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Law that ends tax-debt loophole snags homeowners

Christine MacDonald
The Detroit News
  • This is the first year Wayne County owners won’t be able to buy back properties in the tax auction.
  • Gov. Rick Snyder supported and in January signed a new law that shut down the practice.
  • The Wayne County Treasurer’s office lobbied legislators for an exemption for owner occupants.
  • One landlord erased $600,000 in taxes and other liens by buying back 34 of his foreclosed properties

A new law aimed at cracking down on tax-dodging landlords is preventing some of the city’s poorest residents from saving their homes.

This is the first year property owners won’t be able to buy back their properties at Wayne County’s annual tax foreclosure auction for less than what they owe.

A new law backed by Gov. Rick Snyder shut down the practice.

Gloria and Mah-Lon Grant and their great granddaughter Jah-Lon Johnson in 2011.

Over the last several years, the city lost millions of dollars in tax revenue from speculators and landlords who used the loophole to wipe away their tax debt.

The auction requires all taxes and debts to be paid during September bidding, but those debts are wiped away and bids start at $500 during October’s auction.

That allowed delinquent owners and real-estate firms to repurchase foreclosed properties for pennies on the dollar. Advocates for the needy, though, say it also gave homeowners who were overwhelmed by inflated and high-interest late fees a last-ditch option to save their homes.

Mah-Lon Grant says he knows exactly where he’d be now if he hadn’t been able to buy his house out of tax foreclosure for $500 in 2010.

“Homeless ... holding a sign, ‘We will work for food,’ ” said the 66-year-old Detroiter, who survives on Social Security. His 5-year-old great-grandaughter lives in the house that he and his wife have owned for nearly 38 years.

With the help of a nonprofit, he was able to wipe away about $5,000 in tax debt. People who are making a profit shouldn’t be able to rebuy, but “people like me and my wife, living day to day, they should let us buy it back,” Grant said.

“We are not a landlord,” Grant said. “We just got caught up ... and the taxes got out of hand.”

Mass evictions loom after homes sold off

Former Chief Deputy Treasurer David Szymanski said his office lobbied legislators for an exemption in the law for owner occupants but the idea was rejected.

The legislation was sponsored by former state Sen. Tupac Hunter, D-Detroit, who didn’t return calls for comment.

When Snyder signed the legislation in January, he said in a press release that the changes help develop “a more transparent foreclosure system.”

The legislation followed a 2012 Detroit News investigation that found owners erased at least $4.7 million in property taxes and liens on more than 400 properties they purchased back at auction.

One landlord erased about $600,000 in taxes and other liens by buying back 34 of his foreclosed properties.

A Snyder spokesman wouldn’t directly respond to a question of why there was no exemption of owner occupants.

But spokesman Dave Murray said there are resources available to help people save their homes, including Michigan’s Step Forward Program, which has spent $49 million to help Wayne County homeowners.

Another reform instituted this year lowers interest on debts to 6 percent from 18 percent for some homeowners.

“The state is working very hard to ensure that there are fewer foreclosures in Michigan and homeowners are informed about their options if they find themselves in these stressful and challenging positions,” Murray wrote in an email.

But others say the law should have made a distinction between landlords and homeowners.

“I have got to believe there are much easier ways to stop speculators without hurting owner occupants,” said Steve Tobocman, a former Detroit state representative who served as co-director of the Michigan Foreclosure Task Force.

“They used a hammer for something that needed a pair of pliers.”

Last year, the United Community Housing Coalition nonprofit helped nearly 250 owners buy back homes. Some homeowners didn’t know they need to file homestead exemption forms with the city to avoid paying higher tax rates intended for landlords.

“We will not be buying for former homeowners (this year) and that kills me,” Ted Phillips, the group’s executive director, wrote in an email.

Grant said he has stayed current on his taxes since, sometimes using cash intended for groceries or medication.

“We are never, ever going to get into that predicament again,” Grant said.

Owners can buy their homes at the auction but they now have to pay the full debt they owe, Szymanski said.

The new law requires auction bidders sign an affidavit declaring they don’t owe taxes or blight fines and face perjury charges for lying.

But it’s not clear if anyone will be policing buybacks.

County officials have said they don’t have the staff to vet every buyer. And critics have said landlords likely will buy under new companies that are difficult to track.

cmacdonald@detroitnews.com