Detroit’s Largest Missed Opportunity
(originally published in a similar form by Occupy.com)
Last month, the ACLU filed suit against the Wayne County Treasurer (WCT) for foreclosing on owner-occupied homes. The lawsuit has been anticipated for years, and could dramatically affect the fate of thousands if it successful halts the auction sale of those properties, but, even so, it would only impact one tenth of the tax foreclosed properties headed for auction since most occupied homes in the auction are already vacant or are occupied by someone other than the owner. Most occupied homes in the auction are not owner-occupied, and most protections (including due process)
apply to owners, not renters. In some ways, the greater tragedy lies in the foreclosures that go unchallenged because the protections most occupied homes in the auction properties that exist apply to the owners so most of the injustices aren’t even considered illegal.
The Wayne County Tax Foreclosure auction is regarded nationwide as an opportunity to by Detroit homes on the cheap, but the people who have the most to gain (and the most to lose) in the auction– the current residents– often have the least access to take advantage of it.
Lack of information is a chronic problem throughout the foreclosure cycle, and affects renters far more than homeowners– the auction passes noiselessly over these homes, and their residents, with no lawsuit or cover story to capture deafening silence to the people inside.
It’s true that many renters are given a clue or two about the circumstances of their property when it goes into foreclosure, but the process is so lengthy and the information so obscure, that the information is effectively useless. The result is that many renters or land-contract holders not only miss the chance to buy their home in auction, they continue to pay rent to a landlord who no longer owns the property. A few months’ withheld rent could be enough to buy in auction, but many residents don’t even know their home is headed up for sale. In last year’s auction, thousands of occupied properties went unsold even though they could’ve been bought for the minimum bid of $500.
A renter’s first inkling that their property may be in trouble is a foreclosure notice in a yellow bag that is posted on their front door. It contains no information for renter and makes no mention of the auction. From the time of that first notice to the occasion of the auction, ten months go by. In that time, not a single piece of government mail is addressed to the renter informing them of their situation. When the auction comes, it happens in the soundproof chamber of the internet, which many residents do not have access to and have no reason to seek out if they haven’t been informed of the reasons to do so.
Information about the auction comes from nonprofit groups with door-knocking or snail-mail campaigns, predatory investors who “help” residents buy their homes through outrageously inflated land contract schemes, and the landlords themselves who are likely to either say nothing or deliberately mislead their tenant about the circumstances in order to continue collecting rent for as long as possible.
At the beginning of the 2016 foreclosure cycle in November 2015, it was estimated that 35,000 properties were headed for auction, that number has dwindled to “only” 5,500. This is good news for owners, but confusing for renters. Just as there is no auction notice confirming a property is to be sold, there is also no “safe from foreclosure” notice for those that make arrangements. When a landlord enters a payment plan, there is no document to prove a property is safe from foreclosure, a renter typically just takes their word for it.
Even for industry professionals, it is difficult to know with certainty whether a home is foreclosed and heading for auction. Data on Loveland Technologies, the foremost tracker of Wayne County Treasurer auction information, has data that often lags by month. Even when the internet catches up, there is no official mechanism to inform renters. The data is published noiselessly online in August, a month before the auction starts, with no indication to the people living at the listed addresses.
Wayne County Treasurer’s prioritization of homeowners (as evidenced, for example by its generous extensions benefit) leaves renters in a purgatory that extends from at least April to August. During that time, tenants do not legally owe rent for the foreclosed homes they occupy. However, the foreclosure is “reversible.” If the foreclosure is reversed (meaning that the owner pays back taxes or enters into a payment plan), the renter then owes not only back rent but also is subject to fees and penalties. If the foreclosure is carried out and the property is sold, the tenant may be evicted or subject to a new landlord who may raise the rent.
By the time many renters find out about the auction, it is often too late. Many renters are low-income and live paycheck to paycheck. Even if they are able to withhold a few months’ rent, they may not be able to make a viable play in the auction. If only the renter were made aware of their rights regarding the property’s foreclosure, they would have the opportunity to save rent in the months before the auction, which could be used to secure future housing- or even to own their own home.
Most properties purchased in the auction are sold at a loss to buyers making low-risk bulk impulse purchases. Many buyers are unaware of the occupancy status of an auctioned property, let alone the condition of the structure. The worst buyers walk away, never paying a dollar in repairs or taxes and leave the property in limbo for another 3 years until the back taxes force another foreclosure. Homes are cheap but rent isn’t- landlords who buy an foreclosed home for $500 may charge that amount every month is rent. Even the best landlords have a split-incentive when it comes to property maintenance in a high-demand city like Detroit (for as large as the city is, the habitable housing stock is extremely limited) so residents and properties usually suffer first and hardest.
On the other hand, properties not sold in the auction enter into the possession of the Detroit Land Bank Authority, which has no real capacity to manage or sell occupied properties and so they remain off the tax roll in a purgatory of government ownership. Residents can live rent-free until the toll of deferred maintenance, an irreversible water shut-off, or the stress of illegitimate occupancy drives them out forever. Vacant houses quickly fall victim to scrapping and may ultimately join the queue of blighted buildings slated for demolition at the expense of the taxpayer in whose defense the foreclosure was initiated.
This is the process that leads to countless scenarios where a resident finds themselves face-to-face with a stranger on their doorstep who holds a deed and claims to have bought a home that the resident didn’t even know was for sale. This is the process that leads to 5,000 occupied homes indefinitely swirling in the land bank’s backwaters, the yellow plastic bag stretched so thin over those nine long months that it becomes transparent, invisible.
The fundamental challenge of this process is this: foreclosing on properties hurts the city but not foreclosing could set a dangerous precedent. A city needs taxes to operate but the Taxpayer pays more to demolish homes abandoned by foreclosure than it lost in unpaid property taxes. In this way, tax foreclosure becomes a fatal autoimmune disease, tearing up cities that it is designed to protect.
For the first time in years, tax foreclosure numbers are down. This has been lauded as a success of various payment plans but one that belies the very real fact that nearly 100,000 of all Detroit properties are now off the tax rolls and in the coffers of the Detroit Land Bank Authority. When person without a job gives up trying, they are no longer counted in the unemployment numbers; similarly, a government owned post-foreclosure property is no longer considered delinquent even though no taxes are being paid on it.
It is often cited that the population of Detroit was once over 2 million, a high water mark that makes an impressive contrast to the 600 or so thousand who now call Detroit home. Less frequently noted is the fact that, in addition to having fewer people, those who remain have fewer rights than those before them. “Effective” home ownership rates are below 50% in Detroit from a peak nearly 60%. Lack of property ownership mean lack of rights and, taken in aggregate, the residents of Detroit have less say in their city and their own fate.
Once homeowners are decoupled from their homes, many are swept up in the chronic cycle of housing instability in Detroit- affected in no small part by tax foreclosure. Each round in the game of the musical chairs weakens a person’s ties (and implied rights) to a given home or neighborhood, and it becomes increasingly forgivable to overlook them in the already overwhelming work of addressing tax foreclosure.
Require Notice to Renters
In order to truly address this problem, local policy must either recognize the rights of the resident to know the circumstances of their own home or at least recognize the benefit of keeping them in the loop. Even if that knowledge doesn’t result in home ownership for that resident, increased understanding of their timeline and circumstances can be invaluable. A PSA or targeted flyer could make a powerful impact with some basic facts including:– a) that the home is in foreclosure b) that the landlord is no longer the landlord c) that the house will be sold and d) that you could be the one to buy it.
Give Residents First Option to Buy
The auction is open to the public the winner is whoever places the highest bid. Currently, occupants have no advantage or priority over anyone else.
Properties can avoid the competition of the public auction if the city of Detroit exercises its Right of First Refusal for occupied properties or if the Wayne County Treasurer “bundles” occupied properties as it currently does to thousands of vacant properties.
Giving residents first dibs might mean selling the property for less than on the open market, but the long-term payout would be much greater. Providing an ownership path to the current resident will: encourage “continuous occupancy,” thereby reducing blight and displacement, ensure that the owner of the property has the highest possible incentive to care for the property, and build wealth in the city by retaining the benefits of the auction locally.
Individuals, community groups and media all have a role in building public awareness of the auction and its processes. Even if the government started issuing foreclosure notices to non-owner residents, there would still be a need for trusted communication channels to inform and empower residents throughout the long and confusing process.
In practice, the auction is a siphon to concentrate ownership into fewer and fewer hands, but it could be a powerful tool for distributed ownership, a mechanism of manifest destiny, creating homeowners to anyone willing to settle the land. Through the auction, a resident can become an owner for less than a few month’s rent- but first they have to know about it.
So many of the problems facing the city are intractable, they require vast sums of money or huge investments of infrastructure or the resolution of fundamental differences of opinion. This is not one of them. Letting someone know that their house is up for sale is a hard thing to argue against and a cheap thing to implement. It is a tragedy that a minor effort could make a difference and yet it isn’t being done. But on the other hand, a minor effort could dramatically change and improve outcomes for the residents those efforts empower. By contrast to most means of home-ownership, the Tax Foreclosure Auction can be both affordable and accessible to residents. If residents of auction homes knew there was a buffet being served, they could at least get a seat at the table.
Wayne County Treasurer Auction takes place at www.waynecountytreasurermi.com.