Detroit suits seek $30 million in unpaid property taxes
Detroit — The city is filing more than 1,000 lawsuits against financial institutions and for-profit corporations to recoup $30 million in unpaid property taxes it claims it is owed.
The lawsuits, being filed on the city’s behalf by two outside law firms, are seeking to recover delinquent taxes owed from 2014-16 that the city was unable to recover through Wayne County foreclosure auctions.
Attorneys began filing the lawsuits last week and expect they will continue over the next several months, said Eli Savit, who is legal counsel to Detroit Mayor Mike Duggan.
The city launched the effort last year in an attempt to recoup more than $12 million owed to Detroit and other taxing authorities from 2010-13.
The lawsuits target financial institutions, corporations and large-scale investors, not individual homeowners.
“We’re going to continue to file these every year after the foreclosure auction, because as much as this is about recovering money that’s due to the city, it’s also about disrupting the business model where property owners invest in property, don’t pay their taxes and think they can get away with that,” Savit said. “We see the same people over and over again not abiding by their obligation to pay property taxes in Detroit.”
The city has collected more than $5 million in judgments and default judgments from the cases filed last year. The funds are owed to the city as well as some taxing authorities, including the Detroit Zoo, Detroit’s school district and Wayne County. Many of the 500-plus cases filed last year remain ongoing, Savit said.
The city has a memorandum of understanding with other taxing authorities to collect the funds on their behalf.
A number of the lawsuits filed this round are targeting the “same actors,” Savit added.
Among them is the Bank of New York Mellon, which is being sued over about $865,000 in unpaid taxes tied to nearly 130 properties that were assessed from 2011-15, according to Wayne County Circuit Court records.
The bank also was sued last year over one of the largest listed debts — $229,121 — for almost 30 properties.
A spokeswoman for the bank declined to comment Thursday on the latest tax lawsuit.
The amount due for Mellon and others factors in an 18 percent interest charge, which Savit said the city is entitled to under Michigan law.
“Typically, when there’s a debt from years ago that’s owed, courts will award both the original debt and interest,” he said. “For these particular debts, because they are property-tax related, there’s a statutory interest rate we’re seeking to have the court apply.”
The companies being targeted owned or had a financial stake in properties that have since been foreclosed, according to the city. Under state law, the former property owners are still personally liable for unpaid taxes, the city alleges.
“The fundamental legal theory is pretty straightforward. State law gives us the right to go after any entity that fails to pay their property taxes,” Savit said. “This is money that could be used to help the city and, frankly, the other taxing authorities for any number of programs and services.”
Bloomfield Hills bankruptcy attorney Doug Bernstein noted that a major problem for Detroit before its 2013 bankruptcy filing was that the city wasn’t doing a good job of collecting the taxes it was owed.
“They are doing what they are supposed to do, and it may not be 100 cents on the dollar but it beats nothing,” he said. “The city is not in the position where it can give money away.”
Bernstein said it’s too soon to tell if the effort will pay off, but said if Detroit doesn’t try “then you can assume you are going to collect none of it.” Although, he doesn’t expect it will be easy.
“In any lawsuit for damages, the easy part is getting the judgment. The hard part is collecting it,” he added.
Detroit sent out demand letters earlier this month, urging potential defendants to pay their debts or risk litigation. The lawsuits are now being filed in Detroit’s 36th District and Wayne County Circuit courts.
A sampling of lawsuits filed in Wayne County Circuit Court sought delinquent taxes ranging from about $30,000 to more than $1.3 million.
While some companies may own a single property, individuals targeted in the legal action own three or more, and some large-scale investors own dozens, Savit said.
One well-known firm on the list is Parmount Land Holdings of Detroit, which, the city contends, owes about $113,000 for unpaid taxes on 14 properties.
The listed resident agent on the lawsuit is Abner McWhorter, whose ties to a failed $10 million pension deal to buy foreclosed homes led to his suicide in 2011. An attorney for the firm could not be reached Thursday.
Paramount formed in January 2008 to borrow the money from the Detroit Police and Fire pension fund and buy foreclosed mortgages.
That loan went into default in 2011 and McWhorter committed suicide that August amid accusations he was involved in a Ponzi scheme that defrauded the pension fund.
A number of the companies targeted in lawsuits reviewed by The News have unlisted or disconnected phone lines.
The limited liability corporation Adams Realty Services of Royal Oak is alleged to owe more than $50,000 in back taxes from 2013-15 for nine properties. Reached Thursday, a representative for the company declined to comment or confirm whether it had received notice of the alleged tax debts.
To pursue the unpaid taxes, the city used data from its own assessment records and Wayne County foreclosure records, Savit said.
“What we know for 100 percent certainty is that the people that we are going after were the property owners of record when the taxes were assessed,” Savit said. “They did get assessment notices.”
Even though the total amount involved in the current lawsuits exceeds $30 million, it doesn’t necessarily mean the city will file suit for all of them, according to the city.
“Some are coming forward and we are working with people who are trying to pay their debts in good faith,” said Savit, who could not cite the percentage of corporations and banks that have tried to work out agreements.