Cindy Gresham paid US$6,000 cash in 2010 for her Tudor-style house on Detroit’s west side for herself and three children. Now she probably will lose the home, which came with a surprise US$8,586 unpaid tax bill that has since tripled.
The brick home is among about 52,000 Detroit properties the city may seize for unpaid taxes on March 31, including as many as a fifth of all occupied homes. Gresham was one of 5,000 homeowners at the city’s Cobo Convention Center last month trying to negotiate payment arrangements for tax balances that are eclipsing the area’s depressed property values.
“The bills keep piling up – you can never get caught up,” said Gresham, an unemployed auto worker whose eight-year-old daughter needs surgery twice a month for a respiratory illness. “An investor can buy it, but it’s worth way more to me because I need this home for my kids.”
Detroit has emerged from the largest municipal bankruptcy in US history with new leadership, a downtown restocked with young professionals and a public relations slogan: “US’ Great Comeback City.” While the city core, nestled alongside the Detroit River, is coming alive with corporate workers, foodie hangouts and hipster bars, the nascent renaissance is largely invisible where 95 per cent of the population lives.
Gresham’s story is one of thousands reflecting the complexity of reviving the housing market in a city that decades ago had one of the top homeownership rates in the US. Now, Detroit has the highest poverty rate, and an economy wrecked by crime, corruption, and lost manufacturing jobs. It also has the highest property tax rates of any big city, and they are pegged to assessments that are out of whack with the 48 percent plunge in home values over the past decade.
“Detroit is at risk of becoming two different cities, one thriving and one continuing to decline,” said Alan Mallach, senior fellow at the Washington-based Center for Community Progress, whose research has focused on urban blight. “What the tax auction says is that tens of thousands of people are either unable or unwilling to hold onto their properties. And can a city be viable if its property owners aren’t paying the taxes that the city needs to maintain itself?”
Detroit’s population has shrunk from 1.85 million – almost the size of Los Angeles, in 1950 – to less than 700,000 today. The city’s landbank already owns about 20,000 homes, plus another roughly 40,000 vacant lots, many from previous tax foreclosures. The local government demolishes blighted houses at a pace of about 200 a week.
Values assessed for tax purposes are years out of date, belying the distortions in the market. The assessment for Gresham’s home would equate to a market value of almost US$40,000 in 2014, down from US$55,000 two years earlier, according to city records.
Gresham said she thought the 1,000-square-foot (93-square-meter) house on Ward Street would be a dream come true – a secure home in a safe neighborhood at a price she could afford. To buy the property, she raised US$2,500 from the bank that foreclosed on the home she had been renting, in exchange for her cleaning the place up and moving out.
Gresham’s living-room window, recently shattered by neighborhood boys hurling stones and then sealed with tape and plastic, looks out on an otherwise well-tended street of brick and limestone Tudors and Colonial Revival homes.
Gresham bought her house with a quitclaim deed, which transfers ownership and can leave the buyer responsible for back taxes, said Kenneth Silver, a real estate attorney with Hertz Schram based in Bloomfield Hills, Michigan.
“It’s the quickest and easiest way to get a transaction done, with minimum risk to the seller,” Silver said. “It’s maximum risk to the buyer.”
Buyers like Gresham rarely get the help “most middle-income people get,” said Ted Phillips, executive director of United Community Housing Coalition, which advocates on behalf of delinquent homeowners.
“They don’t have an attorney, they don’t have a Realtor, they don’t have a title company,” Phillips said. “They believe the handshake.
“They believe the house is perfect and doesn’t have back taxes. As a result, they may be in foreclosure three days after they buy the house.”
Mayor Mike Duggan, who took office a year ago, says he’s trying to re-establish the confidence that Detroiters lost in government by cutting property assessments and improving services, from reducing emergency response times to demolishing abandoned homes and installing 1,000 street lights each week. The trouble is that the majority of homeowners are now delinquent on tax bills.
“What does the recovery of the city mean if the folks who have been here aren’t part of it,” Duggan said in his Feb. 10 state of the city speech that focused on “economic inclusion,” including hiring locally for construction jobs and bringing affordable housing downtown. Duggan declined to comment for this story.
Of the 50 largest US cities, Detroit has the highest property-tax burden for a US$150,000 home, at US$4,988 on average in 2013, according to a study by the Minnesota Center for Fiscal Excellence. The taxes in New York for a house with the same value was $1,087.
Detroit’s tax base was flattened by the housing crash, which led immediately to a wave of mortgage foreclosures. The city’s median home value in December was US$40,700, down from a peak of US$78,800 in 2005, according to Zillow Group Inc. In the metropolitan area, which includes the wealthier suburbs, it was US$115,700, up 9.8 per cent from December 2013.
Kevin Smith, 46, said he’d love to sell his home located across from a petroleum refinery in the southwest Detroit neighborhood known as “the Hole,” but crime, pollution and US$8,000 in delinquent taxes make it almost worthless. Smith, caught in the crossfire of a gun fight five years ago, was shot in the leg on his way to buy bread at a gas station.
He can’t stand for long periods and struggles to find regular work. – Bloomberg