Government can Stop Government Foreclosure
Real ways that local government can stop tax foreclosure now. As featured in the Detroit Free Press Guest Column Edition February 11, 2018
If you’re anything like me, you feel a little sick when you hear that yet another 36,000 Detroit properties are facing tax foreclosure this year. Tax foreclosure is an autoimmune disorder through which our own local government has become the agent of its own destruction. The city, county and state all have a role in carrying out tax foreclosure, but they also have the ability to end it. Government can stop government foreclosure.
Prevent the loss
The first priority must be to preserve homeownership. The most obvious solution for retaining homeowners is to use the federal funds already allocated for foreclosure prevention to actually prevent foreclosure, at no cost to local government.
Each year, the Michigan State Housing Development Authority, (MSHDA) “Step Forward” program denies assistance to hundreds of applicants who ultimately lose their homes to tax foreclosure. Meanwhile, the funds go unused. MSHDA requirements are too judgmental, stringent and unreasonable for worthy homeowners to qualify, and the application period is too short. Local government could work with MSHDA to better utilize its foreclosure prevention money for Detroit homeowners, and to increase this funding by returning demolition funds for their original purpose.
Another solution involves the expansion of the so-called “poverty exemption,” which waives taxes for Michigan homeowners with low incomes. This exemption could be extended on a retroactive basis (as with income taxes and the “principal residence exemption”). A retroactive poverty exemption could annul foreclosures for hundreds or thousands of at-risk Detroit homeowners who are losing their houses for taxes that they could have had waived.
At-risk homeowners need better payment plans. State law limits Wayne County’s options for reducing interest and debt, and over-assessed delinquent tax bills increase at 18% interest each year. One option is the so-called “SEVSPA” plan, a plan that cuts tax debt to half the State Equalized Value. This existed under a 2015 law passed with the support of Mayor Duggan, but it was only available temporarily at a time when property assessments across Detroit were still chronically over-inflated. We need more common-sense payment plans that reduce debt to some value proportionate to the home’s property value or the owner’s ability to pay.
Use power for good
Typically, a property foreclosed by the Wayne County Treasurer is put up for auction and sold to the highest bidder in auction. In the auction, far more people lose homeownership than gain it but the government can encourage pro-homeownership programs like the first Right of Refusal (ROR) and “bundling.”
ROR is the opportunity of local government to buy properties from the Wayne County Treasurer before they are auctioned. In 2017, Detroit used the ROR to preserve occupied residential programs for the first time. Eighty homes were protected from auction and the residents (those who were not former owners) had an opportunity to purchase the home they already lived in for prices ranging from $2,000 to $5,000. If this program was expanded to include all occupied foreclosed homes, this would mean that 2,000 homes might be diverted from the grips of foreclosure onto a common-sense affordable path to homeownership.
Most auctioned properties are sold individually, but through “bundling,” properties are clustered together. Large bundles are expensive so this is a method of preventing homes from being purchased in auction. For each of the past four auctions, the Wayne County Treasurer has bundled thousands of properties — mostly vacant land or vacant homes — which ended up at the Detroit Land Bank Authority with other unsold auction stock. Any occupied homes that could not otherwise be saved from foreclosure could be bundled and transitioned to the ownership of their current resident, if any of the government entities involved chose to do so.
Thousands of occupied homes could be lost to foreclosure this year, or not. After years of crisis, Detroit seems to have reached a state of shock that allows us to accept unacceptable self-destructive practices. So much has been lost that it seems impossible to lose any more, but resurgence is not inevitable — we must become the agents of our own betterment. Government foreclosure is a terrible threat but it is also one of the greatest opportunities for redemption that Detroit has, if we chose to use it.