Table of Contents

Introduction and Overview 1

Brief History of Tax Foreclosure: Prior to 2010 5

Disinvestment Indicators and Deteriorating Housing Conditions 8

Purchasers at the Auctions: Residents, Non-profits, Speculators, Profiteers and Big Investors 10

Flippers 12

Speculators 13

2010-2013 Tax Foreclosures Skyrocket 15

Thousands Lose Their Homes and Non-profits are Swamped with Work 17

A Quick Look at the 10 Largest Buyers in the 2013 Auction 17

Two Examples of the Tax Foreclosure Abuse 18

2014 and Beyond – The Tragedy Deepens 19

Step Forward Michigan - It’s Limits and Effectiveness 23

Tax Repayment Plans, Reassessment and Exemptions 23

Two Year Plan or Citywide Property Tax Reassessment - Too Little Too Late

New “Squatters” Law (8), Restricts Homeowners and Tenants’ Rights to Resist Unjust Evictions or Foreclosures

Detroit Land Bank Authority and Gentrification 24

The Context of Unemployment, Poverty and Rising Housing Costs 26

Foreclosure, Evictions and Homelessness 31

Some Necessary Actions to Protect Human Rights to Safe, Secure, Adequate, Affordable Housing in the Face of the Massive Detroit Tax Foreclosure Crisis 32

References 35

Appendix A 36

Introduction and Overview

The following report attempts to document the massive tax foreclosure epidemic that continues to progressively undermine low and middle income Detroit resident’s ability to maintain adequate and affordable housing. This has resulted in wholesale seizure of homes and their transfer often to large investors, the City of Detroit, and now, the Detroit Land Bank Authority.

This transfer of wealth from a majority poor and working class Afro-American population to private investors and government entities is an inverse form of the widespread racist and “predatory lending” practices before the 2008 housing market collapse. Rather than giving out “easy money” under onerous “made to fail terms”, the City and County demand onerous taxes on property, whose market value has dropped drastically, and represent an already major loss to the homeowners. Compound this with eroded fixed income or loss of income also growing out of 2008 financial collapse, and an 18% compounded penalty in late fees. The result is a progressive inability of low and middle income homeowners to pay these usurious taxes. The initial housing and financial crisis resulted in thousands of families’ homes lost to the banks and mortgage companies. Now low and middle income homeowner’s property is being transferred to private investors or the City and County. Just as the Banks and Mortgage companies pled, “we are only trying to recoup what is owed”, so says the City and County in this devastating reenactment of the earlier tragedy. Moreover, as with the Bank bailout, those with the greatest wealth are getting millions in property and other tax breaks, while others with little, lose their homes or housing.

The impact of these crises already have devastated neighborhoods across the city, driven thousands from their homes, resulted in increasingly deteriorating housing conditions for homeowners and renters, overcrowding as families absorb persons evicted, an increase of the homeless population, and spawned a growing “squatter” population living often in unhealthy and/or unsafe conditions.

Right at this moment about 10,000 “owner-occupant” or “occupants” (renter or former owners) and their families homes are on the auction block or part of a “blight bundle” (7610 “Occupied Structures” and 5358 “Unknown” (1)). On top of this a surveyed, 6,025 “occupied” structures are part of the “publically owned” properties (2), making “the City a very large and inadvertent landlord” (3).This occurred after the County failed to sell the home at auction and “occupant-owners”, or renters remained after foreclosure. Looming on the horizon is the next round of forecloses, an estimated 118,000 properties (3).

The former Mayor’s “Detroit Blight Removal Task Force” explained a portion of the problem, albeit minus the human impact, and with timid recommendations (in the report), where decisive action is needed:

“The confluence of the 2008 financial crisis, some of the highest property taxes in the country, and Detroit’s descent into bankruptcy have further eroded payment of taxes. At this moment, more than 76,000 properties across Detroit are subject to tax foreclosure because the property owners have not paid taxes in more than three years. More than 42,000 are tax distressed and on the way to foreclosure, with unpaid taxes for at least one year (but not yet three years delinquent). Combined, these 118,000 properties owe more than $500 million in unpaid property taxes. These properties are in addition to the more than 84,000 Detroit properties to which various public entities already hold title as a result of tax foreclosure.”

“Without intervention, county tax foreclosure will continue to sweep across the city until the inventory of foreclosable properties is exhausted. Speculators will buy cheap property and allow it to deteriorate. Despairing and frustrated residents will continue to walk away from their tax-foreclosed homes and from Detroit. Unscrupulous landlords will evict tenants and scrap their own properties. The county and city will continue to lose incredible amounts of tax revenue. The city will continue to inherit liabilities by the thousands.” (emphasis added, (3))

Only decisive action, jointly by City, County, State, Federal and Community organizations can hope to block the snowballing and devastating impact of these foreclosures on all Detroit residents. The governmental parties are notoriously slow to act, given the powerful interests involved, but someone must cry out “Stop this Madness”.

Immediate suspension of both the present auction of “owner-occupied” and “occupied” homes, involving about 10,000 homes, and the next wave of “owner-occupied” foreclosures is urgent! This would signal a decisive good will on the City's and County’s part. First, to not increase the injustices already incurred, and second, to begin the task of correcting the failed property tax system and process, in earnest. This would be a first step to seriously reach out and open communication with the tax distressed homeowners. To work toward achieving realistic affordable plans for tax payment, and where possible restore “owner-occupants” to their homes in City owned houses. And it will allow time for deep evaluation and action at all levels.

The Limited Amount of Direct Data on the Human Toll of the Tax Foreclosure Crisis

One of the major problems facing any analysis of the tax foreclosure crisis is the dearth of information related to its causes: the specific effects on the people and families directly involved; the neighborhoods they lived in; and the human rights implications. There are two major reports of significance for investigating these issues. One report was commissioned by the Wayne County Treasurer and generated in April 2011. From Revenue to Reuse: Managing Tax-Reverted Properties in Detroit, gives a brief history and overview of the issue. Unfortunately, it is not aimed directly at investigating the origins of the crisis, but toward managing outcomes. Specifically, it examines how to generate both better capital return to the Wayne County Treasury and productive land use. The second report, was generated from the Detroit Mayor’s office by his Detroit Blight Removal Task Force in May 2014. Its main focus was on blight, such as, abandoned housing and industrial sites, and plans for its removal. These are largely outcomes of industrial disinvestment over many decades, mortgage foreclosures, and a more recent result of tax foreclosures. Chapter seven of the report, “How Do We Get Ahead of Future Blight?” does hone in on the failure of the property tax process, including foreclosures and auctions, leading to negative outcomes for the city, communities and individuals. It also has some suggestions for action.

This year, Loveland (Why Don’t We Own This?) and the Motor City Mapping project have begun the first surveys to actually distinguish properties that have a structures and are “occupied”. Previously estimates of the “occupancy” of foreclosed properties came from the numbers attending “Show cause Hearings” by the County, the case load of groups such as United Community Housing Coalition and theirs and other community groups door to door work. Unfortunately, this “occupied” designation is “dimensionless” . Are they a home owner or renter, elderly, sick, unemployed, handicapped? What portion of their income goes to housing? Have they sought assistance and do they qualify for an exemption? Do they know of possible resources and are they eligible? These questions may come up at places, such as, the “Show Cause” hearings (already a very late stage of the process), or in an application for Step Forward Michigan assistance, but only some results are recorded and as yet have not been available or fully analyzed.

This element of introducing a human side to the problem, is part of what is lacking, particularly by the County, City, and State. While individual County Commissioners, or City Council Persons may work with individual constituents with tax related issues, when approached no one in political power has been interested in exposing the massive tangles of bureaucracy and hardship faced by thousands of families stuck in this process, or tossed by the wayside.

Brief History of Tax Foreclosure: Prior to 2010

The relation of the financial crisis, unemployment, mortgage pressures and foreclosures impacted the steep rise in properties entering the auction in 2008-2010. As of the 2010 census, approximately 60% [1] of the homeowners in Detroit had a housing-related loan or mortgage.[2]

This graph below shows the diminishing percentage of sales as the number of houses entering the auction increases.

This pattern of fewer sales during the first auction, where the minimum bid is that of taxes owed, continues on through 2014

Disinvestment Indicators and Deteriorating Housing Conditions

The study of auction outcomes early on indicated a number of disinvestment features that exacerbated the effects of the growing mortgage crisis and helped “lead destabilization of neighborhoods and loss of property values.” Vacant Open and Dangerous houses and buildings, failure to maintain rental properties with hope to flip them, result in safety and habitability issues for residents and neighbors. The problems only multiplied with the growing impact of the auctions.

As pointed out in From Revenue to Reuse: Managing Tax-Reverted Properties in Detroit:

“As Figure 5.8 indicates, many single-family houses and duplexes suffer from poor maintenance or need to be demolished at the time of the auction. The conditions deteriorate rapidly after purchase at auction.

Many residential structures bought at auction show signs of further disinvestment after sale at auction. In many cases, occupied houses become vacant houses, and vacant houses become vacant lots. Demolition is the only significant “investment” in many properties, for which the City of Detroit bears the cost in more than two-thirds of the cases.”

Housing ending up back in foreclosure tend to be in worse shape and are more likely to end up demolished.(Fig. 5-16)

Another indicator of disinvestment is the resale rate. Of the homes resold after auction, 69 percent were tax delinquent as of 2011, the Treasurer’s Office foreclosed on 28 percent for unpaid taxes, and 14 percent are now city-owned.

Purchasers at the Auctions: Residents, Non-profits, Speculators, Profiteers and Big Investors

The use of the auctions by big bulk buyers has rapidly expanded as the number of auction properties has increased.

The treasurer’s report issued in 2011 points to a spectrum among the large bulk investors. There are those that pay their property taxes and invest in their property, and those that make no investment, payment of taxes, “and hold them for as long as they continue to generate a rental profit off the house until the property is uninhabitable.” These “equity extractors” receive returns without investing in the preservation of property. Five of the 11 largest buyers are included in this category (4).

A 2002 Metro Times expose of Ernest Karr showed he neglects his properties and fails to pay property taxes. These properties are maintained in very poor condition and he seeks out extremely low income tenants. Figure 6.9 is an example of the condition of one of those properties. Karr purchased at least 201 properties in the 2010 auction primarily on Detroit’s west side that the Treasurer’s Office regarded as occupied (4).

Flippers

These are considered the largest subtype of investors. They resell the property quickly with little or no investment. These properties are often sold to out of town or foreign buyers over the Internet. Sometimes a property is turned over in quick land contract deals and dumped on unsuspecting buyers with additional hidden costs, such as property taxes.

A

Speculators

The above mentioned report (4) categorizes five of the 11 largest bulk buyers as speculators. They also tend to minimize their investment, as example Detroit’s five largest speculators received 472 City of Detroit blight violations and only attended 8% of the subsequent hearings. In contrast, they scheduled 643 Michigan Tax Tribunal Hearings-in hopes of reducing their property taxes- attended nearly by all of them. Two of the speculators purchasing models are called “profiteering obstruction” and “preventative obstruction”. On the one hand land is purchased that is needed for some development and sold for great profit. In the other case land is purchased to sit on and obstruct a development. Figure 6.14 is an example of speculator Michael Kelly’s “profiteering obstruction”. In one case, the piece of property purchased for $500 was sold to the City of Detroit for $30,000.

Unfortunately these exposures of flippers, bulk buyers, and speculators only sometimes allude to the harm to renters who live in their properties or nearby residents, but never the hardships faced by families whose homes were seized.

2010-2013 Tax Foreclosures Skyrocket

Thousands Lose Their Homes and Non-profits are Swamped with Work

The rise in the tax foreclosures during the 2010-2013 period began to swamped non-profits, such as United Community Housing Coalition (UCHC), with requests for help. Hundreds daily had attended “Show Cause Meetings” at Cobo and other sites hoping to make “arrangements” early in the year. Door to door work found many more in the community still unaware of the danger to their home’s ownership, and renters unaware of their landload’s tax problems. The UCHC had estimated the number of owner-occupied homes in auction in 2013 at about 9000.

The 2013 dip in the above graph of foreclosed properties was most likely related to the January 2013 introduction of tax assistance by Step Forward Michigan’s “Loan Rescue” program. At the time it was not widely known about, so the Treasurer agreed to pull from auction anyone “applying for the program”, as the process was lengthy. As the auction deadline approached this included about 1700 homeowners.