A Wayne County Circuit Court judge has barred Real Token — a Florida-based blockchain real estate firm at the center of a sprawling city lawsuit — from collecting rent from tenants until properties are brought up to code and prohibited the landlords from evicting residents in homes without a certificate of compliance.

It’s the latest development in the city of Detroit’s suit, filed earlier this month, against Real Token, or RealT; its co-founders, brothers Remy Jacobson and Jean-Marc Jacobson; and 165 affiliates, for public nuisance violations involving more than 400 residential properties in Detroit with substandard conditions. Judge Annette J. Berry issued a temporary restraining order on July 22 — a move Conrad Mallett, corporation counsel for the city of Detroit, said means tenants should pay future rent, starting in August, into an escrow account to protect themselves from eviction. The city of Detroit is expected to help tenants set up the escrow accounts.

“Within the next seven days , we’ll — on a house-by-house basis — be in touch with the tenants to explain to them how that escrow account should be set up. We really, really do believe that the judge was using great foresight in her opinion,” Mallett said at a news conference on July 23.  

The city of Detroit, in its lawsuit, alleges that Real Token is operating a cryptocurrency venture in Detroit involving dozens of limited liability companies and related entities, by offering international investors “fractional ownership of Detroit properties represented as digital tokens,” and that tenants — Detroit residents — are paying the price with poorly maintained rental properties and unsanitary and unsafe conditions.

Real Token, in a statement provided through Cadence, a Detroit-based communications firm, defended itself.

“We have been committed to providing safe, quality and affordable housing in Detroit. What the city is attempting to accomplish through the courts is to prevent RealT from performing what they agree are critical renovations. By effectively halting the revenue used to fund those renovations, and preventing RealT from removing squatters who have no rights to occupy the properties, there are no renovations that can be performed,” the July 23 statement read. The court, the company said, “acted prematurely” in granting the temporary restraining order.

Once escrow accounts are set up, the Real Token team will have access, but that money must be used to improve properties where tenants live, Mallett said.

“This is not for them to reward themselves or their investors,” he said.

Here’s what the judge said in the temporary restraining order, which remains in effect for 90 days or until the court says otherwise, related to Real Token-affiliated properties:

• Defendants — the Jacobsons and related entities — cannot collect rent from any tenant living in the properties they own until those rentals have a certificate of compliance, as required by the city, to indicate it is up to code.
• They cannot move to evict tenants from rental properties without a certificate of compliance. Tenants must place their rent into an escrow account to protect themselves from eviction for nonpayment of rent, Mallett said.
• They must notify tenants within 14 days of the order to open an escrow account and put their rent money into that account.
• They must start obtaining certificates of compliance for all properties and allow the city of Detroit’s Buildings, Safety Engineering, and Environmental Department (BSEED) inspectors access to those properties.
• Real Token must secure so-called “priority one properties” from trespassers and remove bulk debris within 30 days and correct code violations within 90 days. Priority one means the property either is occupied with emergency correction orders and has serious health and safety issues, or is vacant and open to trespassers. There are 58 such properties, according to a news release from the city of Detroit.

In its statement, Real Token said it can show that more than $220,000 in infractions are unrelated to safety, with some administrative issues dating back to 2005.

“The question for the city should be how did the city’s few inspectors conduct enough inspections to amass $600,000 in infractions on one property owner in a city where blight is a citywide challenge?” the statement said. The company previously laid the blame on management companies it hired for the properties.

Mallett, at the news conference, said the properties are in “such a degraded state” that there’s no way owners would not know that tenants are living in substandard housing.

“We do not accept that the property management people are responsible for the degradation that these tenants are experiencing. … These tenants are victims,” he said.

The city of Detroit’s suit alleged that the cited properties repeatedly violated local building, health and safety codes; that the company used a web of LLCs and shell companies to escape responsibility; and that the negligence led to rodents, structural decay, fire hazards and criminal activity.

None of the 408 properties — occupied or vacant — at the center of the litigation have a certificate of compliance, according to the city’s lawsuit, which also alleges hundreds of thousands of dollars in unpaid blight violations. The defendants owe hundreds of thousands of dollars in outstanding property taxes, too, the suit said.

The city of Detroit discovered an additional 130 residential properties after the lawsuit was filed.