Demystifying the tax auction with Outlier Media’s Sarah Alvarez

Back in February, Detour teamed up with Outlier Media to offer a free workshop we called Watchdogging the Tax Auction. Readers and members of the public came out to learn more about how the auction works and try their hand at tracking auction buyers to expose rule breakers. Detour founder Ashley C. Woods wrote about some of our insights from hosting a public act of journalism back in February —read more here.

Outlier founder and Executive Editor Sarah Alvarez took the time to answer some of the most common questions from participants to help demystify the complicated process and consequences of the auction.

Wayne County’s annual auction of properties foreclosed on due to unpaid taxes is one of the largest in the country. It’s also one of the largest forces that has affected homeownership and property issues in Detroit, magnifying blight, speculation and struggles for low-income residents. As of Monday, about 7,000 properties in the county risk foreclosure this year due to unpaid bills from 2016. Owners have until Thursday to sign up for payment plans to avoid the auction.

In 2018, 2,741 Detroit properties went up for auction. (More than a quarter of all properties in the city have gone through the auction since 2011.)  Last fall, more than half of the auctioned homes were occupied, making watchdogging a lot of work — but important. At the end of February, we asked Detour members to help us jumpstart our annual reporting on the auction.

Our biggest question was whether a pattern in the 2017 auction we reported on, investors buying large numbers of properties while still owing taxes on properties they already owned, had been repeated in 2018. In theory, that’s against the county’s own rules for the auction, which buyers must agree to, but it hasn’t been rigorously enforced. The reporting and analysis were slow — thanks for being patient! — but we did learn some things we think are important enough to put into wider conversation, and we’ll be publishing that piece in Bridge in the coming weeks.

In the meantime, we wanted to address questions sent our way by watchdog workshoppers. Here are those questions, edited a little for clarity, and the answers.

How many people, instead of companies, buy in the auction?

In our watchdog reporting, we focus on people and companies that use the auction to buy many properties, not just a few, because they are not tracked by the county, and because we’re particularly concerned with how investment buyers are using the auction. In the Wayne County tax auction, as the number of properties goes up, the number of buyers goes down.

We defined bulk buyers as those who purchased seven properties or more — those buyers made up less than 1% of all auction buyers in 2018. There were 56 of these “bulk buyers” in 2018. Only 14 of these buyers used their personal name instead of a company.

Some of these LLCs are companies but are not far removed from an individual. Buying through an LLC is a way for individuals purchasing from the auction to do so with more privacy. Other LLCs are collections of individuals. Bulk buyers often have investors that contribute money towards their auction purchases, but verifying who invests in these LLCs is almost impossible.

Are the individuals buying up properties making progress on renovating the properties?

There’s no rule that properties bought in the auction need to be renovated, and not all investors want to renovate their auction buys. If the exterior of any private property in the city gets to a point where it violates city code (things like trash piling up, not clearing a sidewalk or the nightmare-inducing “rat harborage”), the city can ticket the property owner. These blight tickets typically cost owners a few hundred dollars each.

If you want to be able to keep tabs on the upkeep of auctioned properties, there are two ways to do it. You can either use Google’s street view “time machine” function or you can check the blight ticket database by address or owner. The Detour member that asked this question was looking at the auction buys of Martin Powelson from Waterford. Powelson has been buying in the auction for years and is the registered agent or owner of 208 LLCs in the state, owning several hundred properties.

Exactly who are the players in a tax auction buy — and how are they all related to each other?

This is a mash up of several questions about different players, resident agents, bidders and LLC members. Most of the official buyers in the tax auction are LLCs. The benefits to using an LLC as an auction buyer is an extra level of privacy and tax benefits. The owners of LLC’s are called “members.” LLCs also have a “resident agent,” a person or company who registers the company with the state. A resident agent is not always an owner. In fact, there are some companies that list their resident agent as yet another LLC. Bidders in the tax auction are also not always the owner — that’s why we ignore bidders for the purposes of our reporting on buyers.

Is it just the same 10 people buying and selling to each other?

We’ll be reporting on this more in the coming weeks but our takeaway from analyzing several years of tax auction data is that the large buyers remain remarkably consistent over the last five years, but the number is more like 50 rather than 10.

Do these landlords have a high number of serious rental inspection violations?

The city of Detroit will be done rolling out enforcement of its rental inspection ordinance by zip code on January 1, 2020. Until then, it wouldn’t be fair, or accurate, to compare landlords this way. We can and do look at blight tickets as one measure of the condition of properties.

We also know from data recently obtained from the city that the private owners who have the most property maintenance complaints after local government agencies (like the Detroit Land Bank Authority) are the father and son investor duo Steve and Stevey Hagerman and their affiliated LLCs.

According to Wayne County Register of Deeds data, the Hagermans purchased 100 properties in last year’s auction to add to their portfolio of 924 properties. The investors have also failed to pay their taxes — since 2007, they have had 836 certificates of forfeiture issued by the Wayne County Treasurer and 105 judgements of foreclosure.

Why do tax bills only come twice a year — possibly making it more difficult for people on fixed incomes to manage their tax bills?

Over the past few years Wayne County has made it easier to pay tax bills, with payment plans available for owners who are behind on their taxes, but managing those bills is still the residents’ responsibility. About half of U.S. homeowners pay property taxes in one or two annual sums, though some advocate for changing state and city policies to allow owners to pay monthly, which is easier to save for and could lower property tax delinquency. –Sarah Alvarez

This member-funded story comes to us from Outlier Media, an innovative news startup that gets critical news to Detroit residents by text messages. Learn more about you can support original local journalism with a Detour membership.