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Tax-foreclosure crisis looming as lawmakers set to act

As state legislators reconvene next week for what’s likely to be a frenetic lame-duck session focused on road repairs, Michigan’s top officials are watching for action on a pair of bills to help tens of thousands of homeowners in metro Detroit avoid evictions.

The two bills languished for years in Lansing, but this fall, they have broad bipartisan support as leaders scramble to avoid a tax foreclosure crisis that could mirror the housing meltdown of half a decade ago — and spring Detroit back into the headlines as a city of financial pathos, just as it tries to burnish a brighter post-bankruptcy image.

This year, the Wayne County treasurer began foreclosure proceedings on a stunning 76,000 properties, including 62,000 in Detroit, capping three years of increased efforts to collect back taxes from people like Marcella Crockett, 39, of Detroit.

She bought a house on Asbury Park on the city’s northwest side about nine years after renting it for almost that long, fell behind on taxes several years ago when she lost a good-paying job, got on a payment plan this year to reduce her debt, including heavy interest — but still lost the house in the county’s October foreclosure auction.

“My possessions are still in there, but all my utilities are off, so I’m sleeping on the driveway in my van, guarding the house,” said Crockett this week. She still hopes, somehow, to get it back.

The two bills have strong support from Detroit Mayor Mike Duggan. In different ways, both would let county treasurers reduce or eliminate the penalties and heavy interest — as high as 18% a year — that quickly accumulate under state law when homeowners get behind on property taxes.

“We have to keep people in their homes — it’s really hard to stabilize the neighborhoods when you force people out through foreclosure,” Duggan said this week. He called Gov. Rick Snyder and “took him through the details and told him we’d be pushing these” in the Legislature’s lame-duck session, Duggan said. Snyder, traveling in China earlier this week, could not be reached for comment.

The goal of the bills, Duggan said, is to let county treasurers forgive the amount a taxpayer owes in interest and penalties, conditioned on the property owner agreeing to abide by a payment plan on the actual tax they owe. Decisions to waive interest and penalties would be made on a case-by-case basis after taxpayers show proof of hardship, said Wayne County Treasurer Ray Wojtowicz.

“While the interest rate serves as an important incentive to pay taxes in stable communities, that same interest rate drives people from their homes in our more economically challenged neighborhoods,” Wojtowicz said in a written statement.

Even fiscal conservatives said they’ve come to recognize that home foreclosures in Detroit and other areas battered by the Great Recession’s meltdown in home values don’t resemble the same process in typical Michigan neighborhoods. Instead of a foreclosure leading merely to delayed revenue reaching tax authorities, the process produces abandoned, stripped and ultimately worthless housing.

Both bills are expected to pass in this fall’s lame-duck session of the Legislature, and with bipartisan support — perhaps as a single consolidated law, said state Sen. Jack Brandenburg, R-Harrison Township, chair of the Senate Finance Committee.

“Government does not want to have to handle homes,” Brandenburg said. “If we can put people on installment plans, let’s give them that opportunity, rather than chase them down and take them through the courts” for evictions, he said.

State Rep. John Walsh, R-Livonia, is sponsor of one bill, which passed the state House unanimously this year as HB 5421. After reaching the state Senate, it underwent rapid behind-the-scenes revisions to expand its reach, then passed the Senate Finance Committee unanimously, making it ready for a Senate vote, Walsh said.

The bill would let county treasurers waive the 18% annual interest rate on delinquent property taxes that kicks in after one year of delinquent taxes and is retroactive to when the taxpayer quit paying, although 12% annual interest would still apply to unpaid tax bills. It applies only to residential property.

“We do have a foreclosure process, and I stand by it, because we can’t have people walk away from their taxes,” he said.

“But for those who approach their county treasurer and say, ‘I want to pay my back taxes (and) I can just barely afford to pay this, but the interest is killing me and I’m going to have to walk away’ — these are the people we need to help,” he said.

Walsh assumed sponsorship of the bill at the request of its previous sponsor, state Rep Rashida Tlaib, D-Detroit, who pushed for the proposal since 2009, then turned to Walsh in the hope that someone from the majority party could build support, she said. Years earlier, another Democrat, Oakland County Treasurer Andy Meisner — then a state representative — proposed a virtually identical bill, Meisner said.

When lawmakers created the 18% interest and other surcharges, “they didn’t envision this foreclosure crisis, they didn’t envision the housing meltdown and didn’t envision that tens of thousands of taxpayers would get caught up in this storm,” Meisner said.

“Not being able to provide some relief is very frustrating for me as a county treasurer. In Oakland County, our tax foreclosure rate is going down, but we still have more than we’d like,” he said.

The second bill, which also passed the state House with strong support, is known as the Distressed Taxpayer Bill, or HB 4882. It also lets county treasurers waive interest and penalties on back taxes but only after a homeowner completes an installment plan that pays off their tax debt. The payment plans aren’t set in stone, but tax authorities said they expect they could be as long as five years.

Proposed in 2011 by state Rep. Phil Cavanagh, D-Redford Township, the Distressed Taxpayer Bill applies only to people “who hit the federal poverty level,” he said.

“We owe a duty to landowners who are in default through no fault of their own — through illness, losing a job, death in the family. Even though you might be in a payment plan, the penalties and interest can double if not triple what you owe,” Cavanagh said.

Under current state law, interest and penalties on back taxes create crippling debts in low-income neighborhoods that lead to evictions, vacant homes that are stripped and ultimately burned or otherwise turned into public hazards with no tax value, said Ted Phillips, executive director of the United Community Housing Coalition.

Phillips has worked for decades to help poor residents metro Detroit keep their houses, “but I’ve never seen a situation this bad,” he said, as clients of the nonprofit agency crowded his waiting room in downtown Detroit last week.

Among them was Roslyn Johnson, 46, of Detroit, who bought her house on Detroit’s east side nearly three years ago and is under a deadline from the Wayne County treasurer to pay about $15,000 in back property taxes.

But Johnson, who lives there with her elderly mother, said when she purchased the house it was already significantly behind on tax payments, “but I didn’t have any ideas about that.” When she found out, she said: “I’m like, how in the heck can you sell this to somebody?” with a huge tax bill owed.

The problem is commonplace among low-income, first-time home buyers, Phillips said. And it spread like wildfire after the housing meltdown, when unscrupulous real-estate investors snapped up thousands of homes on the cheap, then unloaded them on buyers who can’t afford a lawyer and “don’t even have the money for a title search,” he said.

The crisis is “unprecedented in our lifetimes, to have so many properties going through foreclosure in Wayne County and all over Michigan, but we just have to find the right mix of responses,” said Eric Lupher, president of the Citizens Research Council of Michigan, a nonprofit think tank in Livonia.

But assistance shouldn’t go to property owners who could have paid if they hadn’t failed to budget, squandered money on casino trips or steadfastly refused to pay as an investment gambit, Lupher said.

Such people should lose their houses, simply as a matter of fairness to those who pay, said George Kaleniecki, 64, a retired Ford die maker who said he never missed a tax payment for his 1942 brick bungalow on Detroit’s far-west side.

“Let the federal government worry about finding living space for those that won’t pay, or can’t pay,” Kaleniecki said.

For those who qualify as deadbeats, “we have to change the culture that thinks they don’t have to pay taxes,” said Wayne County Chief Deputy Treasurer David Szymanski.

Still, Szymanski said there are thousands of homeowners who need assistance to avoid becoming homeless. At a recent meeting of more than 75 stakeholders in the forclosure crisis, held at State of Michigan offices, Szymanski addressed the group of state and local officials, ministers, poverty advocates and even a representative from the United Nations.

“It’s overwhelming, the number of people in trouble over this. I’m going to ask you all to pray for us,” he said.

Contact Bill Laitner: blaitner@freepress.com and 313-223-4485.

Article source: http://www.freep.com/story/news/local/michigan/wayne/2014/11/29/detroit-wayne-county-property-tax-foreclosures-evictions-bills-interest-mike-duggan-rick-snyder-evictions/19639265/

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