A new state law designed to foil property-tax scofflaws is making it harder for low-income homeowners to keep their houses.
September marks something of an anti-holiday in Detroit. It’s the month when the Wayne County Treasurer launches its annual Auction of Tax-Foreclosed Properties. For many Wayne County residents, this is the least-wonderful time of the year.
Each September, Wayne County puts up for auction tens of thousands of properties whose owners are more than three years behind on their property taxes. Thousands of these homes are occupied, either by owners or tenants. This year’s auction—which launched on Friday and runs through September 24—includes more than 8,000 homes occupied by an owner or a tenant, according to the county’s own records.
This year’s auction is hitting Detroit like a hammer. Wayne County sought to foreclose on a record-high 75,000 properties. For last year’s auction, by contrast, the county only initially identified 50,000 tax-delinquent properties. The tax-foreclosure burden falls overwhelmingly on the city of Detroit: Houses and lots in Detroit accounted for 63,000 properties first marked for foreclosure by Wayne County.
But the problem for Detroit goes well beyond the scale of the foreclosure auction. Recent changes to the law mean that it’s harder for occupant-owners to bid to save their homes—and easier for buyers to take or keep scores of properties for investment purposes.
The house at 215 Leicester Court in Detroit is a property that was nearly put up for foreclosure sale. According to the Wayne County listing, the house, which is occupied, was removed from the auction in August, sparing it from Friday’s auction block. The United Community Housing Coalition intervened on behalf of the owner, as the organization has done for the last 12 years.
“A lot of the reasons why people are in foreclosure deal with not just not paying their taxes, but over-assessment, lack of knowledge of various programs that are available, and lack of communication between the cities and their residents,” says Ted Phillips, executive director of the United Community Housing Coalition.
Typically, the United Community Housing Coalition helps owner-occupants to understand their rights or enter into payment agreements with Wayne County to keep their homes. The organization helps owners to assess their own property assessments—some of which are 5 to 10 times the amount of any real market value for the property.
“There’s something called the poverty exemption in Michigan,” Phillips says. “In Detroit, that means you can get 100 percent exemption of your taxes if your income is at or below a certain level. Many of the people in tax foreclosure are at or below that level, but they knew nothing about it.”
Had it gone on to auction in September, the house at 215 Leicester Court would have been offered at a starting minimum bid of the overdue tax value. Properties that persist into October are listed again—for a starting bid of just $500, plus a small portion of the current year’s property taxes.
The auction itself is nothing new: Wayne County has been selling off tax-foreclosed properties for years. The Detroit Land Bank Authority began auctioning city-owned vacant properties last summer. Maps of blight in Detroit line up reasonably well with properties and lots that are going up for bid. For the past five years, Loveland Technologies has been mapping tax-foreclosed properties in an effort to fight blight.
But a significant change to state law means that homeowners who are delinquent on their property taxes are prohibited from participating in the auction. This means that owner-occupants who are behind have no recourse to keep their homes if they fall far behind on their taxes.
“In years past, someone could purchase a property, not pay the taxes for 3 years, it would go through the auction again—and they could pick up the property for $500,” says Emily Thompson, foreclosure programs coordinator for the United Community Housing Coalition.
While this sounds like a loophole designed for tax scofflaws, according to experts, it’s corporate buyers who are taking advantage. (Wayne County authorities could not be reached for comment.) Jerry Paffendorf, the co-founder and CEO of Loveland Technologies—an organization that has mapped all the properties in the Wayne County foreclosure auction for the last 5 years—says that a handful of investors take most of the properties.
According to Loveland’s “leader board” for the 2014 foreclosure auction, for example, a corporation called ASM Services purchased 224 properties for just north of $1 million. Ten investment-class buyers accounted for more than 1,400 foreclosure purchases in last year’s auction. Paffendorf says that most of the buyers never occupy the property and never pay property taxes on them.
“This whole thing is designed for the county to recoup funds and get properties back into the hands of responsible private owners,” Paffendorf says. “But more than 80 percent are not paying taxes for a variety of reasons after the purchase.”
Phillips says that he’s heard renters say that their landlords take advantage of the foreclosure auction every three years in October to wipe their property-tax slate clean at $500 a pop. (Tax scofflaws!) But Michigan’s law does not target corporate landlords—which can reorganize endlessly and re-enter the foreclosure auction after failing out of it.
“It’s perfectly legal to spin up an LLC or use a holding company,” Paffendorf says. “You don’t see any human names on anything. Everything is the address of a property’s LLC.”
Not all foreclosure auctions cause hardship in Detroit. The ongoing Building Detroit auction held by the Detroit Land Bank Authority, for example, has strict occupancy requirements. (The city gets first crack at the county auction; the properties it takes go to the Land Bank.) Wayne County’s foreclosure auction doesn’t require the same tracking for outcomes. Process servers take notes on properties when they deliver foreclosure notices; this is the only way the county tracks which homes are even occupied.
“The tax-foreclosure auction was a horrible system, but at least it was for some folks a chance to reset and get their homes back, get into the right mode the next time—get the assessment corrected and get with some folks who could get them some counseling and help—and next time make it work,” Phillips says.
In an abstract world of just causes, it may seem fair, or even reasonable, for authorities to set for auction homes whose owners are late on their taxes. But in Wayne County—in Detroit—leaders need to account for the incredibly unjust and often racially motivated factors that led to such economic despair in the first place. Moreover, it does the county no good to evict Detroit homeowners from their homes—period, full stop.
“This is not going to work. It’s just going to hurt folks,” Phillips says. “If you’re going to pass something like this, you should make an exception for homeowner-occupants, as opposed to owner investors.”