Foreclosures down, but debt could spell future crisis
Anthony DeRamus, 55, owes $6,000 in back taxes and interest on his home which is only worth $5,400. Owners of roughly 6,000 Detroit houses owe tax debt that’s a quarter or more of what their properties are worth.
Anthony DeRamus’ Detroit home is under water — not on a mortgage, but on tax debt.
The 55-year-old owes more than $6,000 in back property taxes and interest on a rundown west-side bungalow worth only $5,400, according to its city assessment. He avoided this month’s foreclosure auction after getting on a county repayment plan, but stopped making his $130 monthly payment last fall after he was hospitalized for several weeks with an infection.
“To lose this house ... I don’t have anywhere to go,” said DeRamus after burying his head in his hands, hiding tears late last month. “I am in a pool of despair with everybody else, drowning, hoping the life raft will come along.”
County and city officials have cut by half the number of tax foreclosures headed to the annual auction that began Wednesday, putting a record number — 23,000 occupied properties — on repayment plans. But they may have just delayed a crisis, according to data obtained by The Detroit News through the Freedom of Information Act.
Owners of about 6,000 occupied properties in Detroit owe tax debt that’s a quarter or more of what the houses are worth, according to the analysis that compared county payment plan data and city assessments as of last month. And The News found a new state law that could dramatically reduced the bills of those with the highest debt has been barely used by the Wayne County Treasurer’s Office.
Housing advocates and an auction expert said the level of debt is unsustainable and predict many owners will default in coming months without more help. The average debt for homeowners on payment plans is nearly $6,000.
“They are simply kicking the can down the road,” said Michael Steinberg, the legal director of the ACLU, which filed suit this summer to stop homeowner foreclosures until city assessments can be corrected. A judge dismissed the ACLU’s request to temporarily stop this week’s auction, but its broader lawsuit against the city and county is still pending.
The ACLU argues residents have been sacked with unfair tax bills for years because of inflated city assessments, further fueling the foreclosure crisis. The county treasurer has processed more than 140,000 foreclosures countywide since 2002.
The state Legislature passed a law last year aimed at helping Detroit homeowners like DeRamus with high property tax bills by capping their debt at a quarter of the home’s value. But The News found the county has barely used the option even though officials, including Mayor Mike Duggan and Gov. Rick Snyder, touted it last year when it was signed into law.
The Wayne County Treasurer’s Office has enrolled only 200 into that payment plan, even though up to 3,800 homeowners could be eligible for the relief, The News found reviewing county data.
DeRamus and a handful of homeowners interviewed by The News said they were never told about the option. It would have cut DeRamus’ bill to $1,350.
“Absolutely (the county treasurer) should have used it more,” said Ted Phillips, director of a nonprofit that works to help poor residents keep their homes. “I still haven’t heard a good reason why they haven’t used it more.”
Wayne County Treasurer Eric Sabree, who took office in April, said there are several reasons why more owners weren’t allowed in.
Former Treasurer Raymond Wojtowicz’s policy was that owners who had four years or more of debt shouldn’t be able to qualify, said Sabree, who has since dropped that requirement. Sabree said there also were some extremely low city property assessments that his office questioned as inaccurate, which are being corrected this year.
Sabree acknowledged some owners fell through the cracks and his staffers are going back and auditing records to get them into the plan. The law expired in June, but the treasurer is allowing owners in if they were in another payment plan and qualify.
“We liken our work to an emergency room physician,” Sabree said. “We are doing our part to keep people out of foreclosure.”
County tries to ease arrears
Sabree said his office has been able to save some delinquent owners more than $7.5 million by dropping interest rates on debt from 18 percent to 6 percent using another new law change designed to help homeowners.
Sabree said the office has a “higher standard” for participation in the plan that wipes away taxes because it reduces revenues for other entities, such as schools, city government and libraries.
This year only 14,300 properties will be offered up at the tax auction, compared with 28,000 the previous year.
And as of late last month, Sabree said 85 percent of the 31,000 occupied and vacant properties on payment plans are making payments. Those “numbers are a good start,” but said he doesn’t know if the weight of debt will force more into foreclosure next year.
“Predicting is hard to do,” Sabree said.
But some experts say that debt could be too much for many. Primarily affected are the 6,000 owners who owe at least a quarter of what their houses are worth, said Margaret Dewar, a University of Michigan professor of urban and regional planning who has studied the auction for years.
“I don’t think a lot of them can sustain that,” said Dewar. “Why would you pay that? It’s way too much.”
Nationally, the average property tax rate — the average single year of taxes divided by the average value of a home — was 1.29 percent in 2014, according to RealtyTrac, a housing data company.
The News found about 200 extreme examples like DeRamus of occupied properties with tax debt that’s larger than what the house is worth.
DeRamus’ $6,000 debt is from five years of back taxes, which includes $1,900 in interest. It’s not clear why the treasurer didn’t foreclose before. The law generally requires foreclosure after three years of delinquency.
DeRamus said he fell behind after stepping on a rusty nail around 2012 and getting sick. The infection got so bad he had to have his toe amputated and had to stop working as a home health care aide. His father and mother, for whom he was the sole caretaker, also died during that time period, he added. More recently he’s tried working as a dishwasher but had to quit when the doctor ordered him to stay off his foot, he said.
“The government bailed the banks out. Why can’t the consumer at least expect some consideration?” DeRamus said. “I am under the gun everywhere I turn. I am hoping someone says yes to something before everybody says no to everything.”
Single mom gets reprieve
When The News asked about DeRamus’ case, the county treasurer’s office said he should have qualified for the plan that factored in his home’s value. They are currently working to get him in it.
The same happened when The News presented the treasurer’s office with the case of Teontae Shelby. The single, 31-year-old mom of two owed $7,150 on a house the city valued at $7,200.
She bought it from a real estate company on land contract in 2012, but said the sellers lied and told her there were no back taxes on the property. She’s been paying off the debt gradually as she fixed the rundown home’s electrical system and added a water heater and furnace.
Shelby said she was on a regular payment plan that required about $450 a month in June when she showed up to the treasurer’s office in tears, pleading for assistance to help lower the payments. County staffers reduced her interest rate from 18 percent to 6 percent, but she said they never mentioned she’d be eligible for more help because her debt nearly eclipsed the value of her home.
After being contacted by The News, Sabree’s office agreed to wipe away the rest of Shelby’s debt, factoring in some recent payments she made, and plan to send her a small refund.
“The way to make money in this city is not to rob poor people,” Shelby said. “I was the first homeowner in my family.”
Other homeowners remain unaware of the option. The News found another homeowner, who said she was too embarrassed to give her name, that owes more than $15,000 in back taxes on a house worth $12,000. Under the plan, her tax bill would be reduced to about $3,000.
There is more money now available to help people keep their homes. This year the federal government allotted nearly $60 million to the Michigan Step Forward program through federal Hardest Hit funds for homeowners statewide facing tax foreclosure. Before this money was set aside, more than $45 million has been paid directly to the Wayne County Treasurer to help owners avoid tax foreclosure.
But critics like Jerome Goldberg, a longtime anti-foreclosure activist and attorney, want less spent on demolitions and more on keeping people in their homes. Another $88 million is being directed toward Detroit demolitions.
“The purpose of the Hardest Hit funds explicitly was to keep people in their homes,” Goldberg said. “When you remove people from their homes, you only add to blight.”
Help for distressed homeowners
The federal government gave Step Forward Michigan about $60 million this year to help homeowners statewide keep their homes. The program gives a homeowner an interest-free loan of up to $30,000 to help with mortgage, property taxes or condominium association fees. The loans are forgivable at 20 percent each year, as long as the owner lives in the home. Apply online at StepForwardMichigan.org or call (866) 946-7432.