Tammie McShan almost lost her cozy Detroit home full of framed family photos in 2017.
“I thank God every day for my house,” she said. “It isn’t much, but it’s mine, and I don’t have to worry about not having a place to live.”
A single mother of four, McShan, 58, didn’t know her son had unknowingly purchased the home from a scam artist. The actual property owner, living in Arizona, was behind on the property’s taxes and facing tax foreclosure — a well-documented crisis that has affected nearly half of the residential properties in Detroit since the Great Recession.
Once she learned about the imminent tax foreclosure, McShan enrolled in the Make it Home program offered by the United Community Housing Coalition (UCHC). The program helps people living in homes near foreclosure to buy their home for an affordable price before it enters the tax auction. It works by taking advantage of a legal right governments can exercise called the right of first refusal, which allows municipalities the authority to pull properties from the tax auction. The City of Detroit used its right of first refusal to keep McShan’s home out of the auction because she had enrolled in Make it Home. She signed the paperwork to finalize the purchase of her home on Oct. 27 last year.
But now the Make it Home program is at risk after a Michigan Supreme Court ruling and a lack of action by city, county and state officials.
In July 2020, Uri Rafaeli successfully challenged Oakland County for pocketing more than $24,000 in profit from the auction of the rental property he owned. Since the lawsuit, all owners of property in Michigan have the right to any money a property tax auction brings in after their tax debt has been paid, so long as they file a form called “Intention to Claim Interest”.
This is the first year the legal ruling will have a true impact on home occupants in a similar position to McShan. The Wayne County Tax Auction was put on hiatus in 2020 and then scaled back in 2021.
If a tax delinquent owner files an intention to claim interest form, it shoots up the price of the home for somebody participating in the Make it Home program.
While cities can still exercise their right of first refusal, property owners are also entitled to compensation. Under the 2020 ruling, the renter would have to pay the approximate market value for the home, which works out to double what the city assessment says the property is worth (Michigan cities can’t assess property more than 50% of its market value). So, if the city assessed a foreclosed home at $10,000, a program participant would have to pay $20,000 to purchase it.
Those costs are much higher than Make it Home participants have paid in the past. UCHC said the average price of homes bought through the program in 2019 was $2,880.
“A Claim of Interest filing would not prevent the City from continuing forward with the Make It Home process, so long as the tenant or prospective homebuyer understands and agrees to the purchase price,” Dan Austin, a spokesperson for the city’s Housing and Revitalization Department, told Outlier by email.
UCHC said the form has already prevented about 25 households from participating this year.
A relatively small number of people filed intention to claim interest forms this year before the July 1 deadline. Outlier Media obtained every form filed in Wayne County this year through a Freedom of Information Act request. Owners claimed interest on just 284 properties this year out of 3,465 headed to the auction.
There are currently no limitations on who can file an intention to claim interest form. That includes people who put equity into their home but ran into financial hardship, as well as speculators that possibly bought the home from a previous foreclosure auction and chose to invest little.
But the new loophole is no secret, and the low number of claims is unlikely to last for long. The county says it notifies every property owner about their rights when it sends out foreclosure notices and through its website.
Partners in the program — UCHC, the City of Detroit and Wayne County — don’t have long to figure out a solution before next year’s foreclosure list is finalized on April 1.
Ted Phillips, executive director of UCHC, declined to comment on what steps could be taken to reduce the cost for occupants of foreclosed homes or ways to prevent speculators from claiming interest.
Austin wrote to Outlier that the city could sue people who abuse the foreclosure process.
“The city does file lawsuits over uncollected back property taxes, but we try to ensure that the targets of any such lawsuits are those businesses or individuals who own multiple properties in the City,” he wrote. “It is a way to help deter individuals or businesses from victimizing their tenants and exploiting the system through the claim of interest.”
A reprieve from tax foreclosure
The Make it Home program has helped 1,157 Detroit tenants and low-income homeowners save their homes since the program started in 2017. UCHC says another 223 are on track to become homeowners this year.
The owner of McShan’s home owed $11,000 in property taxes when it was foreclosed, but McShan ended up paying just $6,000 to purchase the home.
UCHC is able to keep the price of houses in the Make it Home program low because the city agrees to not collect on the taxes owed to it. UCHC then only needs to pay taxes owed to the county.
UCHC then puts tenants on a year-long payment plan that ends with them getting the deed to the home.
Potential loopholes
Make it Home is the only program that works with renters in foreclosed properties — every other program is targeted to help get owners out of tax delinquency and foreclosure. It’s simple and effective. It also offers a home repair grant once the deed is secured that’s been one of the most effective renovation programs in the city.
So why isn’t there more urgency on the part of UCHC, the city and county to develop policies that might protect Make it Home and prevent speculators or owners who repeatedly appear on the foreclosure list from claiming interest?
It might be because any policies preventing certain groups from claiming interest could result in further legal action.
Christina Martin, an attorney with the Pacific Legal Foundation who represented Rafaeli in his case against Oakland County, declined to comment on her organization’s response to any “hypothetical” policies. But in an email to Outlier, she wrote that “plenty of lawyers would be prepared to sue.
“The Michigan Supreme Court already held in Rafaeli, LLC v. Oakland County that the government cannot take a windfall at the expense of debtors,” Martin said. “If the government is allowed to target disfavored groups of people and violate their rights without consequence, then no one’s rights are secure.”
There also does not appear to be any measure to prohibit someone from filing an intention to claim interest form for a property they do not own.
When asked about this potential, Wayne County Treasurer’s Office spokesperson Darci McConnell said “the court makes a determination on who has a legitimate interest in the proceeds.”
One thing is certain: there is a great benefit to keeping Detroiters in their homes. Between 2000 and 2015, Detroit lost 27% of its population, 24% of its households and 32% of its owner-occupied homes. It became a majority renter city during this time. Programs like Make it Home help some of the most vulnerable city residents become homeowners and build generational wealth.
For McShan, who was experiencing homelessness at one point, housing stability empowered her to make an impact on her community. She founded Life Ministry, a non-profit organization that provides aid to people experiencing homelessness. Homeownership is personal to her on many levels.
“It doesn’t matter how much money you have, it doesn’t matter what degrees you have, or your status,” she said. “You’re just one breath away from being in the same predicament.”
If no policies are enacted to limit who can claim interest before next year’s auction, many more renters could be in a similar predicament.
ALISA DEWALD is a medical student at George Washington University and an alum of the Semester in Detroit program at the University of Michigan.
Reach AARON MONDRY at aaron@outliermedia.org or 313-403-7221. This article appears in today’s issue of The Dig, Outlier Media’s weekly newsletter on housing and real estate. Click here to sign up to receive it.