Detroit poverty tax exemption change hits snag over notaries

The Detroit City Council is scheduled to vote Tuesday on an ordinance that would codify reforms making it easier for struggling residents to obtain a poverty tax exemption, and therefore avoid home foreclosure. 

The law, which is one of several ordinances introduced by Council President Pro Tem Mary Sheffield as part of her "People's Bills," is structured around the city's Homeowners Property Tax Assistance Program. 

While state law allows poor homeowners to get poverty tax exemptions so long as they certify their financial status every year, there is wiggle room for how each city and their Board of Review implements the law. 

In July, the American Civil Liberties Union (ACLU) and the City of Detroit reached a settlement after the ACLU sued, alleging that Detroit's system for doling out poverty tax exemptions was not widely advertised and difficult to apply for. The settlement came with an agreement that Detroit would "create a streamlined, user-friendly poverty exemption application process" and "mail a notice to homeowners each year about the existence of the poverty exemption and other programs for low-income homeowners," according to the ACLU. 

Sheffield's ordinance, which was drafted by the Coalition to End Unconstitutional Tax Foreclosures after the settlement, would codify these pieces of the agreement. It also includes additional reforms, such as a guarantee that the city will offer 100-percent and 50-percent tax exemptions (this is currently offered but is not mandated by law, and could change with a new Board of Review director), and an option for applicants to forgo notarization. 

It is this latter provision that has caused the most pushback around the ordinance and why, according to Sheffield, the passage of the plan is not a guarantee. 

While Sheffield and members of the coalition argue that the notary process is a huge burden for those the tax exemption aims to serve, Mayor Mike Duggan's administration — the main opposition force against the ordinance — argues that without notaries, there will be a rise in fraudulent applications. 

"We're in full support of the ordinance, we think it makes a lot of sense, but this is our fourth largest revenue stream and the notary was put in place because we were dealing with fraud," said Alexis Wiley, chief of staff for Duggan. "Why would we take it away completely without another fraud protection measure in place?"

While she cited a 2007 Detroit News article that found rampant abuse within the poverty tax exemption program as the catalyst for the notary program, in fact the notary was already in place at the time.

Under the ACLU settlement, the notary requirement was kept in place, however, a "hardship exemption" was included where certain individuals could bypass the notary process if they were of advanced age, provide caretaker services for a dependent or have limited physical mobility. 

Wiley said the administration would be in favor of the ordinance if it was framed like the settlement and didn't completely nix the notary. 

Sheffield, however, contends that research shows notaries do not, in fact, stop fraud — they serve to verify a person's identity but not to ensure that the documents one is submitting are authentic or accurate.

Notaries act as an obstacle, she said.

"When you have that on the application, in general, it can prevent people from applying in the first place, we want to remove that barrier and invest in technology that prevents fraud," said Sheffield.

"What prevents tax fraud, in fact, is our Board of Review having the technology that they need in place to assist in fraud prevention. We're arguing that the notary is a burden for our most vulnerable population and it does not, in fact, prevent fraud," Sheffield said. She said that before the vote Tuesday there will be testimony from individuals who qualified for a tax exemption but didn't apply because they didn't even know what a notary was.  

"All we're saying is we want to remove this barrier that has been well documented from several grassroots organizations — United Community Housing Coalition, the ACLU, Quicken Loans Community Fund — that actually provide notaries that this is a barrier, and it's not needed," said Sheffield. "We want to do one year, see how it works; if there is an increase in fraud we'll revisit in a year." 

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Wiley questioned the immediacy of the ordinance. 

"We're just beginning to work through the settlement; why not give us time to implement it and see what happens?" she asked, adding that the city recently received a grant to allow the Board of Review to do more background checks, but it will take two years to implement. 

"What we're asking (in the meantime) is to maintain the notary requirement but also have a hardship exemption for those who are truly in need," she said. 

Currently in Detroit, to qualify for a 100-percent tax exemption, individuals must make $16,660 a year or less. Exemptions of 50 percent can be rewarded to individuals making $19,160 a year or less.

According to Alexa Eisenberg, a doctoral student at the University of Michigan and member of the coalition that helped draft the ordinance, in 2017 an estimated 35,000 owner-occupied households met eligibility guidelines for a full exemption, while an additional 4,220 qualified for a partial exemption. Just over 5,500 individuals applied for an exemption that year —  roughly 5,200 people ultimately received some sort of relief.  

When the 2007 article on abuses within the system came out, the board in charge of dispensing relief kept no notes, met in private, had no staff and conducted no investigations on applicants. The board now has public meetings. In 2014, it began calling in homeowners with questionable applications for hearings under oath to suss out fraud.

It's changes like this — not a notary process — that ultimately catch fraud, according to Sheffield. 

"This ordinance is important because this is one of the tools we have to keep people, our most vulnerable population those at risk of losing their homes to foreclosure, in their homes. And it's important to make sure this program is accessible and easy to really navigate through," said Sheffield. "The vast majority of individuals don't know the program exists or don't apply because the process was too burdensome."