Another Blight for Detroit: Property Taxes

Detroiters Face Record 62,000 Home Auctions
Detroit’s median home value in December was $40,700, down from a peak of $78,800 in 2005, according to Zillow Group Inc. Photographer: Prashant Gopal/Bloomberg

Cindy Gresham paid $6,000 cash in 2010 for her Tudor-style house on Detroit’s west side for herself and three children. Now she probably will lose the home, which came with a surprise $8,586 unpaid tax bill that has since tripled.

The brick home is among about 52,000 Detroit properties the city may seize for unpaid taxes on March 31, including as many as a fifth of all occupied homes. Gresham was one of 5,000 homeowners at the city’s Cobo Convention Center last month trying to negotiate payment arrangements for tax balances that are eclipsing the area’s depressed property values.

“The bills keep piling up -- you can never get caught up,” said Gresham, an unemployed auto worker whose 8-year-old daughter needs surgery twice a month for a respiratory illness. “An investor can buy it, but it’s worth way more to me because I need this home for my kids.”

Detroit has emerged from the largest municipal bankruptcy in U.S. history with new leadership, a downtown restocked with young professionals and a public relations slogan: “America’s Great Comeback City.” While the city core, nestled alongside the Detroit River, is coming alive with corporate workers, foodie hangouts and hipster bars, the nascent renaissance is largely invisible where 95 percent of the population lives.

Two Cities

Gresham’s story is one of thousands reflecting the complexity of reviving the housing market in a city that decades ago had one of the top homeownership rates in the U.S. Now, Detroit has the highest poverty rate, and an economy wrecked by crime, corruption, and lost manufacturing jobs. It also has the highest property tax rates of any big city, and they are pegged to assessments that are out of whack with the 48 percent plunge in home values over the past decade.

“Detroit is at risk of becoming two different cities, one thriving and one continuing to decline,” said Alan Mallach, senior fellow at the Washington-based Center for Community Progress, whose research has focused on urban blight. “What the tax auction says is that tens of thousands of people are either unable or unwilling to hold onto their properties. And can a city be viable if its property owners aren’t paying the taxes that the city needs to maintain itself?”

Detroit’s population has shrunk from 1.85 million -- almost the size of Los Angeles, in 1950 -- to less than 700,000 today. The city’s landbank already owns about 20,000 homes, plus another roughly 40,000 vacant lots, many from previous tax foreclosures. The local government demolishes blighted houses at a pace of about 200 a week.

Dated Values

Values assessed for tax purposes are years out of date, belying the distortions in the market. The assessment for Gresham’s home would equate to a market value of almost $40,000 in 2014, down from $55,000 two years earlier, according to city records.

Gresham said she thought the 1,000-square-foot (93-square-meter) house on Ward Street would be a dream come true -- a secure home in a safe neighborhood at a price she could afford. To buy the property, she raised $2,500 from the bank that foreclosed on the home she had been renting, in exchange for her cleaning the place up and moving out.

Gresham’s living-room window, recently shattered by neighborhood boys hurling stones and then sealed with tape and plastic, looks out on an otherwise well-tended street of brick and limestone Tudors and Colonial Revival homes.

Quitclaim Deed

Gresham bought her house with a quitclaim deed, which transfers ownership and can leave the buyer responsible for back taxes, said Kenneth Silver, a real estate attorney with Hertz Schram based in Bloomfield Hills, Michigan.

“It’s the quickest and easiest way to get a transaction done, with minimum risk to the seller,” Silver said. “It’s maximum risk to the buyer.”

Buyers like Gresham rarely get the help “most middle-income people get,” said Ted Phillips, executive director of United Community Housing Coalition, which advocates on behalf of delinquent homeowners.

“They don’t have an attorney, they don’t have a Realtor, they don’t have a title company,” Phillips said. “They believe the handshake. They believe the house is perfect and doesn’t have back taxes. As a result, they may be in foreclosure three days after they buy the house.”

Mayor Mike Duggan, who took office a year ago, says he’s trying to re-establish the confidence that Detroiters lost in government by cutting property assessments and improving services, from reducing emergency response times to demolishing abandoned homes and installing 1,000 street lights each week. The trouble is that the majority of homeowners are now delinquent on tax bills.

‘Economic Inclusion’

“What does the recovery of the city mean if the folks who have been here aren’t part of it,” Duggan said in his Feb. 10 state of the city speech that focused on “economic inclusion,” including hiring locally for construction jobs and bringing affordable housing downtown. Duggan declined to comment for this story.

Of the 50 largest U.S. cities, Detroit has the highest property-tax burden for a $150,000 home, at $4,988 on average in 2013, according to a study by the Minnesota Center for Fiscal Excellence. The taxes in New York for a house with the same value was $1,087.

Detroit’s tax base was flattened by the housing crash, which led immediately to a wave of mortgage foreclosures. The city’s median home value in December was $40,700, down from a peak of $78,800 in 2005, according to Zillow Group Inc. In the metropolitan area, which includes the wealthier suburbs, it was $115,700, up 9.8 percent from December 2013.

The Hole

Kevin Smith, 46, said he’d love to sell his home located across from a petroleum refinery in the southwest Detroit neighborhood known as “the Hole,” but crime, pollution and $8,000 in delinquent taxes make it almost worthless. Smith, caught in the crossfire of a gun fight five years ago, was shot in the leg on his way to buy bread at a gas station. He can’t stand for long periods and struggles to find regular work.

“I can’t even get $10,000 for my house and it’s got a brand-new roof, windows and vinyl siding,” he said. “How are you going to sell it when you have back taxes?”

Duggan has been lowering tax valuations after a city review showed that the majority of Detroit was over-assessed by up to 20 percent. He’s also trying to boost property values by suing owners of dilapidated houses in tipping-point neighborhoods where blight is appearing on the edges.

Capping Debt

The state agreed this year to allow for payment plans that include capping tax debt at 25 percent of a property’s market value and interest rates of 6 percent instead of 18 percent, said David Szymanski, the chief deputy for the Wayne County treasurer’s office.

Of the 62,000 properties that were in line for foreclosure, tax bills were paid off for about 10,000 and another 17,000 were put on payment plans, Szymanski said. About 18,000 owner-occupants were on the list, but 7,500 have signed up for payment plans, Szymanski said. About 40 percent of property owners in the past failed to keep up with payment arrangements, he said.

Time is running out for residents like Gresham, who will almost certainly lose her home at the end of the month. Her current annual tax bill is about $2,000, though it has been coming down steadily, she said. It was $3,615 in 2010, according to data collected by Detroit property-mapping company Loveland Technologies.

Home Auctions

Gresham said she was told by county officials that she could avoid foreclosure if she put down $963 and then agreed to pay $321 a month toward her balance, along with the roughly $200 she owes each month in current taxes. That’s money she doesn’t have.

Her future will likely be determined at the auctions in September and October. If an investor buys her house, the Gresham family might be evicted or offered the chance to stay on as tenants. If the property doesn’t sell, it will be owned by the Detroit Land Bank Authority, which is now coming up with a plan to “keep as many people in their homes as possible,” said spokesman Craig Fahle.

Gresham has struggled to find work since a local auto assembly plant closed in 2005. She gets $733 a month in federal disability to care for her eight-year-old daughter, Jayda, who speaks with a growl after hundreds of surgeries to remove recurring tumors from her larynx and airway. Gresham is having her fourth child in May.

‘The Streets’

“If this doesn’t work, I don’t know what I’ll do -- when I bought the house I thought it would be everything,” Gresham said. “Next is the streets.”

Homeowners like Gresham whose household earnings put them below the poverty line could avoid paying property taxes as long as they file necessary paperwork each year to avoid them. The rule isn’t widely known and the process can be complicated and can’t be done retroactively, said Margaret Dewar, professor of Urban and Regional Planning for the University of Michigan at Ann Arbor.

Before going to the Cobo Center this month, Sean Clayton, whose delinquent taxes expanded to $12,000 in the eight years since he lost a finance job at the MGM Grande Casino, was ready to abandon a three-bedroom brick colonial that has been in his family since 1968. Now Clayton, 49, and his wife, Vershawn, are planning for a brighter future. They’re going to pay off their debt to the government in $300 installments, an amount that’s “cool with me,” said Clayton, who now works in collections.

They’ll avoid following neighbors who left behind empty properties when they purchased homes in the suburbs before the foreclosures could damage their credit. The Claytons had already put in a bid for a house in Southfield, where they still may move if it’s accepted. If they do that, his family home could become a source of rental income.

“Sometimes you have to go through a fire to grow,” Clayton said. “With something we thought we were going to lose, we can make something out of it.”

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