Most properties in Wayne foreclosure auctions repeat cycle of unpaid taxes

Christine MacDonald

 

Detroit — Wayne County treasurer officials are foreclosing on thousands of properties from tax scofflaws, only to sell them to buyers who don’t pay taxes either, newly released records show.

 

Nearly 80 percent of 18,568 properties bought at the treasurer’s controversial foreclosure auctions in the last two years are now delinquent on taxes, according to county records from this month. One recent study found the bankrupt city of Detroit alone is owed about $70 million in taxes from the properties.

 

The situation frustrates critics who have been pushing for an overhaul of the annual online auction, which ends its first round this week. They argue the auction breeds a vicious cycle: Speculators buy properties for as little as $500 apiece, sit on them or milk houses for rental cash for three years without paying taxes until they are foreclosed on again.

 

“Bidders know they can get away with buying property for almost nothing and not paying taxes,” said Maggie DeSantis, president of the Warren Conner Development Corp., a neighborhood group. “It’s been going on for years, and we’re only dealing with it now because it has so obviously contributed to Detroit’s demise.”

 

Chief Deputy Treasurer David Szymanski called the 80 percent number “disappointing” but said Treasurer Raymond Wojtowicz has a plan to seize the properties if the owners don’t pay up.

 

“Unfortunately, there’s a culture that’s decided that you just don’t have to pay taxes, and we are trying to fight that,” Szymanski said.

 

Many of the bulk buyers The News examined from the last two auctions were tax delinquents, including 117 properties purchased in 2011 by attorney Robert Vanderwoude and put in the name of Detroit resident Bernice Pinkston-Carpenter.

 

All but one of the 117 properties is behind on taxes, for nearly $625,000 as of earlier this month. The average auction sale price for the properties was $650.

It’s not clear whether Pinkston-Carpenter still owns them all, but she was listed as the taxpayer of record on the county treasurer’s website as of last week. Neither Pinkston-Carpenter nor Vanderwoude responded to multiple attempts seeking comment.

 

The auction is designed to recover money for the cash-strapped cities, schools and libraries to replace property taxes lost after owners don’t pay for three years.

 

In Detroit, it’s a losing game.

Attempts at reform

The county recovered 23 percent of the $135 million owed in taxes and fees last year by selling about 10,500 properties in the city. And nearly 28 percent of properties sold at auction cycled through tax foreclosure twice between 2002 and 2007, according to a 2011 study by the University of Michigan’s Taubman College of Architecture and Urban Planning.

 

Another 7,800 Detroit properties didn’t sell at all last year. Processing foreclosures costs the county about $500 a property, or about $4 million for the unsold Detroit properties.

 

“This is a waste of time, a waste of money and a waste of all our limited resources,” said Michael Brady, vice president of policy for the Center for Community Progress, a nonprofit in Flint that researches land vacancies. “Many of these properties ... have been aggressively slum-lorded and are in really poor shape.”

 

Officials should consider withholding low-demand properties from the auction and working with land banks to better market them to those more likely to invest and pay taxes, Brady said. Neighbors often stay away from the online auction because they are intimidated by the process, he said.

Szymanski said his office is trying to reform the auction, in part by cracking down on tax deadbeats. Staffers sent letters in June warning owners to settle the debt by the end of February or risk losing the properties.

 

The county can seize the land under a clause the treasurer added to deeds in 2011 and 2012 that requires buyers stay current on taxes or risk losing properties. The reform was added after a series of stories in The Detroit News about buyers who buy back their own foreclosed properties.

“We don’t want to sell properties to people who aren’t going to pay taxes,” Szymanski said. “We are trying to break that cycle.”

 

But his office doesn’t have a plan on what to do with the land it takes back. Szymanski said he would hope to work with the state or city land banks to sell the properties to buyers who have proven to be more responsible.

A separate group wants Detroit Emergency Manager Kevyn Orr to step in.

A proposal being pitched by a coalition of community groups and backed by the Michigan Legislative Black Caucus, called Project 99, would have the city seize the properties now through a nonprofit and sell them to buyers deemed responsible. The plan would take only properties owned by investors, not owner-occupied ones.

 

“Unless the city uses its tools ... the investor community will continue to take advantage of the city and the auction process,” said Andy Munro, with the group pushing Project 99.

 

The group scoured county records and concluded Detroit is owed more than $70 million as of July from the last two years of auction purchases. That number doesn’t include 2013 taxes owed to the city.

 

Orr spokesman Bill Nowling issued a statement to The News saying the city is looking at the issue. “The EM wants to examine all options that could help the city recover current uncollected property taxes ... but first we need to fix the underlying organizational issues so that we can process and collect the proper tax owed the city in an efficient and reliable manner,” Nowling wrote in an email.

 

City Hall recently launched a citywide reassessment of properties and the state is investigating complaints Detroit routinely inflates property appraisals.

Complications for buyers

Auction buyer Gene Carlson said many investors are trying to do the right thing. But theft and inflated city assessments make it difficult, he said.

Carlson and a partner, both based in Southfield, bought 390 investment properties at the 2012 auction, all houses that appeared occupied before they began bidding. When they got the deeds and entered the buildings about two months later, about 100 were stripped clean by thieves, he said.

 

The city’s assessments are also often at least five times the true market value of properties, he said. He paid a “couple hundred thousand dollars” in taxes this summer after receiving warnings from treasury officials it could seize the homes he bought to rent or sell for cash or on a land contract. Even so, he acknowledged not all his taxes are current and “if we are pushed ... (the county) may have to take them.”

 

Auction buyers are responsible for the taxes in the year they buy the properties from the county. So the 2012 buyers are on the hook for 2012 property taxes.

While the city waits for a fix, Ted Phillips, who runs a housing nonprofit in Detroit, said he has clients who lost homes to foreclosure and then bought them back from the new auction buyers under land contracts at inflated prices. The auction buyers don’t pay the taxes either and some are headed back to auction, he said.

 

“The system doesn’t work and needs a major overhaul — the whole darn thing,” said Phillips, with the United Community Housing Coalition.

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