$600M Property Tax Overcharge Is Eroding Detroit’s Black Homeownership
Thursday, January 16, 2020
This is a rush transcript and may contain errors. It will be updated.
Jacqueline L.: This is Jacqueline Luqman with The Real News Network. The 2008 recession spurred by the subprime mortgage lending scandal hit Americans hard, but none were as hard hit as African Americans and African American homeowners in particular. As time has gone by and the country has claimed recovery from the recession, African American homeowners didn’t see much of that recovery. As a matter of fact, they were left with 12% loss in home equity compared to white homeowners who lost around 12% of home equity and African American homeowners lost half of their wealth. African Americans have not only never recovered from the 2008 recession, but many continue to suffer lingering damage from it.
Here to talk with me about what is happening to homeowners in Detroit as one of the lingering after effects of the 2008 recession, is Mark Betancourt. Mark is a freelance reporter based in Washington DC and contributed to a groundbreaking report that was published in Detroit News this week about this issue. Mark, thanks so much for joining me today.
Mark Betancourt: Thanks for having me.
Jacqueline L.: Mark, how did you become involved in doing this investigation into the property tax issue in Detroit? And how did you go about your investigation?
Mark Betancourt: Well, believe it or not, back in the summer of 2017, I actually heard about the tax foreclosure crisis in Detroit because a friend of mine who had just moved there posted on Facebook something about tax foreclosure. And the first thing I did was I Google the tax foreclosure. I didn’t even know that a property could be seized by the government for not paying taxes, just the same way that a bank can seize a property for not paying a mortgage.
So I started looking into it and I came across all this research and reporting that people had already done showing that there were actually significantly over assessed taxes that had contributed to this massive foreclosure crisis in Detroit.
Since 2008, about a third of the properties in the city of Detroit have actually been tax foreclosed, that’s since 2008. So it’s just a massive number of properties and it’s been this massive kind of rolling, revolving problem where properties that get taken away from their owners stand vacant for awhile, and started to crumble or they burned down or they get destroyed one way or another. And so there’s just this continual, perpetual destruction, physical destruction of the city as well as people losing their homes.
So I got into it when I pitched a story to Vice News. I did a couple of stories for Vice News about that and just had learned so much that I wanted to do something for the local news. I want to do something for the local outlets so that people there would really have something to use going forward to understand the situation better.
I got together with a reporter at the Detroit News, their investigative reporter, Christine McDonald, who has been covering this issue for years and knows everything there is to know about it. And I connected with Christine to just find out what could we do to really quantify this problem in a way that hadn’t been done before. And the main thing that was missing was people didn’t have a sense of how overtaxed they were. Everyone who got a tax bill in Detroit is starting in about 2010, probably had a sense that things had bottomed out and yet their tax bill hadn’t really gone down. The median sale price in Detroit lost about 75% of value, so the median sales went down by about 75% just in a couple of years, between 2006 and 2009. The city didn’t lower the property assessments that it uses to base tax bills. So people were still getting tax bills essentially based on pre-crash home values or homes that in a lot of cases had lost the vast majority of their value in a very short period of time.
The city did gradually, year by year try to reduce values. And then by 2017, the state had actually gotten involved and essentially required them, forced them to reappraise every single individual property in the city, which hadn’t been done for 50 years essentially. And once they’d done that, they had what they believed to be much more correct values to use.
And so what we did was we sort of took that as a baseline. We said, “Okay, if the 2017 values are more accurate, looking back to the previous years before that 2010 to 2016, can we judge the accuracy of those home assessments based on the 2017 reappraised value?” And so that’s how we created this sort of a rough estimate of how overtaxed people were.
Jacqueline L.: So Mark, just to give us an understanding of how large, wide, deep, how incredibly massive this problem is, how much is the estimated over tax burden for residents in Detroit between this period of time?
Mark Betancourt: So in the aggregate, all together, we estimated that between 2010 and 2016, the city over taxed people by more than $600 million, and that’s at least $600 million. We believe that our estimate is conservative for a number of reasons. So that’s an at least number. It was probably quite a bit worse than that in real life.
Jacqueline L.: Okay. So I know when people are hearing that number, probably their mouths are dropping and they’re probably wondering how does a city that knows its property values had been reduced by 70% over a period of three years, continue to overtax its residents to the tune of at least $600 million for this long? How did this happen?
Mark Betancourt: So a number of things were happening in the city of Detroit starting around the time of the recession. There were a number of scandals, a number of mismanagement scandals at the city government level. And then obviously you had the crash, which was devastating to the city. And then you had bankruptcy. The city went into the largest municipal bankruptcy in American history in 2013. And leading up to that, there was just a massive hemorrhage of resources. The city was actually looking at not even be able to make its payroll at some point. And so they had this kind of continually losing the resources that they were using in the assessor’s office, which is the part of the government that sets these home values to determine what tax bills should be. They’ve just had very little to work with. They had a lack of expertise in their staff. They had terrible, terrible records during that time. And so they really just were kind of casting about, not even really knowing what they had in terms of city values. And were really struggling to do anything that was even remotely accurate during that time.
Jacqueline L.: So this is a situation where maybe there wasn’t nefarious intent like there was with the subprime lending crisis that led to the recession that affected so many people, especially in Detroit. But this was a case of a city that city officials who were actually trying to make their way through the recession as it affected them. And because they were just so overwhelmed with their own financial problems, they really dropped the ball on notifying the homeowners of how this situation affected them. Is that pretty much accurate?
Mark Betancourt: That’s accurate. Just to be clear there, there is a process to appeal assessments in place in the state of Michigan. People do have a right to challenge the assessments that the city sets, but that’s a process that we were told by the former city assessor who conducted this reappraisal, was hired to conduct this reappraise that the state that the assessor’s office was at the time, if everybody in the city, which we calculated to be over 90% of the homeowners in the city, had come in to challenge their assessments, they wouldn’t have been able to handle that volume of appeals. So in that sense, whether or not the city let people know that this was happening and people had a pretty good sense that it was happening, there wasn’t a whole lot they can necessarily do about it and that appeals process is difficult. It’s hard to do without a lawyer and a lot of times it takes months. So a lot of people didn’t even know they could do that. Does that answer your question?
Jacqueline L.: Yes. That absolutely answers one question, but then the other question I have is, back to the responsibility of the city, the city knowing that even though it’s facing bankruptcy and facing other financial problems, at some point did it seem to you that there was more that the city of Detroit could have done or should’ve done to notify residents and to provide assistance for them? And at what point do you think the city was aware of just how big this issue was before this independent assessor made his assessment? Or do you think they were aware of just how big this overtaxation bill was before your investigation?
Mark Betancourt: I do think that they probably had a pretty good sense. From the people I’ve talked to, they had a pretty good sense that they didn’t have a good handle on the values and what the value should be. A lot of people would say during that time it was also very difficult. There were a lot of what we call distressed sales during that time, which is foreclosures, homes selling for much less than they would normally be worth in a normal market, and it just really threw off the assessor’s office, even trying to figure out how do we set values here. That said, assessor’s offices around the country all had to deal with that after the housing crisis and they were struggling with it more than others, for longer than others and really just didn’t have the capacity to do that job.
I also want to point out that the city had responsibility for setting the assessments in the first place, but both Wayne County has direct oversight over that assessment process. It’s their responsibility to point out if there are inequities in the assessment roles. It’s also the state tax commission’s responsibility to oversee all of the assessor’s office in Detroit and make sure that people are being taxed fairly. And we actually spoke to the former chair of the state tax commission, Doug Roberts, who expressed regret that they didn’t act sooner and that they didn’t really know about it until my colleague Christine McDonald at the Detroit News started reporting on it in the newspaper. He really felt like that was not the way to find out about it.
Jacqueline L.: Hmm. That’s interesting, that he didn’t feel like that was the way he should have found out about the job that he was responsible for doing. That’s very interesting.
So Mark, some Detroit residents have already lost their homes because of this overtaxation. They couldn’t pay the tax bills that were assessed on their homes at values that were at pre-recession levels. Even if people bought their homes at a price that was post recession, let’s say a resident, someone bought a home that was valued at a pre-recession value at $60,000, but the post recession cost was $6,000, $7,000, they may have bought it at auction. Because the property was still taxed at the pre-recession value, people didn’t realize that the bill was incorrect and some people fell behind and they lost their homes and they did not know that there was assistance for them. Is there any recourse for the people who have already lost their homes through this period of time?
Mark Betancourt: The short answer is no. Essentially what happens when you lose your home to tax foreclosure is, as you alluded to and gets sold in a tax auction or it gets offered at least in a tax auction. If it’s sold, someone else owns it now. And so a lot of times what happens is that investors buy in the auction and then they basically take the people who are living in those houses and turn them into renters. They say, “Hey, you lost your house. Do you want to just start renting from me because I own it now.” So that’s happened to a lot of people, but that deed belongs to someone else now.
The other thing that happens is, if the property is not sold in the tax auction, the city of Detroit basically inherits it. They own it as part of an entity called the Detroit Land Bank, and they actually now own a third of the city. The city owns a third of itself because of that process, basically just filling up the land bank with these properties that in most cases nobody lives in anymore. CORRECTION: The estimation that Detroit owns 1/3 of all property through the Detroit Land Bank was quoted in error. The more accurate estimate is that the Land Bank represents 1/4 of the total property of the city.]
So that’s where maybe there may be some room for the city to do something. If somebody has lost their home and it’s ended up in the land bank and it’s still a livable home, it’s possible that the land bank would be able to come up with some way to return those properties to people, but that has not been figured out yet at this stage.
In general, people who have already lost their homes, the city is telling them, “You’re not going to get those back.” But I think another important thing is, there are a lot of people who still owe tax debt. There’s a vast amount of tax debt out there that both the city and Wayne County have tried to come up with ways to help people pay off that debt. And before, they haven’t really had a way to reduce that debt given that it was inflated to begin with.
And I do want to point out that the city and the County just recently announced a new payment plan program where at least for the poorest homeowners who qualify based on their income, it would potentially wipe out a significant amount of the debt, not all of it, but a significant amount of the debt for those homeowners. It remains to be seen how many of those people will be able to qualify for that and sign up for it and time to make use of it before they’re foreclosed, if they are at risk of foreclosure. But that is what the city and the County are saying at this point is their best option to try to address this.
Jacqueline L.: It’s good that the city and the County are doing something to help current homeowners meet this unfair tax obligation. But it would seem that they would extend the deadline or provide more latitude for people, considering how long they’ve let this situation fester.
But Mark, I want to ask you, you just said that this program is for the poorest residents. What are the demographics of the people in Detroit who are affected by this issue? I’m familiar with Detroit, but I don’t want to be presumptuous, but I feel like this is an issue that has affected predominantly African American homeowners who believe that owning a home was their gateway to the American dream and amassing some type of legacy to leave to their offspring and children. Am I correct in that? What are the demographics of who is affected by this terrible situation in Detroit?
Mark Betancourt: No, you’re right. The city is pushing 80% black. Most of the homeowners in the city are African American. There’s also been research to the effect that people in a majority African American neighborhoods have been 10 times more likely to be at risk of tax foreclosure, which means they carry tax debt than people in other neighborhoods. So it is absolutely something that is disproportionately affecting African Americans in the city.
It’s also the poorest big city in the nation. And the poverty rate in Detroit is about a third, so about one in three Detroiters that lives in poverty. And so there are really people who are making decisions, really, really tough decisions about what bills to pay and what to pay for at any given month, any given week. And part of the problem with tax debt is that the County doesn’t foreclose on a property until it’s been delinquent for three years. And so when you’re making decisions about food, that’s something that can wait. And so a lot of times people allow this tax debt to build up. And it does gather interest. If you’re not on one of the county’s payment plans, the debt actually gathers interest at 18% a year. And so people can really rack up massive debts that they really have no hope of paying unless they get on top of it early. And because partly because people’s taxes were so over assessed to begin with, a lot of people never have the chance to pay off everything they owe. All they can hope for is to kind of spin their wheels on one of these payment plans and keep paying what they can to avoid foreclosure.
Jacqueline L.: This is a pretty massive problem in Detroit that you worked on investigating and uncovering. Do you have a sense that this kind of an issue is not isolated to Detroit? Maybe not of this magnitude, but do you have a sense that this isn’t unusual?
Mark Betancourt: What happened in Detroit really is the result of a perfect storm, just many interlocking and massive disasters that really, I think very few other American cities have experienced. So many things happening all at once from government mismanagement, to the crisis hitting particularly hard there, to really these sort of like interlocking things of what state the assessor’s office was in at the time and the bankruptcy happening at the same time. There are very few places where all those things happened at once and those things all really ganged up on Detroit to create the situation that we see now.
That said, I think any city that’s struggling with poverty, with a large portion of its homeowners in poverty could experience a similar perfect storm. Maybe the factors would be different, maybe there would be other things that would compromise the city’s ability to function, but the truth is that unless we are all vigilant about our property taxes and we always understand what’s going into them, these things can happen. It’s a complex issue. It took us years, Christine, my partner at the Detroit News even longer to really track down how this has worked and who’s responsible and how to even quantify it. And so it’s a lot to expect a homeowner to understand that. And I think in that way, we have to kind of be more conscious of how we’re holding our governments to account for how they tax us given that this sort of thing can happen.
Jacqueline L.: Well, I really appreciate the incredible work that you and Christine have done on this investigation and what you’ve revealed. I hope that the information that came forward will be a benefit to not just residents of Detroit, but like you said, anyone who is living in poverty and is not sure about how they’re being taxed as far as their property is concerned, to give them a heads up to take a closer look and to inform them on how to ask what questions of their elected officials in these issues.
So Mark Betancourt, thank you so much for joining me today.
Mark Betancourt: Thanks for having me. Appreciate it.
Jacqueline L.: And thank you for watching. This is Jacqueline Luqman with The Real News Network in Washington DC.