Study: 90 percent of properties at Wayne County tax auction went to speculators

Two university professors have studied the Wayne County Tax Auction and come to a startling conclusion: Since 2005, around 90 percent of purchases went to speculative investors. This shift from largely resident-owned properties to bulk owners has had serious ramifications for the city.

In the study, “The Eviction Machine: Neighborhood Instability and Blight in Detroit’s Neighborhoods,” Joshua Akers (University of Michigan-Dearborn) and Eric Seymour (Rutgers University) detail their work cataloguing property that has gone through the auction and its impact on neighborhoods.

The principle of the auction is clear enough. If an owner doesn’t pay a tax bill in full from three years ago, the home becomes the property of the county and is likely to head to the annual auction. The county wants to get these properties off its rolls, make a little money, and ideally get them back to productive use through a new owner with deeper pockets.

But this hands-off approach from Wayne County has been a huge boon to foreclosure investors. In the last decade, an astounding number of properties—around 120,000—have changed hands through mortgage or tax foreclosure. Since 2005, the number of properties owned by parties with a mailing address outside Detroit increased by nearly 10 percent.

“Speculators, contract sellers, and slum landlords use the annual county tax auction to expand their portfolios of low-value housing, buying homes in large numbers,” the study’s authors write.

But these so-called investors are no better at stewarding homes than resident owners. They’ll often then put no investment into the home, renting it “as is” to desperate tenants or selling it through land contracts that give little buyer protection. “Many of the largest auction buyers linked to subsequent eviction filings are speculators and slum landlords who regularly fail to register, bring up to code, or pay taxes on their properties,” the study says.

And they know how to scam the system as well. The practice of “tax washing”—where a new owner also doesn’t pay taxes and buys it again for less than the amount owed—is quite common at the auction. To avoid detection, speculators will often disguise their identity through dozens of LLCs.

Detroit neighborhoods have suffered as a result. Largely due to mass evictions, Detroit became a majority renter city at some point in 2017.

In addition to detailing this troubling history, the study’s authors do propose some potential solutions. “Much of this is preventable if city and county officials would enforce the laws and rules already in place,” Akers wrote to Curbed Detroit by email.

Despite a successful lawsuit by the ACLU in 2018, lots of Detroit property is still overassessed, and eligible residents are still not getting a Poverty Tax Exemption, which allows low-income homeowners to wave all or part of their property taxes. These two interventions, they argue, need to be applied immediately and retroactively.

Enforcing the city’s rental registry ordinance would give greater protections to renters. Perhaps most controversially, they call for a moratorium on the Wayne County Tax Auction until measures are in place that prevent rampant and irresponsible speculation.