A Hurricane Without Water: Foreclosure Crisis Looms in Detroit as State Takes Action

January 21, 2015, 12:39 PM by  Ben Duell Fraser

Everyone who's anyone in Michigan politics, excluding those important enough to be in Washington for the State of the Union, gathered in Lansing to hear Gov. Rick Snyder give the annual State of the State speech Tuesday night.

After the mandatory recognition of soldier and police sacrifice, the Governor quickly turned to Mayor Mike Duggan and former Emergency Manager Kevyn Orr to pass out some congratulations and back-slaps. More than any other statewide politician in recent memory, Snyder hitched his legacy to Detroit’s well-weathered wagon. In congratulating Duggan and Orr, he was congratulating himself.

Detroit is out of bankruptcy. The art still hangs on the walls of the DIA. The retirees took less of a beating than expected. Streetlights illuminate more and more long neglected streets. Investment is poking its head out of the confines of the 7.2 square miles of greater Downtown/Midtown, and looking towards the neighborhoods. And the blight is being torn down, to the tune of roughly 100 houses per week.

But we aren’t out of the woods in Detroit by a long shot. One massive storm threatens to dump rain all over our feel-good parade. That storm goes by the name of tax-foreclosure. And unlike Hurricanes Andrew, Katrina, or Sandy, this same storm threatens to hit Detroit year after year after year, and it’s looking like 2015 may very well be our worst year yet.  

State law (PA 123 of 1999) stipulates that when a property owner doesn’t pay their property taxes for three years, the county in which they live must foreclose on that property, and sell it at auction for the amount of taxes owed. Should the property fail to sell in the first round of the auction, it proceeds to a second round where the opening bid is a mere $500. Should it still fail to sell, the property is likely to languish for years under the ownership of overwhelmed municipalities and land banks. During this period of public ownership, many homes are scrapped and left to rot, only to pull down the value of the homes around them.

“Tax foreclosure is a problem that affects tens of thousands of properties across Detroit, and still is not widely understood.” says Alex Alsup of Loveland Technologies in a video he uploaded to YouTube last week. The video, embedded below, gives us a frightening look at the data behind the blight that threatens to halt Detroit’s recent progress. It is a must watch for anyone interested in Detroit’s recovery.

Some highlights from the video:

  • 61,881 Detroit properties are headed to tax foreclosure in 2015
  • Approximately 36,824 of those structures are occupied
  • With a census average of 2.75 people per household, approximately 100,000 people, or a sixth of the city’s population, are subject to tax foreclosure this year.

Before we abandon all hope, there is some good news. Last Wednesday, Governor Snyder signed Public Acts 499-502 of 2014  into law that contain three tools to avert this looming crisis.

First, the bills would reduce the interest charged on owed taxes from the current rate, an onerous 18%, down to a more reasonable 6%. Second, they allow the foreclosing government and the property owner to agree to a payment plan. Third, the bills allow the foreclosing government to waive property taxes so that a property owner can’t owe more than 25% of a property’s value in back taxes.

Whether these tools will be used effectively will depend on the competence of our local governments, the flexibility of the laws, and the awareness of our neighbors that there may be new options to keep them in their homes.

While a flurry of laws passed the lame duck session, they provide palliative care for what is a systemic crisis. Reached for comment, Alsup of Loveland Technologies said: "The new laws address a specific subset of people in foreclosure, and we don’t yet know how many people will qualify for help.”

Please visit Loveland Technologies’ whydontweownthis.com to see whether you or anyone in your neighborhood is at risk of tax foreclosure.

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