Detroit reviewing link between tax auction, housing instability in response to U-M study

December 19, 2019

Contact: Lauren Slagter, 734-929-8027, lslag@umich.edu

DETROIT — The mortgage and tax foreclosure crisis of the past decade has reshaped Detroit’s low-income housing markets. The majority of Detroit households are renters now, and they’re becoming increasingly reliant on corporate landlords.

A working paper by University of Michigan-Dearborn Assistant Professor Joshua Akers and Rutgers University Assistant Professor Eric Seymour outlines the housing policies and other factors that have allowed speculative buyers to contribute to neighborhood instability and blight in Detroit.

The study — which analyzed property records from 2005 to 2015 — found corporate landlords buying in bulk are more likely than “mom and pop” landlords to weaken already-weak housing markets by allowing houses to fall into disrepair and eventually be demolished, at the public’s expense. 

Large speculative landlords, who own 10 or more single-family homes purchased out of foreclosure, also increase housing instability for low- to moderate-income households through inflated rent prices and higher eviction rates, according to the study.

“This is really important research that details how property speculation through the tax foreclosure auction contributes to housing instability,” said Arthur Jemison, group executive for Housing, Planning and Development with the City of Detroit. 

Jemison noted the city has already taken steps to stabilize neighborhoods, including:

  • expanding access to property tax exemptions, which yielded an expected 40% increase in applications from 2018 to 2019; 
  • support for a proposed Pay As You Stay program to limit property tax foreclosures;
  • revisions to the city’s rental ordinance to ensure investor-landlords make improvements to their properties;  
  • preserving and building 4,500 affordable units, toward an ultimate goal of 12,000 affordable units by 2023; and 
  • exploring a pilot program that would guarantee access to legal counsel for low-income tenants in eviction cases. 

This research makes clear that we must redouble our efforts in those areas, do more to limit property speculation through the tax auction and ensure the courts are honoring tenants’ rights,” Jemison said. 

Ensuring right to legal counsel is one of several interventions outlined by Akers and Seymour and highlighted in an accompanying policy brief from the University of Michigan’s Poverty Solutions initiative, which supported the research. 

Several cities across the country have instituted right to counsel programs, based on evidence that when low-income tenants are provided with legal representation in eviction cases, they’re far less likely to be forcibly displaced from their homes.

“The data clearly show that when low-income tenants are afforded the right to counsel, they have a good chance of avoiding eviction and its potentially devastating repercussions,” said Patrick Cooney, one of the policy brief’s authors and the assistant director of Poverty Solutions’ Detroit Partnership on Economic Mobility. 

Other key findings from the study include:

  • 90% of all tax auction purchases have been to investors, principally bulk buyers, since the Wayne County Tax Foreclosure Auction began in 2002.
  • A subset of investors use eviction as a routine part of their business model, with multiple subsequent evictions linked to the properties they purchase.
  •  An estimated $34 million in public funds have been spent, starting in 2014, on demolishing houses purchased by speculators in tax foreclosure.

“This report is the compilation of five years of research revealing the relationship between bulk foreclosure buyers, evictions, and blight in Detroit,” Akers said. “Speculative investors are profiting from the punitive system of tax foreclosure and using eviction to profit off of Detroit’s most vulnerable residents. We know how the eviction machine works. Advocates and residents have spent years trying to slow it. It is time for government agencies to stop it.” 

In response to the research, Jemison said the City’s Department of Neighborhoods, Buildings, Safety Engineering and Environmental Department (BSEED), Office of the Chief Financial Officer (OCFO) and Housing and Revitalization Department (HRD) are looking for new ways to monitor investors abusing the tax auction, including:

  • sharing with Wayne County a list of known landlord LLCs compliant with the rental registry and asking for sales to be limited to those LLCs with a track record of compliance; and
  • exploring opportunities for the city assessor to require any LLC registering a property through a property transfer affidavit to also register the legal names of all owners, interested parties and associated LLCs to better guard against speculative investors hiding behind various LLCs.