Rashid Al-Mehdi is, arguably, not the type of investor the city of Detroit wants or needs.
Several of the at least half-dozen Detroit properties connected to the Dearborn resident are neglected — covered in boards, scarred by graffiti or exposed to the elements through shattered windows. At some, the taxes aren’t paid.
And yet, Al-Mehdi’s LLC was able to scoop up more than a dozen additional Detroit properties at this fall’s Wayne County Tax Foreclosure Auction, despite rules meant to bar negligent property owners from participating.
The speculator went undetected by bidding with help from what he calls a “third party.” That third party apparently bid using an alias: “Ray Ray.”
No one at the treasurer’s office flagged Ray Ray, even though the bidder registered for the online auction with an apparent nickname rather than the first and last name or company name required. Instead, the treasurer accepted more than $217,000 from Ray Ray, and deeded over an assortment of commercial buildings and lots.
Had the office taken the steps to trace Ray Ray to Al-Mehdi, it would have found outstanding blight tickets on several properties owned or recently owned by his LLC — a violation of auction rules. The needle was fairly simple to thread: It took just a few property records and Google searches to find that Al-Mehdi is tied to the address Ray Ray listed on the registration form. And, indeed, within a month of the auction, all of Ray Ray’s acquisitions were deeded to Al-Mehdi’s LLC, World Gate Enterprises.
Such abuse is rampant at the online auction, where, each year, speculators — many of whom should be disqualified — scoop up thousands of distressed properties in hopes of turning a profit, using gamesmanship and subterfuge to fly under the rules. And with admittedly limited resources to police abuse, Wayne County Treasurer Eric Sabree has let the problems persist — helping perpetuate a cycle of instability that hollows out neighborhoods, spurs depopulation and leaves taxpayers on the hook for millions in demolition costs.
Other counties with unstable property markets that serve as magnets for speculation — Genesee, in Michigan and Cuyahoga, in Ohio — take added steps to circumvent abuse, but Wayne County is in a fiscal predicament that experts say discourages it from doing so. The county relies heavily on revenue generated from the auction and other tax delinquency-related sources and, based on budgetary projections, expects to for years to come.
“The auction is a wide-open process,” said Joshua Akers, an assistant professor at the University of Michigan-Dearborn who researches real estate speculation in Detroit. “Anyone that wants can participate, and the rules are difficult to enforce both in terms of a lack of data, a lack of resources and a lack of will.
“What’s more important to the county treasurer is to move as much property as possible because that’s where they make their money.”
Sabree declined an interview request. In a written response, his spokesman, Mario Morrow, did not confirm nor deny the validity of that rationale, but said those who believe the financial incentive discourages reform “are entitled to their opinion.”
But reforms may indeed be on the horizon as the city of Detroit looks ahead at an estimated 19,000 remaining abandoned properties requiring demolition, thousands of which, research suggests, likely wound up blighted following a speculator’s auction purchase. City officials say there are a couple of plans in the works, but both require the county’s cooperation.
Ray Ray comes up clean
Speculators have abused the auction for years, despite a 2014 state law that sought to curb irresponsible investment.
Those rules require bidders to sign an affidavit stating neither they nor the person or company to whom the property will be deeded owe delinquent taxes or civil fines in the jurisdiction where they’re buying. The treasurer’s office says it checks whether bidders and buyers owe taxes only under the names they provide, and the city says it looks at whether they have unpaid blight tickets.
But those steps fall far short of what’s needed to root out bad actors. Negligent property owners often shield their identities by using aliases and/or re-incorporating under new LLCs, and the treasurer, understaffed and inundated with foreclosures, doesn’t conduct the simple due diligence required to uncover those connections.
The result is more or less a free-for-all in which negligent buyers can easily snap up more property. The two top bidders at this year’s auction both deeded properties to buyers connected with LLCs that owed thousands of dollars in blight fines to the city. Notorious landlord Dennis Kefallinos was able to buy at least 10 properties, despite owing more than $16,000 in blight fines through LLCs attached to his name.
The last in-depth look at speculative auction buying, conducted by Bridge Magazine, of the 2016 auction, found that four of five top buyers were able to purchase some 1,000 properties despite owing delinquent taxes.
The treasurer’s office says it has never found anyone to have successfully lied on the affidavit, an offense that could be referred to the prosecutor’s office for possible perjury charges. It says it “rarely” finds people who attempt to lie and, when it does, sends notices that allow them to pay back what they owe and, if needed, cancels the sale. The office declined to provide examples of this, saying we would have to file a Freedom of Information Act request.
In response to the Bridge report that found extensive abuse in 2016, Sabree said he might consider adding staff to check whether bidders owe taxes.
When asked by Deadline Detroit if staff was ever added, Morrow provided a confusing response.
“‘Might’ mean may,” he wrote.
But former deputy chief Wayne County treasurer David Szymanski, who helped lead the office before Sabree took over in 2016, says it’s virtually impossible to prevent negligent buying through due diligence alone.
“We would become aware of the tricks of the trade that some buyers were employing and try to replicate them as best we could,” he said. “But each time we would ID the method being employed and try to find some way to counteract it programmatically ... it was one of those where you put your finger in the dyke and it finds another hole.”
Reining in Ray Ray
The easiest way to circumvent abuse is to bundle large amounts of property to pass through the auction to the Detroit Land Bank Authority, says Szymanski, who has also worked at that agency.
Because the Land Bank’s focus is property disposition, it’s better equipped to prevent speculation than the treasurer’s office, a tax-collection agency that was saddled with additional responsibilities amid a nearly decade-long tax foreclosure crisis following the Great Recession. Buyers at its auctions go through a far more rigorous vetting process than the Wayne County treasurer’s, where Akers’ research has shown 90 percent of properties are purchased by speculators.
But bundling has dropped off significantly under Sabree. Thousands of structures, including higher-value occupied properties that tend to be magnets for speculation, were bundled in 2015, before he took office. But Sabree has only been willing to bundle fewer than 200 structures in each of the last two auction cycles, with a focus on highly blighted properties that likely wouldn’t sell anyway.
The treasurer’s office says bundling dipped because fewer properties went into the auction, but Cuyahoga and Genesee counties both bundle properties at more than twice the rate of Wayne.
Syzmanski says there’s a financial incentive for Sabree to avoid doing it.
“If money is made right now, Wayne County gets it,” he said. “If, on the other hand, they turn that property over to the Land Bank, then the Land Bank gets it.”
Despite the financial conflict, he says the county and city should be able to work out a resolution.
“After all, the city is bearing the cost of demolition and, therefore, it would make sense to allow them to have the benefit of the revenue generated by those properties that have value.”
A working paper published this fall, by Akers and his collaborator, Brown University researcher Eric Seymour, found Detroit has spent an estimated $34 million in federal and city funds to demolish properties purchased by speculators between 2005 and 2015. The buyers, they found, often suck out value by investing as little as possible in repairs, then eventually dispose of them through tax foreclosure.
City: Ray Ray's days numbered
As Detroit runs out of federal money for demolitions and begins funding the program on its own, city officials are hoping to increase cooperation with the county to limit the pipelines that create new blight, like speculative buying at the auction.
Two preliminary proposals would aim to deter entities and individuals with delinquent taxes and blight violations. One would require LLCs registering property with the assessor to disclose the legal names of their owners and any other LLCs they may have operating in Detroit, creating a database the county and city could use to prevent abuse. Another would require the treasurer to bar landlords and companies who are not in compliance with the city’s rental registration ordinance from participating in the auction. The ordinance requires that buildings with tenants be up to code.
“It's only a benefit to have these private owners buy in the city if they're going to be part of a set of community standards,” said Arthur Jemison, group executive for Housing, Planning and Development in Detroit.
Who is Ray Ray?
Rashid Al-Mehdi says he makes money off the Detroit property market in various ways — renting and flipping houses, and sitting on land until it’s valuable enough to sell.
Ultimately, though, speculation is a side hustle for him. Al-Mehdi's primary occupation is as a building inspector for the city of Dearborn. (Update 2/20/2020: After publication, he told Deadline Detroit that he is an office assistant for the city of Dearborn in the property maintenance department. He was promoted to a building rehab program specialist two weeks after this article was published.)
Al-Mehdi initially denied in a phone conversation that any buildings connected to him were covered in graffiti, like one on Greenfield near Joy, or that they had shattered windows, like one nearby, on Evergreen near W. Warren. Later, when presented with photos confirming they indeed were, he denied owning one of the properties altogether.
As Al-Mehdi sees it, his speculative activity isn't preventing a Detroit neighborhood's recovery. Instead, he believes he’s a help. Sometimes, he claimed, he allows his renters to become owners, and rehabs the homes he flips.
“Detroit has a bad rep, so you try to do what you can where you can,” he said.
He did not provide any addresses that would show evidence of this positive impact.
Al-Mehdi’s attempt to distance himself from the blighted properties appears to exemplify the questionable methods through which speculators often shield themselves from liability.
The Evergreen property, he said, does not belong to him — the deed holder is listed as Rashad Al-Mehdi, a slightly different spelling of his name. But the mailing address listed for the property is a well-kept house in Dearborn, in Al-Mehdi’s name, under its proper spelling. The Greenfield addresses, meanwhile, are connected to a Dearborn house next door to Al-Mehdi’s, which is owned by Al-Mehdi’s LLC, World Gate Enterprises.
Al-Mehdi stopped responding to emails after we laid out those connections.
His employer, the city of Dearborn, said it was “concerned about blight wherever it occurs,” but does “not have a specific policy regarding employee property purchases in other communities, or the standards to which those properties must be maintained.”
The irony that Al-Mehdi, tasked with enforcing building code in Dearborn, is connected to properties that appear to violate similar rules less than a mile away in Detroit, seemed lost on him.
Asked how he’d respond if he came across the blighted properties while on the job, Al-Mehdi said, “I would inspect them and make sure there’s no safety hazards, or people that are using it.”
That he also slipped by rules to bar negligent owners from amassing more property appeared to be lost on him as well.
“I agree with the [auction] rules,” he said. “I feel it holds up development and the economy if somebody owns a property and they can’t pay the taxes or keep up with it and then they go and add some more on top of that.”
Meanwhile Ray Ray, the bidder who bought on Al-Mehdi’s behalf, remains a mystery. Al-Mehdi insists it’s not him, but won’t say who it is.