When property owners fail to pay taxes on their real estate, then the city in which the real estate is located has the option of selling off that property tax lien to the highest bidder. Particularly in these difficult economic times, municipal governments are relying heavily on these tax lien auctions to help bolster budgets that are lean and far in the red. However, in Detroit, many communities are saying that the money that comes into the government budget is not worth the blight on the neighborhoods when it comes to these tax auctions and that out-of-state owners who procure the properties via tax auctions and foreclosure auctions neglect the properties and contribute to neighborhood blight[1].

Michigan is a tax deed state, which means that the government forecloses on properties with delinquent taxes, and then sells the deeds to those properties at auction[2]. This means that buyers who purchase tax deeds in Michigan are purchasing the rights to the property and become the owners of those properties. While this is great for tax lien investors and others who are buying while the “getting is good” in Michigan, investors who do not accurately factor in the costs of owning the property, are unable to flip a property as they expected or fail to maintain a property once purchased often find themselves owners of properties that they have neither the means – nor, in some cases, the inclination – to care for long term.

Community organizations in the state say that they are “struggling to track out-of-state owners to complain about their blighted homes,” but in many cases the properties are owned by faceless companies or change hands so many times that the owners are impossible to track down. Critics of the tax auction program say that out-of-state owners “may be less concerned about the condition of the property because it will not impact their quality of life,” and, furthermore, that “[the owners] will be hard pressed to do so [care for the property] since they don’t live anywhere near it.”

Of course, the investors themselves believe that they are helping communities by taking homes out of foreclosure and getting them back on the market. While there are many critics of tax lien and tax deed auction programs, at least these properties are moving through the system. Do you think that states should be able to limit who buys at tax lien and tax deed auctions?

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[1] http://www.detnews.com/article/20110203/METRO01/102030369/Out-of-state-real-estate-owners-spark-complaints-from-Detroit-area-activists

[2] http://www.realestateproarticles.com/Art/19191/265/Making-Profits-from-Tax-Deed-Sales-in-Michigan.html