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Tens of thousands of homes have churned through the Wayne County tax foreclosure auction in the last decade and the ramifications on Detroit have been enormous. It directly led to an incalculable level of displacement and speculation that accelerated blight as negligent owners, be it auction bidders or the Detroit Land Bank Authority, let their properties deteriorate.
But despite its size and impact, the Wayne County tax foreclosure auction typically operates at a net loss. Detroit always loses money on the tax auction and Wayne County doesn’t make much.
Last year was different according to Wayne County Treasurer data. In total, 2,184 Detroit properties sold for $37 million.
“What happened at last year’s auction is unprecedented since I’ve been following it,” said Eric Dueweke, a retired urban planning lecturer at the University of Michigan.
Dueweke has tracked Wayne County tax foreclosure auctions for more than 20 years. He said it’s typical for the total sale amount of auction properties not to exceed the minimum bid, which is based on what’s owed in property taxes plus an administrative fee.
Dueweke calculated that the county made over $18 million in profit on Detroit properties alone in 2022.
Despite the amount of money made at the 2022 auction, Detroit won’t financially benefit. Instead, that money will go to shore up Wayne County’s budget.
The county always wins
When residents don’t pay their property taxes on time, cities in Michigan hand over the responsibility of collecting delinquent taxes to the county where they sit. In return, county treasurers “buy” all of a municipality’s tax debt and issue low-interest bonds to cover the costs.
Property owners who have delinquent tax debt that is three or more years old, by state law, should be foreclosed by the county. Those properties are put up for auction and sold for a minimum bid.
If a property sells for less than the minimum bid or doesn’t sell at all, the city owes the county treasurer the amount of debt that remains.
“For the county, the delinquent tax system is a ‘heads I win, tails you lose’ situation,” said Alex Alsup, vice president of research and development at property data firm Regrid. “It insulates the county treasurer from loss.”
The Wayne County Treasurer’s Office did not confirm how much money it made from the 2022 auction or respond to any questions. It also didn’t make the treasurer, Eric Sabree, available for an interview.
The county can also make money by collecting cities’ tax debt.
The first is through interest as high as 18% and fees the treasurer’s office tacks on to back taxes.
A 2017 investigation by Bridge Michigan and WDET found the Wayne County Treasurer’s Office collected an average of $33 million a year in fees and interest between 2004 and 2016. The city could have carried out approximately 1,500 demolitions per year with those funds.
Wayne County used the money to help shore up its budget and pay for things like a new jail complex, for which it has chipped in $380 million.
“The reality is that the vast majority of the profit the county makes from tax delinquency has never come from the auction,” Alsup said.
The 18% interest rate the county charges on tax debt is mandated by state law.
The county also keeps profits from properties that sell at auction for more than their tax debt.
The 2022 auction was bigger than normal after being suspended in 2020 and including only commercial properties in 2021. Around half of all properties in last year’s auction sold in September, compared to a third in 2019.
Bidders last year seemed eager to scoop up more property and at higher costs, likely due to property value increases in Detroit during the pandemic. Detroit property values have gone up 45% over the last three years. The vast majority of the more than 3,000 properties in last year’s auction — close to 90% — are located in Detroit.
The number of Detroit homes entering the auction appears to be on a downward trend, helped along by recent policies and laws that have helped reduce tax delinquency. The Pay As You Stay program was launched statewide in 2020 and eliminates fees and interest on back taxes. The Detroit Tax Relief Fund, launched in 2021, plans on spending $15 million to eliminate the tax debt for 20,000 low-income homeowners.
Alsup found that tax delinquency in Detroit declined by 41% between 2020 and 2023.
If declining delinquency isn’t offset by a much more profitable tax foreclosure auction, the trend could have huge ramifications on Wayne County’s collections and budget.
What the city can do
The city told Outlier it’s not in a position to change the current collection system.
“Any change in the delinquent tax collection process would require state legislative action,” wrote Stephanie Davis, communications manager for the city’s Office of the Chief Financial Officer, in an email. “Our main focus is to reduce the number of home foreclosures in Detroit.”
Dueweke said the city should pressure Wayne County to share its proceeds from tax delinquency.
The Genesee County Treasurer’s Office, for example, has allocated money to demolish blighted structures. The Wayne County Treasurer’s Office has given no indication that it will spend proceeds from tax delinquency and foreclosure in this way.
“Eric Sabree could probably tear down every single blighted property at the tax auction with the money he’s making,” Dueweke said.
As for reducing the amount of delinquency overall, Alsup said the next step is reforming the tax code. The city is exploring instituting a “split-rate” tax system, which taxes land at a higher rate than the improvements on the land, would lower tax bills for homeowners and decrease speculation.
“You have a kind of Russian nesting doll of systems,” Alsup said. “And it’s important to get to the center of that, which is the property tax system.”