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Good news from the Michigan Supreme Court (MSC) for Michigan home sellers whose homes have declined in value since they purchased them. In a welcome decision, the Majority clarified a confusing element of Exemption (u) under the State Real Estate Transfer Tax Act (SRETTA).
There has never been any question that Exemption (u) requires that the SEV of the home at the time of sale be equal to or less than the SEV at the time of purchase. The confusion over Exemption (u) has been over the meaning of the following language: If after an exemption is claimed under [Exemption (u)], the sale or transfer of property is found by the treasurer to be at a value other than the true cash value, then a penalty equal to 20% of the tax shall be assessed . . . . The property owners in Gardner v. Dept of Treasury, argued that true cash value as used in Exemption (u) means the same as fair market value, while Treasury took the position that true cash value as used in Exemption (u) should have the same meaning as it does for purposes of the General Property Tax Act, that is, twice the SEV. The Court of Appeals agreed with Treasury and took that interpretation one step further and held that because Exemption (u) refers to a sale price other than true cash value, Exemption (u) could only be applied in a situation where the sale price of the home is exactly equal to twice the SEV. The Court of Appeals effectively eliminated Exemption (u).
The Michigan Realtor Legal Action Committee joined in the effort to overturn the Court of Appeals decision. Additionally, Realtor and State Representative Dave Maturen (R-Brady Twp.) introduced HB 4173 to restore the commonly understood application of the exemption and undo the Court of Appeals decision. Ultimately, the MSC summarily reversed the Court of Appeals, and held that for purposes of Exemption (u), true cash value means the same as fair market value that is, the price at which a willing buyer and a willing seller would arrive through arms length negotiation.
The MSCs determination that true cash value as used in Exemption (u) really means the fair market value that a willing buyer and seller can agree upon through arms length negotiation broadens the application of Exemption (u) is a win for home sellers. Under current Michigan law, the party that is responsible for the SRETTA is the seller or transferor or the property. The MSCs ruling could increase the number of sellers that qualify for Exemption (u). The total impact and resulting refunds is not entirely clear. The Michigan Department of Treasury currently allows sellers to reach back and seek refunds up to 4 years and 15 days from the transfer. It is unclear what the retroactive application of the MSCs ruling will be. Realtors who have represented sellers for the past 4 years whose SEV was lower in the year of sale than in the year of purchase who did not claim Exemption (u) should consider contacting their former clients to have them file for a refund. There is nothing to lose and only goodwill to be gained.
The Michigan Realtors will be working with Representative Maturen to ensure HB 4173 accomplishes the most favorable results for Michigan property buyers and sellers.