Report: Pay owners who lost homes to 'illegal' Detroit foreclosures

Christine MacDonald
The Detroit News

Detroit — A report released this week proposes ways Detroit could compensate thousands of homeowners who lost their properties in "illegal" tax foreclosures due to over assessment, from cash payments to free city-owned homes. 

City Council President Pro Tem Mary Sheffield, researchers and community activists released the report, saying they've worked since May to develop possible solutions while keeping the post-bankrupt city's "budgetary constraints" in mind. 

Proposed is a mix of cash payments along with targeting existing city programs to those who qualify, such as zero-interest home repair loans for new properties and city-sponsored job training. 

Detroit Council President Pro Tem Mary Sheffield

The group, which set an initial goal to raise $1.5 million to start the project from local foundations and businesses, wants an ordinance passed requiring the relief, Sheffield said. 

"We as a city can do more," Sheffield told The Detroit News. "We have a situation where people illegally lost their homes. To me, it's about restoring dignity to those individuals.

"We owe that to the taxpayers of the city."

The report's release comes days after The News published an analysis that found Detroit overtaxed homeowners by at least $600 million between 2010 and 2016 after the city failed to accurately bring down property values in the years following the recession.

Mayor Mike Duggan has acknowledged past overassessment problems but said he cleaned them up when he took office in 2014. The mayor said he can't correct past mistakes because current law doesn't allow it and the city can't afford it. 

“Since his second week in office, when he announced a citywide reduction in assessments, the mayor has been at the forefront of fixing previous administrations’ overassessments," wrote David Massaron, the city's chief financial officer, in an email. 

His staff said on Wednesday that Duggan has launched and supported many of the programs the report proposes to use to compensate individuals who lost homes. 

"It is through these programs that that mayor is working to give Detroit homeowners every opportunity to keep their home," Massaron wrote. 

The state ordered the city to perform a reappraisal of every residential property to correct the overassessment problem after it was highlighted in a 2013 Detroit News investigation. The city completed the process in 2017. 

The report released this week roughly estimates anywhere from 10,900 to 33,600 owner-occupants of homes could qualify for compensation, based on research done by Bernadette Atuahene, a professor at Chicago-Kent College of Law. 

Atuahene concluded the city overassessed 55% to 85% of its properties between 2009 and 2015. And another of her studies found one in 10 Detroit tax foreclosures between 2011 and 2015 were caused by the city's admittedly inflated property assessments.  

In 2017, Atuahene helped form the Coalition to End Unconstitutional Tax Foreclosures, a group of community and housing nonprofits, which partnered with Sheffield on the report.  

It recommends that a city department take over administration of the compensation and reach out to those who qualify: owner-occupants who were overassessed between 2008 and 2017 and lost their homes to tax foreclosure. It suggests the former homeowners be able to choose how they want to be compensated. 

It would not include landlords who lost properties. 

The report doesn't put a dollar amount on possible cash payments but acknowledges the city's precarious finances and possible in-kind options, including: 

  • Free or discounted Detroit Land Bank homes
  • Setting aside units in affordable housing projects or Section 8 vouchers for those who have lost homes. 
  • Help setting up small businesses in the city

The group also wants to use any possible future demolition bond money to go to home improvement funding to those who lost homes. In November, the City Council rejected Duggan's request to put a proposed $250M demolition bond on the ballot.  

Massaron noted using bond funds to pay homeowners would be illegal. 

State law mandates assessments reflect the home's market value. Taxpayers can appeal, but housing advocates say the process is difficult to navigate for most owners, and many are not aware they have the option.

"Detroit residents need dignity restoration, which is the act of compensating dispossessed individuals and communities through a process that places them in the driver’s seat," Atuahene said in a press release. 

Duggan and other leaders are pushing state legislation that could bring relief for low-income homeowners who qualify by wiping away large portions of their debt under a program called "Pay as You Stay."  And last week, city officials announced they would raise the qualifying income limits to include more people.

Legislation to create the program passed easily in the Michigan House in December and is in a Senate committee.

"We’re going to continue to build on the work we’ve done so far, including seeking final passage of the Pay as You Stay legislation," Massaron said.

The New analysis published last week found that of the more than 63,000 Detroit homes with delinquent debt as of last fall, more than 90% were overtaxed — by an average of at least $3,700 — between 2010 and 2016.

In addition, nearly one in four Detroit homeowners owes more in delinquent property taxes as of fall 2019 than they did three years prior, despite being a part of a county program designed to help them get out of debt and avoid foreclosure, according to The News. 

Search a Detroit home here to find out how much The News estimates it was overtaxed between 2010 and 2016.

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