Detroit Needs Residents, but Sends Some Packing


#1

In a city that desperately needs to hold onto residents, there is a virtual pipeline out. At least 70,000 foreclosures have taken place since 2009 because of delinquent property taxes. And more than 43,000 properties — more than one in 10 in this city — were subject to foreclosure this year, some of them headed for a public auction where prices can start as low as $500.

Tax foreclosures have grown so steeply that county officials have lately had to forgo pursuing tens of thousands of additional properties that have fallen far enough behind to risk foreclosure.

Other cities wrestle with unpaid taxes, too, but the size of Detroit’s problem is staggering. Several factors have brought the city to the point that crucial revenues are not being collected and thousands of houses are being taken away each year — not by banks, for failure to make mortgage payments, but by the government, for failure to pay taxes. Contributing are soaring rates of poverty, high taxes despite painfully diminished city services and a long pattern of lackadaisical tax collection by the city.
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In Detroit, which lost a quarter of its population in the ten years after 2000 and where those who remained struggled during the recession, more and more people began falling behind. In 2008, 47,000 properties were subject to forfeiture, meaning their owners failed to pay taxes for one year. By 2010, that number hit 86,000. And by 2012, 95,000 properties had gone unpaid. The county’s required legal announcement of homes in forfeiture, mostly from Detroit, is reams thicker than most Sunday newspapers — a fat, gloomy record of a city in foreclosure.
nytimes.com/2014/06/27/us/detroit-needs-residents-but-sends-some-packing.html

The article notes that most people come up with the money to redeem their foreclosed home or qualify for programs which help them to stay. This year 43,000 homes were saved in this way. However, another 26,000 have not been so fortunate.

The question is raised: “How important is it to take a house back on taxes? At what point should the government be really working hard with the owner to keep them in?


#2

While I agree this is a big problem for those who are low income the reality is that a lot of those houses were let go by the owners purposefully. I can’t tell you how many people I know who used to live in Detroit and left when they were told the roof/window/HVAC/electrical needed to be repaired or replaced and the cost of the repair or replacement was much more than the value of the home. Which means even if the resident wanted to stay and do the repairs they can’t get a loan due to the low property value. So they pack up and move. They buy in the burbs or pay rent there and simply allow their old home go into property tax foreclosure. It’s sad.


#3

I don’t understand how banks let people with mortgages be behind on their property taxes. In my city, you can be a year behind on your property taxes. One time, my mother didn’t pay her property taxes on time and she received a letter from the bank that held her mortgage warning her that she was close to being in breach of contract by not paying her property taxes. So the city says it is okay for her to be a year behind but the bank said she couldn’t be behind at all.


#4

Most banks won’t allow it. The mortgage contract usually requires the monthly payment to include an amount for property taxes and insurance to be paid in advance into an escrow account so the bank can pay those from the escrow account. If you pay less than the required monthly payment, the escrow account gets paid first and the amount of interest you owe on the loan compounds. The bank may decide not to foreclose if the sale of the house will not cover their legal and administrative costs, but the county can foreclose if taxes are not paid and the bank can only recover after taxes are paid. If the government is slow to act on its rights, which is the situation here, the bank will just wait it out rather than take action that will not recover anything for them.


#5

I have sometimes said Detroit would be a terrific place to build a city. The ground is already platted out. There are streets, water lines, electric grid, gas lines. You name it.

There are businesses and industries there and nearby. A major shipping point through the Great Lakes is there, as well as an entry point to a foreign country with which the U.S. does a lot of business.

The only thing is, it has a terrible government and lots of junk sitting on some otherwise really good building lots.

Eventually, when the foreclosures and tax sales and all are done, and the mega-developers with patience have bought all of it they want, they’ll tear a good part of it down and rebuild. And they’ll be able to offer good deals too, because it’s a lot easier to develop land that’s already developed than to develop land that isn’t.

It will happen. It may take a long time, but it will happen.

Now, the downside is that the criminals, squatters and vagrants will all move out to some suburb or other, and ruin it.


#6

Not all mortgages are escrow. My mom’s isn’t, she pays her property tax separately, twice a year, in lump sum amounts to the city.


#7

Neither is mine. It was one of the positive factors in going to my current Home Equity Line. It is only 2.99%, tax deductible, flexible, and I don’t have to pay for taxes and insurance ahead of time. I even get to pay my insurance by credit card, get at least 1% back, and sometimes use a new card with an extended 0% option.

I doubt many of the people in Detroit who are delinquent on their mortgages and property tax would have qualified for better terms, but at least those with adjustable rates have benefited from the Federal Reserve’s extended low interest policy.


#8

Can a bank force you to have an escrow mortgage?


#9

A mortgage is a contract you negotiate with a lender. They can offer lots of options, but they probably won’t offer you the best options if your credit is bad. No bank can force you to have a mortgage at all; you can just pay all cash if you want to. I did that with my first three homes. It is fast, simple, and has no closing costs associated with a mortgage. I actually bought my second home with a Visa cash advance because we needed to move fast and my first home had not sold yet.

Don’t freak out about the Visa cash advance. It was not a Visa credit card, but a Visa debit card linked to my brokerage account.


#10

Force is the wrong word. What I meant is, can they only offer you escrow mortgages?


#11

As far as I know, lenders that want to compete for your business still have that option, but since I have not applied for a mortgage or HELOC since before the financial crisis, I am not sure if tougher regulations have eliminated that practice. I would always shop around and not take no for an answer if it is important to you. Lenders are about as reliable as used car dealers. They may tell you something is not available at all just because they don’t offer it. I once dealt with a mortgage broker who told me the mortgage had no escrow when it actually did. That little fib cost him a commission when I backed out.

The only time I did have an escrow was with GMAC and they miscalculated the escrow amount 3 years in a row. That is one of the reasons I switched to the Chase HELOC and they also gave me enough frequent flyer miles for a free ticket to Hawaii.


#12

Thanks for the advice but I’m not currently in the market for a house. My friend just bought a house and he has an escrow mortgage. When my father bought our house he didn’t want an escrow mortgage and made sure he didn’t get one. My mother said he wanted to see where all his money was going and to what. But, my father was very tight and invested most of his money. By the time he married and had children, he had made a lot of money investing and he usually got $10,000 to $20,000 in dividends each year.


#13

My mortgage company offered it as a choice. When the mortgage was sold the buyer had to honor my agreement. I did have a neighbor who’s mortgage was sold and the buyer insisted he start an escrow account. He refused, and ended up in foreclosure. I only know what he told me, but he blamed the foreclosure on this issue with an escrow account.

Most people I know pay their taxes themselves. So, I assume it is still optional.

ATB


#14

Lenders can require escrow accounts under several circumstances. First, they can require it as a condition of getting the loan at all. If they agree to “no escrow”, they can later require it if you fail in some way to keep your insurance and taxes paid timely.

Escrows are not a bad deal, actually. I see hundreds of closings in a year. The lender has a one-time charge at closing for escrow analysis; usually from $50 to $80. If you figure up what invested interest would be on the escrow balance, it’s miniscule. Your small amount of labor in paying your taxes and insurance is worth more than that over 30 or so years if your time is worth anything to you. I would much rather have an escrow than not have one. When it’s adequately explained to people, they almost always feel the same way.


#15

I still opt for no escrow, and I live in a state with low real estate taxes. A comparable home in neighboring Illinois would have a tax bill 2-3 times as much. On the coasts, taxes are so high it is one of the reasons I choose not to live there. Paying my taxes requires me to write two checks per year and walk about a mile to my bank branch. Paying my insurance is set up as an automatic payment from the credit card of my choice. Even if it only saves me $20-$30 per year plus the upfront fee, I vote to save the money.

People who have no budgeting skills probably are better off with an escrow account. Some of them are the same people who choose overwithholding on their income tax so they get a big refund later. That amounts to a free loan to the government.


#16

I don’t know about where you live. Where I live, a person might earn as much as $5 interest if he saved the money for taxes and insurance instead of having an escrow. My time is worth more than that to me.

But people resent it, I realize that. I remember years ago when I worked in a bank that had a capitalized escrow. People were, in effect, getting an interest return equal to their mortgage rate. But they still griped.


#17

I’d rather not have a property tax at all but that is a whole different matter.


#18

The median property tax in Indiana is $1,051.00 per year for a home worth the median value of $123,100.00. Counties in Indiana collect an average of 0.85% of a property’s assesed fair market value as property tax per year.

We welcome honest hard working people and are a right to work state with a good school voucher program. We may or may not have same sex marriage–stay tuned.


#19

I live in Indiana actually and I love it here but I would still rather not have a property tax.


#20

I understand complely having just finished the worst of tax season. Income taxes April 15 and June 15, property taxes May 10, and car registration June 21. This was compounded this year by graduation season with more presents for a niece and another goddaughter.

I hope they get good jobs so they can pay the taxes to support us old folks. With Medicare I can now get sick any time I want and they have to pay for it. I also get a free health club membership with Medicare Advantage. I have not been inside the club yet. It is a two mile walk to get there and I am too tired to go in knowing that I have to walk back. Someone tell the president we should have free cabs to take us to the free health club.


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