The Dirt: Detroit speculators could see huge windfall in tax foreclosure case

There was lots of news this week with the potential for seismic impacts on housing locally. Michigan counties could soon be required to pay back the profits they made from selling tax-foreclosed homes — to the tune of around $250 million.

Industry giant United Wholesale Mortgage got hit with a class-action lawsuit that could cost the company billions. And the Detroit Land Bank Authority still doesn’t have an operating agreement with the city amid concerns that the authority favors investors over residents.

Potential windfall for speculators

The Michigan Supreme Court will soon decide if its landmark 2020 decision preventing municipalities from profiting off tax foreclosure could be applied retroactively back to 2013 . If the court says yes, counties would be required to pay former owners back the profits they earned from selling properties at auction for more than the tax debt owed.

The total price tag across all counties is an estimated $250 million. More than half of that would come from Wayne County, which profited enormously from its tax auction during that time.

Who would see the biggest windfalls from the ruling? In Detroit, the answer is speculators , who were already likely to benefit from the new rules . Most individual homeowners who lost their homes in this period did so when their assessments were high, but the actual market value — and potential for profit — was low. Of the approximately 9,100 occupied homes that went up for auction in 2015, just 642 sold for more than the tax debt owed.

Speculators on the other hand had large portfolios whose tax auction profits could add up to something significant. (Detroit News, Detroit Free Press, Outlier Media)

Contract negotiations

City Council still hasn’t renewed the city’s agreement with the Detroit Land Bank Authority (DLBA), which has been operating without a memorandum of understanding since it expired at the end of 2023. Some councilmembers, particularly Mary Waters, said the DLBA hasn’t been providing enough opportunities for residents to purchase property and voted to send it back to committee for further discussion.

The land bank is not run directly by the city, though the mayor appoints four of the DLBA’s five board members. The council wants more of a say in who’s on the board.

A number of proposals modifying the previous agreement are on the table, including more outreach to occupants of land bank homes who need relocation assistance and a sales discount to residents who paid more than they should have in property taxes due to overassessments. (BridgeDetroit, Outlier)

Landlords cry foul

Metro Detroit landlords are intensifying rental application screening efforts to cut down on what they say is rampant fraud and charging potential tenants upfront for the cost (paywalled).

Landlords say a rising number of prospective tenants are falsifying W-2 tax forms or Social Security numbers to pass background checks with many not paying rent, necessitating a monthslong eviction process. One landlord said an enhanced screening costs around $20-$35 each time, a cost it passes on to applicants.

Renters across the country have complained about the rise in “junk fees,” including screening fees, that inflate the cost of renting .

Tenant advocates believe the issue is overblown and that it’s unfair to charge residents for these costs. One lawyer who represents tenants in eviction cases said the issue of identity fraud has “never been raised as a defense” in any case he’s worked. (Crain’s Detroit Business, Chicago Sun-Times)

Billion-dollar scheme

Pontiac-based United Wholesale Mortgage (UWM) got hit by a consumer class-action lawsuit (paywalled) claiming it conspired with brokers to inflate the cost of mortgages. The suit filed in federal court last week claims the scheme cost borrowers billions of dollars in excessive fees.

The company, which is one of the biggest wholesale mortgage lenders in the country, gets business through independent brokers who originate loans, which UWM then services. These brokers are expected to survey lending options to get the best prices for their clients.

But the suit claims about a quarter of these brokers funneled more than 99% of their business to UWM, which “systematically undermined the basic structure and purpose of the wholesale channel.” The lawsuit coincided with the publication of a lengthy investigation by Hunterbrook Media , an affiliate of a hedge fund that subsequently shorted UWM stock. (Detroit News, Hunterbrook)

Development news quick-hitters

A number of residents of Alden Towers have been withholding rent — and facing eviction — because of regular issues with building maintenance . Over the past year, tenants say the building has had roach infestations, malfunctioning elevators and no heat or hot water. (Metro Times)

The buyers of Joel Landy’s Midtown portfolio announced a new 154-unit apartment building just north of Little Caesars Arena called (appropriately) The Landy. The proposed $66 million development isn’t expected to finish until 2027. (Outlier, Detroit Free Press)

Development firm Century Partners started construction to rehab a vacant and historic apartment building in Piety Hill . More than half of its 42 units will be set aside for people making between 50% and 80% of the area median income. The almost $9.2 million project is getting substantial financial support through grants and loans from the city, state and private partners. It’s expected to open in summer 2025. (Urbanize Detroit)

The Dirt: Detroit speculators could see huge windfall in tax foreclosure case · by Aaron Mondry · Outlier Media