40,000 of those homes is less than the properties were overtaxed over those seven years.

cmacdonald@detroitnews.com