Tax foreclosure has devastated Detroit. (Courtesy Photo)

Monday was the last day of a statewide ban on property tax foreclosures that Gov. Gretchen Whitmer ordered in March. It was among the executive orders she issued to deal with the deep economic pain caused by the COVID-19 pandemic.

In March, Wayne County Treasurer Eric Sabree also cancelled the tax auction for this year, but it is expected to resume and impact Detroit homeowners in 2021.

Widespread tax foreclosures have plagued Detroit for years. More than 138,000 Detroit properties have been tax-foreclosed since 2005, according to data from the Quicken Loans Community Fund and the Wayne County Treasurer’s Office. 

In June, Bernadette Atuahene, a law professor at Chicago-Kent College of Law, wrote in a New York Times opinion piece that Detroit has become a “predatory city,” with a policy that amounts to “tax abuse.” It’s why Detroit has one of the highest foreclosure rates of any city since the Great Depression, she contends. 

Atuahene says Detroiters are navigating a complex set of factors that have made tax foreclosure an entrenched problem — a large number of residents who live in poverty, coupled with overassesment and late assessments, among other issues. 

In January, a Detroit News investigation found that tens of thousands of property owners were overcharged by the City between 2010 to 2016. Homeowners paid a total of at least $600 million more than what they should have; individual homeowners were overcharged an average of $3,700.

Tax foreclosure is also one of the main reasons why the largest property owner in the city is the Detroit Land Bank Authority. The quasi-public agency owns nearly a quarter of all property in Detroit.   

Tax foreclosure is the government’s last recourse to recover delinquent property taxes from a property owner. An owner faces foreclosure after not paying taxes for three years. Properties are placed into an online tax foreclosure auction where anyone can bid. If the properties aren’t sold, the properties are turned over to the land bank to try to sell. 

Property tax is the fourth largest source of tax revenue for the city government. For the fiscal year that begins today, July 1, the city estimates property taxes will generate $111.9 million of revenue for the city’s $1 billion annual budget, according to city documents.  

Yet, the city’s top three sources of revenue are income tax, state revenue-sharing and casino-wagering taxes, which combined make up more than half of the budget. 

Between 2015 and 2019, more than 50,512 properties in the city have been tax-foreclosed, according to data on the Wayne County Treasurer’s website. The peak was in 2015, when 24,793 properties were foreclosed upon. Since then, the County and City took a number of steps to bring that number down. One of those programs is Pay As You Stay (PAYS), which sharply reduces property tax delinquency for Wayne County homeowners living in poverty. Another is the city’s Homeowners Property Tax Assistance Program (HPTAP). The program allows homeowners to be exempt from their current year property taxes based on household income or circumstances.

Such initiatives appear to be working, as there has been an 86% drop in the number of Detroit tax foreclosures since 2015. There were 3,351 foreclosures in Detroit in 2019. Earlier this year, Wayne County Treasurer Eric Sabree said the economic fallout of COVID-19 could potentially double the number of properties that face tax foreclosure. 

But it may not, said Mario Morrow, a spokesman for the county treasurer. 

“The actual foreclosures will probably not (double), because we have many more tools, partners and funding sources than we have had in recent years,” Morrow said in an email to BridgeDetroit.

“Stopping foreclosures is just one aspect of the problem.” – Phyllis Edwards

But tens of thousands of Detroit homeowners are caught in a chronic state of tax delinquency, according to a comprehensive study done by the Quicken Loan’s Community Fund that was released last year. The study, called Neighbor to Neighbor, found that 56,000 Detroit homeowners were already delinquent in their property taxes. 

That leaves them vulnerable to tax foreclosure, the study said: “Changes in overall economic conditions, or changes in the administration of delinquent tax payment plans, could upset this precarious balancing act and cause a new wave of tax foreclosures.” 

Groups such as the United Community Housing Coalition, Coalition for Property Tax Justice, Bridging Communities and the American Civil Liberties Union of Michigan are among the many organizations calling for systemic reform. The measures that the groups are lobbying for range from permanently abolishing tax foreclosures to overhauling the city’s Tax Assessor Office. 

“Stopping foreclosures is just one aspect of the problem,” said Phyllis Edwards, executive director of Bridging Communities. “What many are working toward are holistic changes in the system. We’d like to see more funding in renovations and rehabs. Quality housing should be a right, and that’s the approach.” 

Edwards would have liked the statewide ban on tax foreclosures to continue because the full economic impact of COVID-19, and the duration of its effects, remain unknown, she said. 

Bridging Communities is among the local groups in talks with City of Detroit officials, including Mayor Mike Duggan, to deal with the impact of the virus on housing issues,” Edwards said. 

“So far, they have been open to working with the community to come up with a plan,” she said.

In April, the ACLU of Michigan said Whitmer’s temporary ban on property-tax evictions didn’t go far enough. Instead, the group called for the ban to “include mortgage foreclosures and land contract forfeitures, and added protections for tenants and homeowners after the state of emergency ends.”

In 2018, Detroit settled a lawsuit filed by the ACLU that alleged the City made it too difficult for residents to learn about, and qualify for, a property tax exemption based on poverty.

The ACLU sued the City over how it administered a state-mandated property tax break for the poor, arguing that it was inaccessible to the vast majority of homeowners who were needlessly losing their homes to foreclosure. As part of the settlement, a group of homes that were headed to tax auction was instead sold back to the owner-occupants. 

Michele Oberholtzer is director of the United Community Housing Coalition’s Tax Foreclosure Prevention Project. She’s also a candidate for the state’s 4th House District, which covers much of Detroit’s Midtown and New Center neighborhoods and all of Hamtramck. Part of her platform includes ending mass foreclosures, rental evictions and water shutoffs. 

The new PAYS program, which went into effect last month, has been effective in helping residents significantly lower the amount they owe on back taxes, she said. 

Tax foreclosure itself is not always a bad thing, she said. It is useful to clear debts and get rid of irresponsible property owners. What needs urgent reform is the public auction. She advocates for taking steps to help responsible renters who live in residences headed for tax auction to have first rights to acquire those properties, among other reforms.  

The moratorium on tax foreclosures is a unique moment, she said. 

“For years, we have been told that this is the status quo” and that foreclosures can’t be halted, she said. “Suddenly, they have. We have been given a moment to take a look at a different mode of operation. We need aggressively humanitarian policies to continue these practices going forward.”

However, she warns that these changes may face resistance in Lansing from a state Legislature that will perceive it as “helping out Detroit again,” she said.

 “This momentum is not inevitable. It’s possible that it can revert back to a state government that’s more punitive” and will take more aggressive action in terms of tax foreclosures and other measures, she said.

Louis Aguilar is BridgeDetroit’s senior reporter. He covered business and development for the Detroit News, and is a former reporter for the Washington Post.

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