In the spring of 2020, Alita Crowley fell behind on her land-contract payments. It was the height of the COVID-19 pandemic. The now 59-year-old was dealing with a toxic sewage leak in her duplex’s basement. Concerned about her health, she redirected some her limited funds to fixing the problem; it was her responsibility as part of her contract to make repairs to the house.
Fast forward six months and Crowley found herself summoned to court. Detroit Property Exchange (DPX), the company she was purchasing her house from in the land contract deal, said she owed $1,500. But similar to what a landlord would order for a tenant, DPX wanted her out in 30 days.
This came as a surprise to Crowley, who was under the impression she was a homebuyer. DPX had put the house’s taxes in her name. They had filed a quitclaim deed with the Wayne County Register of Deeds indicating that Crowley was the new owner. And like a mortgage, the monthly payment receipts DPX issued her had a loan number scrawled across the top.
Crowley’s situation—thinking she was a homebuyer but then receiving an eviction notice as a tenant—is a common practice by DPX, according to a lawsuit filed in November 2018 against DPX and its owner Michael Kelly.
Lawyers representing individuals like Crowley, however, hope it’s about to become less common.
Last week, after a three-year court battle, DPX and attorneys representing individuals buying homes from the company reached a settlement that brings some accountability to Kelly’s practices and Kelly himself. Kelly has been operating as a self-described property speculator in Detroit since the late 1990s but somehow managed to evade much media attention or accountability despite failing to pay property taxes, accumulating blight tickets, and engaging in behaviors his critics say exploit Detroiters.
“This is an historic settlement as it declares that the referenced transactions are land contracts, preventing these residents and others from being evicted as mere ‘tenants’ in the future,” said Gerard Mantese, a lead attorney for law firm Mantese Honigman which, along with Michigan Legal Services, represents the plaintiffs.
The settlement, which still needs to be signed by a judge, is expected to directly benefit at least 162 individuals—people like Crowley— in the “settlement class” but the impact could also be more widespread.
The settlement requires Kelly to pay $175,000. Each of the eight named plaintiffs will get $10,000. Up to $35,000 will go toward paying attorney fees. Remaining funds—an estimated $60,000—can go to the settlement class members who were evicted.
“All class members no longer in the property will get a cancellation of their debt—anything they still owe. And a release from any liability. Plus a cash payment,” Mantese explained in a text, noting that his firm is preparing a motion for Judge Sean F. Cox to approve the settlement agreement.
Housing advocates had hoped for more money and impact from the case, but Cox denied the suit class-action status in August, ironically saying Kelly used too many different contracts to say all potential class-members have the same experience—a requirement necessary for a class-action lawsuit. However, the settlement puts in writing that anyone who signed a rent-to-own deal with Kelly between Nov. 19, 2015, and now and who doesn’t opt-out of the settlement will be issued a traditional land contract. Mantese said the goal was really less about the funds than an acknowledgement of the practices Kelly was engaging in.
“Going forward, if he tried to claim that any similar transactions were mere leases, he wouldn’t have a leg to stand on,” Mantese said. “He will be governed by this judicial determination that these are land contracts.”
We reached out to Kelly’s attorney William Semaan by phone and email for comment, but he did not respond.
Detroit’s lawsuit against Kelly
Land contract holders are not the only people attempting to use the courts to hold Kelly accountable. The City of Detroit filed its own suit against Kelly and DPX in state court in February 2020, claiming Kelly’s business practices are a public nuisance.
The suit, which is pending, alleges Kelly engages in an “invest and neglect” business model that has created unstable and unsafe living conditions for Detroit renters.
Kelly maintained in the Mantese Honigman case that the majority of the people in his homes were renters who didn’t sign land contracts. But when dealing with the City of Detroit—and his lack of compliance with the rental code—Kelly has maintained that the majority of people living in his properties are not renters but land contract holders and therefore responsible on their own for upkeep.
In December 2019, two months before the City of Detroit filed its suit, Kelly submitted a document to the law department classifying his properties. Of the 180 properties he reported having in his portfolio at the time, he claimed 85% of the occupied properties in ZIP codes where the rental ordinance had already been enacted were “lease with purchase” or land contracts not subject to the rental code.
The city’s suit signifies a shift in its approach to Kelly who has been able to avoid much accountability and even benefit from operating in ways that conflict with city regulations. In 2017, 2018 and 2019, the city sued Kelly over outstanding blight tickets and unpaid property taxes totalling more than $2 million. Each of those years, however, the city retreated, moving to have the cases dismissed. In 2018 and 2019, this was done in exchange for land the city was interested in procuring from Kelly for development.
While the city maintains it is not going to let Kelly off the hook this time, prevailing in a case against him may be made more difficult as Kelly has recently tried to get residents to sign away their rights to sue him.
In January 2019, three months after the Mantese Honigman suit was filed, DPX began asking potential plaintiffs to sign release documents that would bar them from taking part in the suit should it achieve class-action status.
According to court documents in April, Kelly promised plaintiff Shannon Cobb a $100 check or $150 rent credit if Cobb signed a release document.
“We’re asking customers to stand by our side, new customers and that. You know, we’re saying, ‘Hey listen, this is the program.’ And what we do is we can give you $150 credit if you want to stand by our side and join us. We can give you $150 credit or we can give you a $100 check,” Kelly said, according to a transcription of the conversation, which Cobb taped.
That same month Kelly sent out a “Gift Letter” to people living in Kelly properties, promising a $250 rent credit if they came to the office to “stand by them” and sign a legal release.
According to court documents, Kelly got 145 releases.
In January 2020, Crowely and other DPX occupants received a different letter from the company’s attorney William Semaan offering a $500 rent credit in exchange for an unconditional release.
“If you choose to sign a release of claims, you will be settling all of the claims that you have in the pending lawsuits and you will be unable to participate in the federal and state lawsuits,” the letter said.
While Crowley was struggling financially at the time, and a $500 credit would have been nice, she ultimately decided to hold off. It came down to trust.
“It was all about how they had treated me when I begged for a hot water heater and furnace,” she told Outlier, explaining that while the house had a hot water tank and furnace when she originally went to view it, it was removed before she moved in.
This musical chairs of housing essentials is typical of DPX, according to the city’s lawsuit, which alleges the company, through a number of LLCs, buys cheap properties at the Wayne County auction and then moves people—and housing fixtures—around through them. While a landlord would be required to provide these things, it is not required in a housing sale, or with a land contract.
“There was no heater tank and furnace, and it was almost winter. So, I had to use the stove to heat the house and have everyone stay in one unit,” Crowley recalls. “I wasn’t signing anything.”
Path toward homeownership
Crowley was able to fight the eviction case DPX brought against her thanks to the help of the United Community Housing Coalition, which represented her in court. Up until this week’s settlement, people in Crowley’s position would have to rely on housing advocates to help them fight evictions that should not be allowed in the first place.
“I don’t think you’re going to see him try to engage in this behavior again,” Mantese said of Kelly.
Crowley is now in another land contract that demonstrates they can offer lower-income residents who would otherwise not be able to purchase a home, when done right. In August, the United Community Housing Coalition purchased Crowley’s home for her.
“I feel,” she said, taking a long pause, “at ease.”
Ted Phillips, the director of United Community Housing Coalition (UCHC), who represented Crowley and helped her get out from under DPX said land contracts “could be structured in a way that’s beneficial.”
According to Phillips the organization has been buying homes since the 1990s to help people in untenable or predatory land-contract situations. Crowley’s house was purchased with funds from United Way.
Under Crowley’s terms with UCHC, she does not pay interest on her loan. She has about $13,000 left to pay off the house. And should she ever be in a bind and need to turn in a payment late, the fee is $10 versus the $75 with DPX. UCHC also knocked monthly payments down from $675 to $500 a month.
“I feel so grateful,” said Crowley, thinking back to her last interaction with Kelly. “I told him ‘You had a good thing, but you turned it into a nightmare because of greed.’”
Most importantly, she explained, her experience—and what will now be possible due the settlement—will put dozens of Detroiters back on the path toward homeownership.
“Owning this house means I can leave a legacy,” she said, explaining that she grew up in the since-demolished Detroit neighborhood of Black Bottom. “Detroit is my home, to own part of Detroit is to own some sort of legacy within Detroit.”
ALLIE GROSS is a freelance journalist and contributing writer for Outlier Media. Reach her at email@example.com. Outlier Media can be reached at firstname.lastname@example.org.