Detroit's Housing Disaster Is Its Leaders' Fault

DETROIT ― On Sept. 7, officials in Wayne County, Michigan, began selling off roughly 14,000 homes in what has become the nation’s largest foreclosure auction.

But the foreclosures in Wayne County, which includes Detroit, aren’t because homeowners owe money to banks. People here are losing their homes because of unpaid property taxes ― taxes that, in many cases, are based on outrageously high assessments that have not been updated for more than two decades.

Each municipality is responsible for conducting its own property assessments, but Detroit is several decades behind. Most of these houses were last assessed in the mid-1990s, and the region’s housing market has cratered in the years since. The median home here is worth $40,600 less than it was in 2007, and less than half what it was worth in the 1990s, according to estimates from the real estate website Zillow. Residents are being charged far more than they should rightfully owe. 

“You’re getting taxes assessed on a $30,000 or $40,000 property value for a house that probably couldn’t sell for more than $5,000,” explained Ted Phillips, executive director of the advocacy group United Community Housing Coalition. 

Many of the homes on the auction block this year are still occupied. After the auction ends in November, those residents will be evicted. New families will move into some of the homes. But speculators will scoop up most of the them, and the houses will sit empty. Unoccupied houses fare badly in Michigan winters. Foragers break in, shredding walls in search of copper plumbing. Within a year or two, many of these homes will turn into more examples of Detroit’s famous ruins. This is what Victoria Kovari, general manager of Detroit’s Department of Neighborhoods, has called the city’s “blight pipeline.”

The purpose of the auction is to collect tax revenue. But there’s not a lot of evidence that lays the groundwork for a sustainable property tax collection. Speculators who participate in the auction have little incentive to pay taxes, and many never do, said Joshua Akers, an economic geographer at the University of Michigan at Dearborn. “Worst case for the speculators is the property gets foreclosed and goes back into auction, where they can sometimes just buy it back at $500 a pop,” Akers said. “What we have is a cycle where Detroiters lose their houses, the city loses residents, the county loses property taxes and speculators profit.”

There’s no indication the process will end anytime soon. Some 100,000 Detroiters, or 1 in 7 city residents, were on the verge of eviction due to tax foreclosures in 2015, The Nation reported. 

A City Of Self-Inflicted Wounds

In a city with more than 70,000 abandoned buildings, it may seem surprising that the government is playing such an active role in perpetrating urban blight, depopulating neighborhoods to make way for new owners who may never arrive, let alone pay taxes.

Since 2008, Detroit has lost as many residents as it did between 1960 and 1980, amid race riots and “white flight” to the suburbs, and in less than half the time. During Obama’s first years in office, the subprime mortgage crisis and the decline of the auto industry overshadowed Detroit’s less glamorous problems. But the evictions continue.

In July, the ACLU and the NAACP Legal Defense and Education Fund, or LDF, filed a class action lawsuit seeking an injunction against tax foreclosures of owner-occupied property. The suit names the city of Detroit, Wayne County, and Wayne County Treasurer Eric Sabree as defendants. “This short-sighted practice not only violates federal law, it destabilizes families, destroys neighborhoods and undermines the economic recovery of the region,” said Michael J. Steinberg, legal director of the ACLU of Michigan.  

Using evidence that Akers and others have collected, the ACLU and the LDF argue that Detroit “has failed to conduct properly the legally mandated property assessments for at least two decades.”

City officials do not dispute that claim. There is “serious concern that the assessment process in Detroit is broken and many, if not most, properties have been inappropriately assessed at artificially high levels for years,” Bill Nowling, a spokesperson for Detroit Emergency Manager Kevyn Orr, told Reuters in July 2013, following Detroit’s Chapter 9 bankruptcy.

Detroit officials have promised to reassess individual properties, but a reassessment isn’t expected to be completed until 2017. The city has said it expects the maximum downward adjustment will be 15 percent, but that plan offers no relief for people facing evictions in the next three months.

“That doesn’t help any of the people who are getting foreclosed on now, because they’re dealing with unpaid back taxes for the past three years,” said Phillips. “Those are taxes that they never should have had to pay in the first place.”

A Redline By Any Other Name

This vicious cycle is disproportionately forcing out Wayne County’s African-American homeowners. Akers has found that 90 percent of the county’s tax foreclosures took place in majority black cities, and that the rate of tax foreclosures in majority African-American Census blocks was 10 to 15 times higher than other blocks.

If the ACLU’s lawsuit is able to show that the tax foreclosures are disproportionately affecting African Americans, Wayne County could also be on the hook for violating the Fair Housing Act, the 1968 federal law against housing discrimination.   

Sabree has argued that Michigan’s harsh foreclosure law, which mandates foreclosure and evictions for properties with three or more years of unpaid property taxes, is forcing his hand. “It doesn’t specify whether a person is overtaxed. It forecloses everything,” Sabree told the Associated Press in July. “We’ve taken as many people out of foreclosure as we can.” 

In an interview with The Huffington Post, Sabree conceded that many tax assessments were not properly updated to reflect Detroit’s abysmal housing prices, particularly during the years following the Great Recession. However, he said he believes that interrupting the tax foreclosure cycle may prove fiscally harmful, as the auction brings in revenue for Detroit’s schools, museums and public services. He projected that this year’s auction could bring in well over $40 million.

What is not clear is how the ACLU/NAACP LDF suit might be resolved if their challenge is successful. Under Michigan law, once the deed of a foreclosed property is signed over to a new buyer, the sale cannot be reversed, Phillips explained. But people who were foreclosed for not paying improperly assessed taxes could sue the county for damages.

“Seeking damages is certainly one remedy, in the event of an illegal foreclosure,” said the ACLU’s Steinberg. “And if buyers are aware that a property is subject to litigation, then they are on notice that the deed may not transfer, even if they place highest bid at auction.”

Steinberg said the central goal of the lawsuit is to keep Detroiters in their homes, especially those who could qualify for Wayne County’s poverty exemption, which is supposed to exempt those living below the poverty line from paying any taxes. But Steinberg said the application process for the poverty exemption, at least up until last year, was nothing short of a Kafkaesque nightmare ― taxpayers had to apply in person in order to receive an application in the mail, and those who successfully submitted their application either never received a decision on their application or were denied for reasons that the lawsuit says “were arbitrary and capricious.”  

Sabree acknowledged that the onerous process of applying for a poverty exemption annually contributes to the foreclosure crisis, and estimated that up to 25 percent of tax foreclosures happen to people who would have qualified for the exemption. However, Sabree said he doesn’t think that halting the collection of back taxes through foreclosures ― even if those taxes were improperly assessed ― would be fair or feasible. “Addressing this retroactively is the big issue, because what about the people who made tough choices and went without in order to pay their taxes on time?” he asked.

Sabree said Wayne County makes a tremendous effort to keep people in their homes, offering payment plans and even canceling the transfer of deeds if the original owner is able to come up with the money after a house has already been sold at auction. “Bidders don’t like that, but we do make every effort to keep people in their homes,” said Sabree.

But as Sabree points out, a huge part of the problem is the interest rate charged on back taxes, which is set by the state legislature. In 2015, the Michigan legislature passed a law allowing county treasurers to retroactively lower interest on back taxes from 2010 through 2014, to 6 percent. If that law isn’t extended this year, rates will shoot back up to 18 percent in 2017. (There’s a bill before the state senate right now that would do so.) Sabree said he’s concerned that without an extension of lower interest rates, Detroit’s foreclosure rate could dramatically increase.

Forget What You Thought You Knew About Detroit

The tax foreclosures are fueling a boom in property speculation across Detroit ― speculation that is helping wealthy tycoons and largely white gentrifiers.

Take the case of local tollbooth and bridge billionaire Manuel Matty Moroun. He has used these foreclosure auctions to strategically protect the land around his signature investment ― the Ambassador Bridge, a key freight route between the U.S. and Canada ― from other development. Moroun is also the owner of Michigan Central Station, one of the most iconic of Detroit’s ruins.

Akers created a tool, Property Praxis, to illustrate the effect property speculation is having on Detroit. Users can click on a property, find out which speculator purchased it, and then zoom out to see that speculator’s full property portfolio as it sprawls across the city. For example, here are all the properties Moroun owns:

Akers and his team spent years developing the data set behind Property Praxis, which they rolled out in June. He hopes the tool will help dispel commonly held myths about why Detroit has emptied out.  

“People think that these properties are abandoned, that people just left them behind,” said Akers. But in reality, he says, “What has happened is the city has been willfully depopulated through a policy that prioritizes the interests of predatory speculators above the people who live in Detroit.”

The notion of Detroit’s ruins as a place for rich people to put their money may sound counterintuitive. This is because Detroit’s devastation is so often used as evidence of broader American decline, rather than as a savvy investment strategy. The narrative of abandonment has even found its way to the center of the 2016 presidential election.

Sen. Bernie Sanders (I-Vt.) and Republican nominee Donald Trump launched populist tirades against Detroit’s decline, and Trump’s proposal to impose a 35 percent tariff on foreign-made cars is arguably the most specific policy he has offered. Democratic nominee Hillary Clinton, too, has promised to bring back Detroit’s lost manufacturing jobs, as if that alone would change the fact that parts of Detroit look like they recently weathered a tornado.

Detroit’s plight is not the result of de-industrialization alone. More manufacturing jobs, which now offer salaries that average just $26,000 a year in Michigan, would not have saved Detroiters from taking out predatory loans or accumulating credit card debt in the years leading up to the Great Recession. They would not have prevented many subprime mortgages from failing. And they won’t stop Wayne County from kicking thousands of families out of their homes this November.

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