This year alone, over 80,000 Detroit properties received tax foreclosure notices. Among those properties were vacant plots of land, abandoned buildings and yes, occupied houses- homes with people living in them. While Detroit banks in glow of positive press post-bankrupcty and aims to attract new residents, the city isn’t doing nearly enough to keep the people who have been here all along.
The Great Recession hit Detroit hard- approximately 67,000 properties went through bank and tax foreclosure between 2005 and 2007. This year alone, tax foreclosures alone may surpass that number. That, taken with the fact that many Detroit neighborhoods have fewer residents now than they did then, and that a greater portion of the properties in foreclosure are occupied residential storms, means that we are facing a crisis of unprecedented proportions.
Michigan state law (Public Act 123 of 1999) mandates tax foreclosure for any property behind on its taxes by 3 years or more. This aggressive law applied to a poverty-stricken population with a broken tax system has led us to our current situation- a tidal wave of foreclosures.
A Broken System
It’s not that people shouldn’t have to pay taxes: government can’t survive without funding to provide services, sustain infrastructure, and grow. Property taxes are among the more progressive models of funding governments, since property values tend to scale with wealth. However, the property tax system in Detroit is severely flawed for a few basic reasons: high taxes, over-assessments, poor implementation and excessive fines. Property values are chronically over-assessed.
State law mandates that property values must be re-assessed annually but Detroit has not had the will (why do reassessments that would lead to lower revenue?) or means (bankrupt city with little capacity for such a monumental task) to do adequate property assessments in recent years. Mayor Mike Duggan admitted as much, and this year applied a blanket property value reduction to large swaths of Detroit properties. But these reassessments are not retroactive and are still inflated far beyond actual property values.
Even if a property is correctly assessed, tax rates are exorbitant in the city of Detroit. This is especially troublesome given the fact that the services taxes are supposed to pay for are often severely lacking. The city is taking mammoth strides to improve garbage pick-up, tear down blighted buildings, and provide street lighting, but services still fall short of what many cities take for granted, and residents are still expected to pay premium prices for less.
There are serious concerns about the process by which the city and county issue tax bills and foreclosure notices. Many residents never receive a tax bill in the first place, and aren’t given to going out of their way to find more bills to pay. A homeowner who has finally paid off their mortgage may have never received tax bill since it was sent to the bank, they think they own the house free and clear but find themselves facing a foreclosure notice 3 years later. Other residents complain that they never received a foreclosure notice. The county is supposed to make an effort to verbally engage with a resident when issuing a notice, but that is not the practice. To clear up complaints about due process, the county has taken to issuing up to a dozen foreclosure notices in that menacing yellow plastic packaging for a single house.
Whether you fall behind in taxes because you couldn’t pay or didn’t know you were supposed to, the consequences are enormous. State law mandates an 18% interest on back-taxes, making any hole all but impossible to climb out of. Fortunately, a recently-passed law cuts that interest rate to 6% for many owner-occupants. Controversies converge in some cases where overdue water bills are converted to liens on homes, meaning that some properties go into foreclosure even when their taxes are not overdue.
Whatever Your Reason
It makes sense to fight tax foreclosure in Detroit even if you don’t feel sympathy for the Detroiters who have stood by their city for so long, only to be kicked out. Looking at the financial analysis alone proves that this does not make financial sense for the economy at large, especially in the case of occupied residential homes.
It costs more to demolish a building (approximately $12,000 of tax-payer money) than it would to pay in full the back taxes (average $3,200 in the 2014 foreclosure auction), not to mention the untracked social costs of human displacement.
A person without a home is homeless- Detroit already has approximately 40,000. A home without a person is a blighted building- Detroit already has 80,000. Foreclosure and blight have an 80% correlation rate in this city. These problems are already monumental and will require years of effort and funding to address, yet local government is actively aggravating both processes by carrying out massive tax foreclosures.