Group to bid on large swath of Detroit properties
At first, the Home Team Detroit development group considered buying every property in the city headed for this year’s annual county tax foreclosure auction.
Instead, the real estate group is settling for a swath of the northwest side that covers 25 square miles and 24 neighborhoods. That’s an area larger than Manhattan.
“The game plan is pretty simple,” said David Prentice, founder, chairman and CEO of Home Team. “You are going to have a quadrant of (Detroit) with properties that are primarily occupied.”
Prentice and his Home Team colleagues contend they have a plan to solve one of Detroit’s biggest problems: stopping the hemorrhaging of home foreclosures from unpaid property taxes. The group wants the right to buy thousands of northwest properties before they end up in the tax auction, which it will then work to fix up while offering paths for tenants to become homeowners.
The idea has raised both curiosity and alarm. One Detroit City Council member calls the proposal “unique and comprehensive.” Others describe the plan as dangerous. One grassroots movement is already underway to prevent the group from getting the properties.
At this point, city officials are reviewing the legality of Home Team’s goal to buy 2,000 to 4,000 properties before the auction. The homes are in an area that is south of Eight Mile, west of Woodward and just east of Telegraph. Its jagged southern border reaches Fenkell and, in some cases, beyond that.
It’s too soon to tell what will happen, but, the proposal highlights Detroit’s ongoing homeowner crisis. An average of 11,500 Detroit properties have ended up in the annual Wayne County tax foreclosure auctions in each of the past four years. The properties are put up for auction — in September and October — when an owner fails to pay property taxes for three years along with penalties.
Each January, property owners are notified if their properties are at risk of tax foreclosure. Many scramble to try to reach payment deals, and thousands will be taken off the list. But many will not. The Home Team group says as of January its targeted area has 11,073 properties headed for foreclosure.
The county foreclosure auction has drawn controversy for years. Housing rights advocates contend residents are losing properties because of tax bills that bear little relation to market value. The sale has attracted hundreds of out-of-state speculators and local investors who buy for as little as $500, and many don’t pay tax bills either.
Home Team is approaching tax officials about purchasing the properties under a process known as “right of first refusal.” The Detroit City Council and Mayor Mike Duggan would have to approve the sale. Wayne County and the state of Michigan would at least have to agree to not buy them as well, since both also have the option to buy the properties before the public auctions.
The development group says it has the resources and expertise to buy the properties, fix them up and find new residents. Prentice says the group has a plan that allows it to work with people traditional lenders won’t touch because of credit ratings or because of the locations of the properties.
The group’s financing plans are centered around the controversial land contract system. Also known as contracts for deeds, land contracts are alternatives to mortgages. Tenants make payments directly to the property owner and often have no ownership stake until the entire debt is paid.
Some realtors defend the use of land contracts as a way to offer low-income residents and those with bad credit a chance to be homeowners. But housing advocate groups like the United Community Housing Coalition say land contracts are financial traps.
An attorney for the nonprofit Michigan Legal Services said many land contract deals are “gaming the system,” in a recent Detroit News story that pointed out many residents with land contracts end up not getting a home.
“People who enter these contracts end up paying a whole lot more than they would by renting, but have nothing to show for it,” said the attorney, Joe McGuire.
In recent years, land contracts have outnumbered traditional mortgages in Detroit.
Prentice promises a different approach. “I agree most land contracts are designed for the tenants to fail,” he said, suggesting their land contracts will have none of the high penalties, monthly payments that increase in time, rising interest rates and other pitfalls.
Another big difference is that Home Team is vowing to fix up every property before putting it back on the market.
Prentice, who has been working with distressed home properties since 2010, formed Home Team Detroit less than a year ago. He said he is motivated by the fact his father lost the family home in Clinton Township in 2009 after a mortgage foreclosure. Prentice, who has four brothers, was 19 at the time.
The foreclosure ended up splitting his family, Prentice said. He ended up sharing a small apartment with a friend and taking in a younger brother. Since then, he’s made a career working with people at risk of losing homes or who can’t get a mortgage. At age 27, Prentice says he’s helped oversee the management of several hundred properties in Michigan, Indiana and Ohio.
“If we concentrate on a condensed area like we are, I think we will see dramatic results in two years,” Prentice said.
Detroit City Councilman George Cushingberry, who represents a big part of northwest Detroit, said the city’s corporate counsel is reviewing the proposal and should present a report in two weeks.
“I like that it’s comprehensive and takes into account that one of the issues that prevents home ownership is financial literacy,” said Cushingberry, who has not endorsed the plan.
Another potential obstacle comes from the Northwest Detroit Neighborhood Coalition, which has launched a petition drive to block the plan. So far eight neighborhood groups have aligned with the coalition.
“We the people of northwest Detroit hereby declare our strong opposition to high-volume purchases of tax-foreclosed properties (10+ parcels) and other high-volume transfers of properties to real estate investors,” reads the statement. “Proposals like the one currently being circulated by (Home Team Detroit) do not serve the needs or interests of Detroit neighborhood residents. These bulk purchases only accelerate vacancy, blight, and further erosion of our community. “
If Home Team doesn’t get the right to buy the properties before the auction, it will likely not try to buy them during the auctions, Prentice said.