Effort to stave off Detroit foreclosures leaves many deeper in debt
Nearly one in four Detroit homeowners owes more in delinquent property taxes than they did three years ago despite being a part of a county program designed to help them get out of debt and avoid foreclosure, according to a Detroit News analysis.
The payment plans, with lower interest rates and an extended five-year repayment deadline, were a solution devised by officials, including Mayor Mike Duggan, to get homeowners out of danger in the midst of Detroit's record-setting tax foreclosure crisis.
But a News investigation has found that the plans, enacted in state law in 2015, have kept thousands in a payment plan purgatory that likely will lead to the loss of their homes without more help.
A look at some of the first homeowners to enroll in the county's low-interest payment plans shows almost 40% — nearly 4,700 homes — either have been foreclosed or are off their plans and at risk of foreclosure next year, according to The News' review of county data as of mid-September. The analysis tracked the progress of nearly 12,000 properties with about $68 million in property tax debt over the last three years.
About 23%, or about 2,700 of the properties The News followed, have more debt than they did three years ago, many after owners fell behind on additional tax bills. Some have rolled that new debt into their plans, while others have missed monthly payments and simply started a second plan.
“It's like a revolving credit card,” said Roderick Randolph, who has been on two payment plans on his childhood home and owes $4,500 to the county, about the same the substitute teacher owed three years ago. “You can pay a minimum. You'll never get out of the hole.”
Wayne County Treasurer Eric Sabree, Duggan and residents themselves have praised the plans — called an Interest Reduction Stipulated Payment Agreement (IRSPA) — for keeping people in their homes. The plans, outlined in state law, charge a discounted 6% interest on property tax debt instead of up to 18% the county normally bills.
The plans have helped dramatically reduce Detroit's foreclosures from a record high 9,111 occupied homes in 2015 to 514 this year, a 94% decrease, according to city data. But for many, the plans merely extended their debt and set the stage for thousands more possible foreclosures as deadlines expire.
Housing advocates warned for years the low-interest plans weren't going to get people out of debt in Detroit, the nation's poorest big city with more than a third living below the federal poverty level. And they argue officials should have done more -- mainly, forgiving the debt -- because City Hall caused much of the problem, with years of admittedly inflated tax assessments that precipitated a state-takeover and an inaccessible tax break for the poor.
"We did what we could at the time," said former Wayne County Chief Deputy Treasurer David Szymanski, who with others pushed Lansing to create the low-interest payment plans. "We thought (the payments) were much more manageable ... and people would be able to get out from under the debt."
"We are seeing the unintended consequences today. We certainly didn't want it to be a Band-Aid."
In October, Duggan and Sabree publicly acknowledged the plans aren't working for some and proposed state legislation that would expand an existing tax break for the poor to retroactively forgive much of what homeowners owe for past years. Duggan's staff said it ran an analysis similar to The News' earlier this year and concluded it needed to act.
Critics say the new program isn't enough, given the existing tax break — which now only wipes away the current year's property tax bill — is unknown to most residents. Only about 1,200 of the 11,100 homeowners currently on IRSPA payment plans had the tax break in 2018 or 2019, even after the city's bolstered education efforts, according to The News analysis.
Data gathered by The News, in partnership with Reveal from The Center for Investigative Reporting, for the first time publicly shows the payment plan program has masked the debt problem.
The analysis was only possible after Reveal staff wrote code that scraped delinquent tax amounts from the county's website, data for which Sabree wanted to charge The News $235,000.
Among the findings:
► Of the 12,000 properties The News tracked since August 2016, 13% have been foreclosed. That's almost 1,600 homes.
► Another 35%, or about 4,200, still had debt but were no longer on any payment plans as of this September. Of those, about 3,100 had debt that would put them at risk of foreclosure in 2020, according to the September county debt data.
► Nearly 31% of the 12,000 properties are still on IRSPAs, but many of those owners are struggling too. Only 1 in 5 are on track to pay off the debt within the original five years they were given, based on the rate they have paid and added new debt over the last three years. The average debt owed on those properties that were still on plans is $4,300, down from $6,300 in August 2016.
► Roughly 18% — about 2,200 properties — no longer owed anything to the county as of mid-September.
Sabree, in response to The News, ran his own analysis as of mid-November on the group and found numbers are improving.
He declined an interview, instead responding to questions via email, saying that the plans have served their purpose.
"The primary goals for the IRSPA included reducing the displacement of homeowners and reducing the number of owner occupied properties being foreclosed," Sabree wrote. "Given that, according to your numbers, more than 87% of Detroit owner-occupied homes that were subject to foreclosure have not been foreclosed, we believe that IRSPA has been successful for Detroit homeowners."
The News tracked debt on properties, not homeowners. Properties could have been sold to new owners during the last three years, but the debt stays with house. In some cases, owners could have been kicked off their plans if county officials discovered they weren't living in them, rather than because homeowners fell behind on payments. Landlords are not allowed on IRSPAs.
Foreclosures have dropped in part because Sabree has been lenient with homeowners to keep them on plans.
Sabree told The News he allows taxpayers up to five missed monthly payments before kicking them off the plan. His written agreement with homeowners requires regular monthly payments. The law establishing IRSPAs requires that taxpayers pay "regular periodic installment payments" and that they pay their current year tax bills on time as well.
When homeowners leave the plans, their interest rate jumps back to 18% retroactively on all debt, unless they successfully reapply for another IRSPA plan. Homeowners are limited to two plans.
Interest and fines collected by the Treasurer's office go into the county's Delinquent Tax Revolving Fund, which starting in 2014 was used by Wayne County to balance its budget. This year, county operations used $17.41 million from the fund and expect to reduce that to $15.09 million next year, county officials said.
University of Michigan Professor Margaret Dewar, who has studied tax foreclosure for 15 years, said the plans were an important effort to stall the foreclosure crisis, but that The News' analysis is concerning.
"If it was a viable way of dealing with the problem, (the numbers) would be much better," Dewar said. "They need to come up with better solutions. ... It's not OK to have that many people in jeopardy of losing their houses still."
'I am terrified'
The county generally seizes properties after its tax bill goes unpaid for three years.
Detroiter Candis Patterson has five years of debt — totaling $6,400 — on her west side brick bungalow the city values at $28,000. And she's been able to keep it from the annual foreclosure auction because of her IRSPA, which requires her to pay $179 a month.
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But the mother of three now owes about $260 more than she did three years ago. She also is behind on this summer's $1,100 tax bill.
She's grateful the plans have prevented her from losing her house. But the total has been overwhelming for the 36-year-old, who works as a housekeeper at a downtown hotel.
She owns the home mortgage-free after purchasing it on land contract from a family member, but life expenses and repairs have taken priority, she said. Earlier this year, her family signed up for a second plan that rolled in her 2018 debt and restarted her five-year deadline.
"I've made a few payments here and there," Patterson said, sitting at her kitchen table covered with past foreclosure notices and other records. "I would have to determine which bill was more important. I don’t want my lights to get cut off. I don’t want my water to get cut off. And I have babies to feed. It’s really hard. ... I am terrified to lose my house."
The tax foreclosure crisis helped drop the percentage of African Americans who own their own homes in Michigan lower than any other state, down to 40% from just over half in 2000, according to a national report. Experts say Detroit once had one of the highest rates of black homeownership in the nation.
"I can’t even pay the up-to-date taxes I am so busy trying to pay off the older ones so they don’t take the house. It’s been stressful," Patterson said. "Every year I know (the foreclosure notices are) coming, but it’s hard to prepare because there other bills and other things I have to do. It’s very hard."
Willie Donwell, who is the chairman of the board that reviews applications for Detroit's poverty tax exemption program, said he's not surprised so few are able to keep up with payments.
Older housing stock combined with low-wage jobs create a debt cycle. He said he's seen people often resort to payday loans to pay for a new water heater or other major expenses, while struggling to keep a home out of foreclosure.
"Who knows how long it will be to get out of that cycle?," Donwell said. “I feel we did waste time (with the payment plans). We are kind of at a tipping point of trying to save people’s homes from foreclosure or a lot more homes will be going on the demolition list.”
Wrangling with tax break
Many low-income homeowners likely wouldn't have owed the bulk of their property tax bills if they had known about the city's poverty tax exemption or if it was easier to apply for. The break, allowed by state law, either exempts a homeowner from paying taxes or cuts the bill by half.
Homeowners previously had to fill out an application to get an application mailed to them. Sometimes it never came, or arrived after the deadline passed. The city made the application more accessible in a court settlement last year with the ACLU of Michigan.
But the exemption cannot be applied to past years. A bill was introduced in 2015 to make the exemption retroactive for up to three years, but it stalled in a Lansing legislative committee.
In addition, thousands of homeowners still struggle with debt from inflated taxes that were levied years before the state seized oversight and ordered a reappraisal that hadn't been properly done for more than 50 years. Monthly accruing interest has compounded that inflated debt.
When Patterson bought her home in 2011, the city valued it at more than $51,000 to calculate her tax bill. By the time Detroit completed the state-mandated reassessment in 2017, it was lowered to $22,000. That correction implies that the city had been assessing her property—and therefore her property taxes—at more than twice what they should have been.
The idea of broadly retroactively correcting tax bills hasn't gotten support from Duggan. Sabree suggested last year that a retroactive poverty tax exemption wouldn't be fair to homeowners who paid, but this summer said he was supportive of the proposal. Wayne County Executive Warren Evans has said he would support a retroactive poverty tax exemption.
"(City and county officials) aren't willing to make people whole for a problem they are responsible for," said Michael Steinberg, a former legal director at the ACLU of Michigan, who along with other groups sued the city and county over inflated assessments and to increase access to the tax break.
Claims against the county were thrown out of court, but the city settled with the ACLU, promising to improve access to the poverty tax break.
Last month, Duggan, Sabree and Evans announced a compromise plan called "Pay as You Stay" that would wipe away a significant portion of tax debt for the poorest.
Those who qualify — by applying for the existing poverty tax exemption — would get their interest and fees waived. And the remainder of their debt would be capped at 10% of their home's taxable value. The owners who qualify would have to pay the bill within three years with no interest charges, or risk having to pay the full amount they owed, if the proposed legislation passes in a Republican controlled Legislature.
It could dramatically cut many homeowners' debt. Patterson's total bill would go from $6,400 to $1,160.
"The idea is to drive the debt down to something that is manageable," said David Massaron, the city's chief financial officer.
Massaron added that no one believed the low-interest payment plans were a "silver bullet," but believes Pay as You Stay would help relieve the debt burden while being fair to those who paid their bills.
The legislation is in a House committee in Lansing.
Dewar suggests waiving property taxes for the lowest-valued homes. Others, including the The Coalition to End Unconstitutional Tax Foreclosures, have pushed for a stop to the auction until past tax bills affected by over-assessment are corrected.
Donwell said about 6,250 have applied for the poverty tax break so far this year but is baffled the numbers aren't higher. He believes more will apply if Pay as You Stay is implemented when people realize it will forgive much of their past debt.
More than 35,000 homeowners on average could qualify, based on U.S. Census data between 2012 through 2016, according to University of Michigan researchers.
The city pledges to educate residents about the new plan and recently sent letters to 188,000 households urging owners who qualify to apply for the poverty tax exemption.
'I don't have a voice'
Patterson didn't know about the tax break until approached by The News this summer, but it's not clear yet if her household’s income will qualify.
At her $13.50 wage, she's close to the $29,420 annual income limit for a family of five, including her boyfriend. Three years ago she was making only $9.50 an hour at a local deli and would have easily qualified.
"It’s very intimidating," Patterson said. "It's just hard getting help.
"I don't have a voice."
Patterson said she's debated paying because it may just be throwing money away if she loses the house anyway.
Losing the home would be devastating immediately and in the long term for her family, she said. Returning to renting would mean months of searching for an affordable home in good condition, she said. Their options would be living with family or a hotel, said Patterson, who has three school-aged kids.
"I would like to pass this home down to my children," Patterson said. "It would be something I could feel proud about giving something to my child."
Foreclosure in Detroit: A timeline
Wayne County's foreclosure crisis has had a deep effect on Detroit, driving down home ownership and fueling blight. The city saw more than 65,000 mortgage foreclosures between 2005 and 2015, in part caused by subprime lending at some of the highest levels in the nation. But many more properties would eventually be lost to tax foreclosure.
Nearly one-third of city properties have been seized for unpaid property taxes since 2008, according to a Detroit News analysis. That's about 125,000 unique parcels, including houses, businesses and vacant lots. Many were foreclosed more than once. It's led to thousands of residents losing their homes, ending Detroit's long-time status as a majority homeowner city. Property taxes become delinquent in March the year after they are due and the Wayne County Treasurer collects them, not the city.
The beginning of the crisis can be seen in 2008, with the national housing meltdown, and peaked in 2015 with nearly 25,000 city properties tax foreclosed just that year. Experts say Detroit's status as one of the nation's poorest large cities is a factor, but also blame inflated tax assessments the city was slow to correct and an inaccessible and little publicized low-income tax break.
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About the reporters
Christine MacDonald is an investigative and data reporter for The Detroit News. She has spent nearly a decade reporting on Detroit's foreclosure crisis and the Wayne County Treasurer. She can be reached at 313-222-2396, email@example.com or on Twitter at @cmacdetnews.
Mark Betancourt is a freelance journalist based in Washington, DC. He has spent the past two years investigating the local government's role in Detroit's tax foreclosure crisis.
Research and reporting for this story was supported by the Fund for Investigative Journalism.