Why isn’t Wayne County doing more to keep speculators from exploiting the tax auction?

By Sarah Alvarez, founder, Outlier Media

Fall is auction season in Detroit, as Wayne County sells off homes that were foreclosed on due to unpaid property taxes. We’re currently in the second round of the auction, where individuals can bid on houses for as low as $500. In the past few years, public excitement over cheap properties has evolved into concern for the homeowners and tenants pushed out of their houses by the tens of thousands in the last decade. Recently, the county has stepped up efforts to help residents avoid foreclosure; fewer than 1,000 occupied homes ended up in the auction this year.

But the county is doing far less to address another major problem with the auction — speculators who exploit it, devastating city neighborhoods in the process. Oftentimes, they’ll neglect property upkeep, sometimes not pay taxes, occasionally even while charging tenants rent. Daren Blomquist, vice president of nationwide property database ATTOM Data Solutions, says the auction leads to a “penny stock mentality” among buyers. Even if a buyer can’t unload the property again or decides paying taxes isn’t worth the trouble, losing the house to the auction is worth the risk because the purchase price is so cheap.

Advocates and officials generally agree that speculators shouldn’t be allowed to keep buying properties in the auction — and a 2014 state law was designed to prevent it — but the stopgaps haven’t always worked that well.

Bidders have to abide by certain rules — like no owing property taxes or civil fines. They have to sign an affidavit this year which instructs that “no persons that have been banned or excluded from participation in the auction” can bid on properties. Using a Freedom of Information Act request, Outlier asked the county for a list of businesses or individuals banned from the auction. The response came back from the County saying they could not find any such document. Double checking with the Treasurer’s spokesperson, Mario Morrow, confirmed that in fact there is no list.

We went looking for a naughty list, but all we found was the honor system.

The size of the auction does present an enforcement challenge, but there also seem to be easy loopholes to close. Last year, Outlier Media analyzed the winners of the 2016 auction, showing just basic googling would turn up buyers who owed taxes on houses they bought in the auction and were still allowed to pick up more, a violation of state law. At the time, Wayne County Treasurer Eric Sabree said keeping bad actors out of the auction was tough because so many of them set up shell companies to bid and buy through.

The issues recurred in the 2017 auction, with searches turning up at least a couple buyers who have bought in bulk in the past and have had tax delinquencies and other property issues.

For example, more than 20 properties were won by Nikolas Kefallinos, with the deeds registered to the address for the Russell Industrial Center. The Russell is one of several buildings owned by controversial developer Dennis Kefallinos, and earlier in 2017 the cityforced tenants at the complex to vacate due to unsafe conditions. And the properties purchased in the auction a year ago now show a total of more than $25,000 in delinquent taxes.

Morrow said the office does checks on potential buyers before they convey the deed for a property to make sure they don’t owe taxes. However, multiple requests for a list of addresses where the Treasurer has decided not to convey deeds have gone unanswered.

Questionable oversight, unclear penalties, minimal risk. What speculator out there wouldn’t place a bet on Detroit?

The consequences of speculation and shady property owners aren’t the county’s alone, but other entities might be doing a better job holding them accountable. Detroit, for example, is suing property investors who don’t pay their taxes. Attorney Eli Savit is in charge of these lawsuits and said they have filed over 1,000 since last year.

“We have over $10 million in judgements,” said Savit, “and have collected about $2 million of that.” When asked what the city can do to keep these same investors from buying property in the auction again, Savit said, “That’s a county issue. We have no control over the auction.”

After the auction closes on Oct. 24, the public will be able to see who placed winning bids on each of the properties and how much they paid for it. Less clear is whether or not those sales were a good deal for Detroit.

This investigation was brought to you by the 104 members of Detour Detroit. We shared 20 percent of their membership dollars with Outlier Media, a collaborative effort to fund more accountability journalism stories in our city. Joining Detour for just $3 a month means you directly fund more of these stories.