Michigan Gets Money to Help Homeowners, Uses it to Demolish Homes Instead

Many of the homes were taken through likely unconstitutional tax foreclosures.


Master Sgt. Bob Barko, Jr./youngstown.afrc.af.mil

Detroit has foreclosed on a remarkably large number of private homes for failure to pay property taxes. The tax bills in question may have been unconstitutionally high, and federal funds intended to prevent the foreclosures have been spent demolishing the houses instead.

Since 2002, 143,958 properties in Detroit—more than 37 percent of the properties in the city—have gone through tax foreclosure auctions, according to data compiled by Detroit-based mapping and data company Loveland Technologies. More than 100,000 of those auctions have taken place since the Great Recession hit in 2008. "Something that has really followed on the mortgage foreclosure crisis is the tax foreclosure crisis," says Loveland CEO Jerry Paffendorf.

Many of those foreclosures may have been illegal. "People are losing their home for inability to pay taxes that they never should have had to pay in the first place," says Michael Steinberg of the American Civil Liberties Union (ACLU).

Under the Michigan Constitution, Steinberg points out, property taxes must be assessed on the actual cash value of a property. The recession caused housing prices to plummet in Detroit, but there was no corresponding reassessment of property taxes. "Homes are sold in the tax foreclosure auction for $500 or $1,000 when at least a few years ago it was being taxed as if it were worth $50,000 or $60,000," he says.

As part of the Troubled Asset Relief Program (TARP), the federal government provided the State of Michigan with $761 million to prevent these foreclosures. But less than half of that money ever got into the hands of financially distressed homeowners.

A TARP report released earlier this year notes that Michigan is "among the states that have the most TARP dollars set aside," but it also has one "of the highest percentage of people turned down for the Hardest Hit Fund" (HHF). The state rejected 52 percent of those who applied for mortgage assistance through the HHF. A majority of the rejected applicants—71 percent across the state, more than 80 percent in Detroit—earned less than $30,000 a year.

Where did the money go instead? Since 2013, Michigan officials have spent $381 million out of that $761 million demolishing vacant buildings. Some 11,249 homes have been destroyed with HHF funds, 7,119 of them in Detroit.

"The properties that need to be demolished, 95 percent of them, have gone through tax foreclosure in the past," notes Paffendorf. "It doesn't seem like as an effective use of those funds to spend $13,000 or $15,000 on a demolition later on when someone might have been $2,000 or $3,000 behind on their taxes and the funds were there to work on that."

Meanwhile, another TARP report faults the Michigan authorities for insufficient safeguards on how the HHF money was spent, leaving them "vulnerable to the risk of unfair competitive practices such as bid rigging, contract steering, and other closed door contracting processes." Indeed, contractor costs for demolitions rose 90 percent in Michigan after HHF funds were made available, from $9,266 per building in January 2014 to $17,643 per building in June 2016.

The City of Detroit is now the subject of a federal grand jury investigation over its use of the HHF funds. And the Michigan ACLU and the NAACP Legal Defense Fund are suing Wayne County and the City of Detroit over illegally collected taxes and illegally seized houses.

But in the meantime, the seizures and demolitions will continue. Roughly 8,000 homes are going to property tax auction in September, according to Paffendorf. "This is still something that is happening this year," he says. "It's going to happen again next year until something changes."

NEXT: DOJ Seizes Online Marketplace AlphaBay, Exxon Mobil Sues U.S. Treasury, Laptop Ban Lifted: A.M. Links

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. can we get an accurate figure on the cost of a small tactical nuke to use for home demolition? one bomb, many houses...got to be way more cost effective...

    1. The Sessions Doctrine for clearing out crack houses?

  2. Demolishing the housing stock - restricting supply - has the effect of raising prices for the rest of the market and I've many times been told rising home valuations are a good thing.

    1. I know you were being snarky but I'd bet a few socialists actually believe that as truth - and totally ignore the rising supply of vacant land.

      1. Except that the socialists do NOT want rising values, because that helps "the rich", AKA homeowners.

    2. This is mostly housing stock that has a negative market price at the current intersection supply/demand curve, given that you would have to live in Detroit. There's a reason Detroit's current population is a third of what it was at its peak.

  3. Don't the locals burn them down over Halloween?

    1. You're thinking of Morgantown, WV.

      1. Morgantown, huh? That's funny. I was just asked to go there to investigate the disappearance of a young girl.

        1. For fuck's sake, didn't anyone get this Wicker Man reference? I am disappointed in the lot of you. Mmmmmm, sake.

          1. I assumed you were some kind of investigator. Looked legit.

          2. I don't watch Nick Cage movies; I only know the spicy meme spinoffs. Also I was in the same boat as Dillinger on that one lol.

      2. Mountaineers win! Couches burn.

        Mountaineers lose! Couches burn.

        1. SAVE THE COUCHES!!!
          Outlaw matches!

          1. might work in Morgantown.

            1. I was in Morgantown in 1983 when Jeff Hostetler led them to a come from behind victory over Pitt. Not a single couch was burned. Guess we knew how to celebrate back then.

              1. Sweet. You the mayor now?

    2. They did -- which is precisely why Detroit got proactive about tearing them down.

  4. As part of the Troubled Asset Relief Program (TARP), the federal government provided the State of Michigan with $761 million to prevent these foreclosures. But less than half of that money ever got into the hands of financially distressed homeowners.

    So you're saying part of TARP was to prevent tax foreclosures - which means FedGov is paying whatever asinine taxes Detroit wants to levy. Which means it's a bailout of Detroit.

    And it isn't surprising that when you hand a billion dollars to government officials they will hand half of it over to their closes friends and spend the other half in destroying people they don't like. The American Auschwitz.

    1. That's what I thought too. Of course the money won't do what the do-gooders in Washington think it will. Even though he mentioned that fact, I had the feeling that Britschgi was defending the idea of the Feds spending millions to bail out people and cities that fucked up mightily.

      1. You can imagine what a bailout of Illinois will wind up.

        The state is $10 Billion in arrears on its bills. After FedGov gives Illinois $20 Billion in bailout money, the state will only be $3 Billion in arrears.

  5. My gut reaction to this story is very wrong from a libertarian pov. My first thought was, I bet most of those houses were long-abandoned pieces of shit: falling apart with overgrown foliage, unrecoverable and pointless to save.

    I'm sure my reaction is selfish because when people don't maintain their houses in my neighborhood, it pisses me off. So, I support the homeowners associations we have here in Texas. They are a purely voluntary, non-government way to keep assholes from ruining the neighborhood.

    All that said, in the end I do not support government coming in and destroying peoples' houses because they didn't pay illegally high taxes. Getting foreclosed because you didn't pay your mortgage, that's another story.

    1. A true libertarian does not get pissed off if his neighbor does not mow his lawn.

      1. Ah, it's the "true libertarian" thing. A "true libertarian" does not support the initiation of force against another except in self defense.

        That has nothing to do with being pissed at a neighbor because he lets his house go to shit. Not getting the lawn mowed a couple times does not count as letting their house go to shit.

        1. At some point, though, it can and does get worse, until the next-door dump is a source of rats and mosquitoes and worse (read: drug-addicted junkies and thieves), whose negativities do spill over onto your property... Just to be fair here...

          1. Yeah. My HOA better take action before a house gets to the condition you describe or it is totally useless.

          2. A true libertarian does not mind if his neighbor invites a couple of crack whores to move in.

            1. Leave Crusty's mother OUT of this!!!

      2. A true Libertarian can get mad if a neighbor does not mow his lawn and may or may not say something after it gets really bad. A true Libertarian would not use government force to make the neighbor mow his lawn.

        People not taking care of their homes in the neighborhood cause property values to go down. You cannot have an opinion about that?

        1. 1789, did you read what I wrote? I'm not advocating that the government do anything, other than uphold the terms of a voluntarily agreed-to contract if necessary. Many (most?) libertarians agree that is a legitimate function of government.

    2. >>>So, I support the homeowners associations we have here in Texas.


      1. You don't support the idea of a group of people forming a voluntary contractual association in order to maintain the quality of their neighborhoods? Why would that be?

        1. HOAs are invitations to tyrant for people who have no business with power.

          1. Hey man, if you don't like your HOA, you can move to a different neighborhood. No one forced you to live there. Just as if you don't like your state, you can move to another state. And if you have a problem with the US government, quit bitching and move to Canada.

            1. Sigh. A person makes an actual, personal, and voluntary decision to enter into the relationship with the HOA and the neighborhood. They agree to do it.

              Of course, that is not at all the same as being involuntarily subject to laws merely as a result of existing at certain geographic point. But you knew that.

              So yeah, don't move into my neighborhood if you don't like the terms.

              1. >>>my neighborhood


              2. What about your kids? When they inherit your house, will they have made a personal and voluntary decision to accept the terms of the HOA? What about you and your ancestors coming to this country?

            2. hate the Jays.

            3. So you agreed to let an arbitrary group of unelected officials seize your home if you don't continue to pay the ever-increasing HOA fees that seem to pop up?

              But yes, you have to be a moron to live in an area with HOA.

    3. I'm against spending money designated for a specific cause on something else. Particularly when it involves giving it to your cronies.

      Shit. Can we at least agree that government should spend money how they say they will and do so transparently? Even if we don't agree with the spending, let's at least hope them to be honest about it.

    4. I bet most of those houses were long-abandoned pieces of shit: falling apart with overgrown foliage, unrecoverable and pointless to save.

      They are. The vacancy rate in Detroit is about 30% for all types of properties. And the reality is that actual property tax revenues have fallen by 60% over the last 20 years - and about 25% of the land is now tax-exempt as it has reverted to a land bank without being redistributed back out.

      Detroit is actually a unique case study of how 'slumlord economics' (dependent on gaming the tax system and land speculation instead of developing property) works in declining cities - and of how different land taxes (in Detroit before 1954) are from property taxes (since 1954).

      Informative report on Detroit and property tax (from Lincoln Land Institute) - http://bit.ly/2uiAfl3

      1. The actual average residential property tax in Detroit is $327. That is hardly 'high'. Rather it is evidence that a)all the 'property development' in Detroit now has negative net value and b)the city has done an absolutely crappy job in providing $327 worth of value via streets/cops/schools/etc.

    5. I bet most of those houses were long-abandoned pieces of shit: falling apart with overgrown foliage, unrecoverable and pointless to save.

      Yes. Which makes them not merely eyesores, but big tempting arson targets. I grew up in the area when "Devil's Night" was at its peak. Detroit's condemnation and demolition policies are a result of the experience of having to deal with literally hundreds of arsons in the three-day period around Halloween year after year after year.

      Now, obviously, the same incompetent government that screwed up the city so bad that it's been two-thirds abandoned is also going to screw up more than occasionally when it executes its condemnation-and-demolition policies. They need to be held accountable for that. But it's not like they're doing this for shits and giggles; the goal is legitimate, to save lives and non-abandoned property.

  6. Graft in demolition is unnecessary I'd do that for giggles.

    1. Till you get tired. I like smashing stuff as much as the next guy, I'm just sure I'd run out of steam long before a whole house gets torn down. Also, cleaning up the debris. Which is why people get paid to do it, because it's not fun.

      1. >>>because it's not fun

        dang. looks fun.

        1. Fun or not, it's a union job so you aren't allowed.

  7. Detroit, Democrats, "Federal Money" mis-used, Graft, Corruption, where is the part that is 'news'?

  8. Let me see,seize and destroy homes over small amounts of money,raise values ad sell to cronies. Use tax dollars to fund said cronies .Yeah,seems legit.

    1. Yeah, maybe raise the value of the $1 houses a whole 100%. This is Detroit.

  9. The City of Detroit is now the subject of a federal grand jury investigation over its use of the HHF funds. And the Michigan ACLU and the NAACP Legal Defense Fund are suing Wayne County and the City of Detroit over illegally collected taxes and illegally seized houses.

    Even if the ACLU and NAACP win, what's the point? It's not like Detroit has any money to make the victims whole again.

    1. Thanks to Democrat's mismanagement of that city for decades, you have to be a fool to deal with Democrats anywhere... ever.

  10. The Trump administration has spent taxpayer money meant to encourage enrollment in the Affordable Care Act on a public relations campaign aimed at methodically strangling it.

    The effort, which involves a multi-pronged social media push as well as video testimonials designed at damaging public opinion of President Obama's health care law, is far more robust and sustained than has been publicly revealed or realized.

    The strategy has caught the eye of legal experts and Democrats in Congress, who have asked government agencies to investigate whether the administration has misused funds and engaged in covert propaganda in its efforts to damage and overturn the seven-year-old health care law. It's also roiled Obama administration veterans, who argue that the current White House is not only abdicating its responsibilities to administer the law but sabotaging it in an effort to facilitate its undoing by Congress.

    "I'm on a daily basis horrified by leaders at the Department of Health and Human Services who seem intent on taking healthcare away from the constituents they are supposed to serve," former HHS Secretary Kathleen Sebelius said.

  11. I've thought the smart thing to do would be to find neighborhoods that were already pretty much empty, offer to buy out the last couple people, then demolish the remainder of the neighborhood, block-off the streets, and shut off water and sewer to there (as much as possible. Would save the city the need to maintain services for an area that is dead.

    Of course, that would require some thought and intelligence, which Detroit has been devoid of for an awful long time.

    1. City ombudsman Marie Farrell-Donaldson proposed that in 1993, to mass protest from people who didn't like the idea of being relocated.

  12. Just like New York in the 60s/70s, "white flight" took hold, now it's a disaster. The Democrats of Detroit know exactly what they're doing. They're making way for another dividing term: "gentrification," moving people into rentals, then raising rent and forcing them out. BUT, they had to clear out the old houses first. They don't care about the people, especially minorities. Never have, never will. They just promise stuff to them to get their votes and come back for the next election.

Please to post comments

Comments are closed.