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Lansing — Lawmakers are working on new legislation to crack down on speculators who use tax auctions to amass vacant and blighted land holdings in Detroit while ducking overdue property taxes and fines.

A draft bill toughening rules governing who can bid on tax-delinquent properties was approved and sent to the House floor Thursday by the Committee on Detroit’s Recovery and Michigan’s Future. It’s among several proposals by lawmakers working with Mayor Mike Duggan to help Detroit combat blight and recover from the nation’s largest municipal bankruptcy.

Among other things, the proposed bill would block speculators from continuing to scoop up new properties for as little as $500 each while failing to pay off taxes, fees and blight fines on parcels they own.

A Detroit News investigation in 2011 found 10 private landowners, all living outside Detroit, owned more than 5,000 city parcels. They included scores of decrepit lots and empty buildings the speculators bought for $500 minimum bids at land auctions after they were foreclosed for nonpayment of back taxes.

The largest private property owner, a Grosse Pointe Woods resident named Michael G. Kelly, had used tax auctions to build a portfolio of more than 1,152 parcels on which nearly $100,000 in blight fines were owed going back six years, the investigation found. Kelly disputed The News’ findings.

Vacant and blighted parcels, continually “churned” through public auctions with back taxes and fines unpaid, plunge property values and add to decay in the city, said Valerie J.M. Brader, deputy legal counsel to Gov. Rick Snyder, who for three years has sought legislation to halt the practice.

She said people trying to hold on to their homes are harmed by the decline in value and find themselves surrounded by debris, lush weeds and dilapidated buildings belonging to absentee owners.

“Until we can reward those people who are doing the right thing, the city never can come back,” Brader told the committee.

Duggan also is urging the state Senate to pass legislation that aims to help some of the 62,000 Detroiters facing foreclosure for delinquent property taxes.

A House-passed bill, pending in the Senate, would let county treasurers create installment plans and remove homeowners from foreclosure proceedings if they make an initial payment. It also would permit them to waive interest penalties for homeowners completing a payment plan.

A separate bill pending in the Senate would allow county treasurers to lower the interest rate on tax bills to make payment plans more affordable.

The legislation sent to the House floor Thursday is a revision of a bill sponsored by Rep. John Walsh, R-Livonia, who heads the Detroit’s Recovery/Michigan’s Future Committee. It was presented in draft form Wednesday by Wayne County chief deputy treasurer David Szymanski and Dykema Gossett attorney Steve Liedel, who was legal counsel to former Gov. Jennifer Granholm.

It would:

Prevent a tax-sale purchaser from getting deed to a property without proving all taxes on it are up to date.

Cancel a sale if the purchaser failed to prove all taxes are current.

Require a purchaser who held an interest in a property when it was tax-foreclosed from getting back its deed through a tax auction without first paying off all taxes, interest, penalties and fees.

Require a tax-sale land purchaser to submit an affidavit, under penalty of prosecution for criminal perjury, that he or she doesn’t own other tax-delinquent property or owe blight fines in the same jurisdiction.

Szymanski acknowledged the proposed new regulations wouldn’t close all loopholes used by land speculators to take advantage of the system. He said it’s a good start, however, and helpful to populous counties such as Wayne, which had 75,000 foreclosures last year.

Liedel said the goal was to help Detroit and Wayne County without creating overly-burdensome rules for municipalities not facing problems of the same magnitude.

GHeinlein@detroitnews.com

(517) 371-3660

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