Monday, August 27, 2018

Wayne County Tax Auction: Why the Treasurer Should Stop Holding It
Nancy Kaffer
Detroit Free Press
7:00 a.m. ET Aug. 26, 2018

This is what I've come up with, after years of writing and reading about the Wayne County Tax Foreclosure Auction, the Detroit homeowners displaced by it, the unjust criteria it has used to foreclose property, it has the damage it does to neighborhoods, and the myriad resources squandered in efforts to blunt the auction's harmful impact.

The auction doesn't work. Not in Detroit, at least, where it has exacerbated the neighborhood blight it was designed to relieve. 

So why not stop doing it? 

State law requires county treasurers to seize tax-delinquent properties and to sell them at an annual auction. For an elected official like Wayne County Treasurer Eric Sabree to flout state law would be a grave action — but one that's long overdue. At the least, Sabree should postpone further auctions of residential properties in Detroit, where rampant property speculation has failed to slow the rate of abandonment, until the process can be significantly reformed.

The damage done

Between 2005 and 2014, an analysis by Detroit data firm Loveland Technologies found, there were 145,458 tax foreclosures in Detroit. They touched about a third of all property in the city.

In the last five years, more than 30,000 occupied homes were auctioned, Loveland. The vast majority of auctioned parcels are purchased by bulk buyers, who frequently display no interest in improving the properties they've purchased.

The city has acknowledged for years that Detroit homes were assessed at an inflated rate, and that the tax bills sent to residents were artificially high. This June, the city settled a lawsuit brought by the ACLU, claiming the city didn't do enough to inform homeowners about the property tax exemption it's required to offer impoverished residents, and that it is too burdensome to obtain, tacitly recognizing that residents weren't obligated to pay the taxes due on many homes the city repossessed and auctioned.

A 2015 Loveland survey found that over a year, one in six auctioned homes became blighted. A Free Press investigation tracked 23 foreclosed homes over a seven-year span. About 78% of the homes were occupied when auctioned. Now, 78% are vacant.

And the damage continues.

The first round of the next auction, in which bidding starts at the cost of back taxes, starts Sept. 5. Properties that don't sell will go up again in October. when the minimum bid will drop to $500.

This year, Sabree says, 3,243 foreclosed properties will be up for auction, including 451 owner-occupied homes. Another 498 are occupied by non-owners, which can include renters.

That's about 2,500 people.

"In theory, the policy behind it makes sense," ACLU of Michigan Legal Director Michael Steinberg said. "The reason it isn’t fair in Detroit is primarily because our government screwed up.

Steinberg says that, Unlike the mortgage foreclosure crisis, "the tax foreclosure crisis was a government-created crisis, because of those two factors, the over-assessments and the unavailability of the poverty exemption."

A moratorium on the auction of residential properties would acknowledge that a process created to speed redevelopment in cities like Detroit has instead hastened the city's decline, that the auction as it stands is inherently flawed, and that to fix those problems requires a deep reconsideration that is simply not possible while the mechanism is in motion.

Just press pause

Foreclosure is a three-year process. Homes are marked delinquent in the first year of nonpayment; it's not until the third year that the home is foreclosed on and sent to auction.

For a moratorium to be effective, Sabree would need to redirect the resources normally directed toward conducting the auction — including the money foundations provide to buy back owner-occupied foreclosed homes or rental properties occupied by tenants — to changing the process.

Wayne County's auction has been studied by researchers and academics across the nation and in the city itself. Service agencies have on-the-ground, practical experience with the problems the auction causes, and they have proposed a number of practical remedies.

A six-month or year-long moratorium would give Sabree time to develop a set of best practices for his own county's auction, draft legislation to amend the state's outdated tax-foreclosure laws, and rally the support of the Michigan Association of County Treasurers.

But what about ...

It's true that without the threat of foreclosure, some property owners might simply refuse to pay. It's also true that the auction yields tax revenue the county or city might otherwise not collect.

That's why Sabree should impose a moratorium, not end the auction altogether, until his county can adhere to the same principle embraced by doctors: First do no harm.

"We don’t get excited about the auction, because we can make money off it," Sabree said. "It’s a short-term gain compared to what happens to the city, the neighborhoods, the schools."

But it's worth nothing that when state and local government want to facilitate big-business attraction or development, like a tax-incentive package devised in an unsuccessful bid to win a second Amazon headquarters, or a state law passed to help Quicken Loans founder Dan Gilbert's redevelopment projects, they find ways to endure short-term tax revenue shortfalls in order to secure long-term benefits.

"When you look at the taxes people owe, they say, look at the (Wayne County) jail project that failed, look at the money wasted in that project," Sabree said. "They wasted $250 million in a project that was nothing, and someone’s losing their house for $5,000. It’s sad when you look at it that way."

This process is literally insane

If you want to understand why such an extreme course of action is necessary, look no further than how that ACLU lawsuit was settled.

Filed on behalf of seven Detroit homeowners and four neighborhood associations, the lawsuit took aim at the bureaucratic maze surrounding the poverty exemption, Steinberg said.

Homeowners had to request an application at city hall. The application arrived in the mail, sometimes after the city's deadline had passed. The amount of documentation required was absurd: report cards for the applicant's kids, court-issued divorce decrees. After all of that, the exemption was only good for a year.

Most significantly, Steinberg said, most people who qualified for the exemption simply didn't know it existed.

The city agreed to get better at telling homeowners about the exemption and to streamline the process. The city also agreed to buy homes improperly foreclosed from the county, and sell them back to homeowners already in the three-year cycle for $1,000, a deal subsidized by the city and philanthropic foundations and managed by the United Community Housing Coalition, which will offer no-interest loans for folks who don't have the cash on hand.

But there's a catch. Owners of foreclosed homes who qualify for the poverty exemption had to register by June 13 (a deadline later extended until the end of August) — all to meet the timetable mandated by the auction.

Let's be clear: There's no question that the county has foreclosed on homes it shouldn't have — homes whose owners qualify for an exemption on their overdue taxes. But if those homeowners don't sign up by an auction-imposed deadline, they'll lose their homes, anyway.

This is crazy.

But we keep doing it

"I think the auction is probably the last resort, and it’s only because it’s required by law that we do it," Sabree said. "If we didn’t have to have an auction, we wouldn’t do it."

Sabree also says he has a responsibility to the other residents of Wayne County, the ones who pay their taxes, and aren't foreclosed on.

But it would be more productive, Sabree said, to conduct a thoughtful process that took into account the benefit of occupied homes and the conditions that might keep a homeowner from paying. A process that could match prospective buyers with properties and the right resources to be responsible owners, and keep speculators out.

Even in Oakland County, where the tax foreclosure auction works much more like it's supposed to — the county foreclosed on 367 properties this year, holds its auction in person, and finds homeowner-buyers for auctioned properties at a higher rate — Oakland County Treasurer Andy Meisner said, "There’s no reason we need to continue with this current structure."

But within the auction's existing parameters, he added, there's room for improvement.

"State law has minimal requirements for what treasurers have to do for foreclosures," he said. "We take what the statute says as bare bones, and we've made it a contest in our auction to see what steps we can take to prevent foreclosures. If there are zero foreclosures, you don’t have to hold an auction."

Despite his dim view of the its productivity, Sabree plans to hold this year's auction, saying he's bound by state law.

"I think the Legislature ... if I was going to challenge it, I think Attorney General’s office would get involved, the treasurer’s office would get involved," he said.

The ACLU's Steinberg takes a different view: "I think there’s a counter argument that they have some responsibility under state law to make sure the taxes are accurate."

... but it's an election year

If Sabree declared a moratorium, the onus would be on someone with legal standing to ask a judge to compel him to hold the auction, a role most likely assumed by Michigan's attorney general, GOP gubernatorial candidate Bill Schuette.

Schuette will surely win few votes among Detroiters. But it's an election year, and forcing impoverished Michiganders from their homes would be bad optics for any candidate, particularly one as image-conscious as Schuette.

In other words, you're a county treasurer contemplating an act of civil disobedience, this is the time.

Down with PA 123

The whole point of the auction, created in 1999 by Public Act 123, was to return tax-delinquent properties to productive use. PA 123 shortened the then-six-year foreclosure process to three, and rationalized a hodgepodge of state and local regulation.

But PA 123 has outlived the problem it was meant to solve. Back then, it was abandonment. That still happens. But the displacement of owner occupants has eclipsed concern about transferring abandoned property quickly.

Just as PA 123 supplanted policy that wasn't working, it's time to find a better way.

And it's up to Sabree to do it.

Nancy Kaffer is a Free Press columnist. Contact: nkaffer@freepress.com. 

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