In the Detroit area, a record tax auction in October 2010 sold 4,300 properties and got those properties off the books and helped the city recoup staggering losses causes by the non-payment of property taxes. Sound like a success? Absolutely not, says Maggie DeSantis, president of a local non-profit development corporation. “[We’ve] got to make it so onerous to speculate [in property],” she explains, “and we have to do it now”[1]. DeSantis and others like the mayor of Detroit, Dave Bing, who believe that “shrinking” the area of Detroit is the best way to get the city back on track, are concerned that out-of-state buyers who make up an increasingly large percentage of the real estate investing and owner population of Detroit, are contributing to neighborhood blight and to the “cycle of going from speculator to foreclosure every three years,” according to Dan Kildee, head of Detroit’s Center for Community Progress.

Detroit has a two-tiered tax auction system. At a preliminary auction in September, buyers must pay back taxes and other liens in order to acquire parcels. However, the “leftovers” from this auction are sold off in October for a minimum bid of $500 and buyers do not pay back debts. Kildee believes that the second auction needs to be eliminated and that those properties should go into a “land bank” that would market to developers with “the community’s goals in mind.” Treasury officials are less willing to dump the October auction, but say that they are “seeking reforms to change the low pricing…including allowing the city more chances to buy properties for $500.” Other counties across the country have used this strategy with some success, including Anderson, Indiana, which recently opted to let a contested online tax auction continue after allowing the public library first dibs on some property[2].

According to analysts like Kildee and other community advocates, the city needs to limit “short term” profit opportunities that are made possible by procedures like the two-tiered tax auction system. City officials also are trying to hold property owners responsible for “blight” properties that may be vacant, dangerous, filled with trash or responsible for other violations. Currently, “city officials haven’t found a way to force landowners to pay,” and nearly $41 million in fines remain unpaid. However, many of the landowners in question vehemently deny that their properties are in violation, including Michael G. Kelly, the largest private landowner in Detroit, who believes that he not only should not be fined for his largely vacant properties, but that he is in a position to drive up the price of land[3].

Do you think that changing the tax auction system in Detroit is the answer? Are you investing in the Detroit area right now?

Thank you for reading REJournalOnline’s Tax Deeds Investment Letter!

Please leave comments and questions below.

---

[1] http://www.detnews.com/article/20110204/METRO01/102040358/1409/Reforms-urged-to-deter-land-speculators

[2] http://www.istockanalyst.com/article/viewiStockNews/articleid/4865070

[3] http://www.detnews.com/article/20110203/METRO01/102030395/Private-landowners-complicate-reshaping-of-Detroit