By David Dayen

How Deadbeat Banks Pushed Detroit To The Brink

March 11, 2013 5:13 pm Category: Memo Pad, National News 28 Comments A+ / A-
How Deadbeat Banks Pushed Detroit To The Brink

This week, Michigan will attempt to finalize the assignment of an emergency financial manager for the troubled city of Detroit, essentially taking fiscal control from the duly elected city government. The new manager will have authority over a wide array of policies to balance the city budget, including unilaterally reworking wages and benefits in municipal labor contracts, firing entire staffs of city agencies, and selling off public assets. It’s not hard to see this plan as union busting sanctioned by the state. Amid a sea of public protests, the Detroit City Council will appeal the emergency manager’s installation at a hearing on Tuesday, but Mayor Dave Bing has resigned himself to the prospect.

Detroit faced major challenges even before the Great Recession, with the loss of manufacturing jobs in the auto industry and the hollowing out of the urban core (“white flight” into the ring suburbs robbed Detroit of its tax base going back several decades). The financial crisis and subsequent economic crash sent these problems into overdrive. But lately a new meme has arisen from supporters of the emergency manager ruling: Scapegoating the citizens of Detroit by characterizing them as a bunch of tax cheats. A report in the Detroit News asserted that only half of city property owners pay their property taxes, leaving $246.5 million uncollected annually. This figure represents the highest rate of unpaid property tax among major U.S. cities.

Rather than demonizing “deadbeat” homeowners, however, we should examine who actually evades responsibility for paying taxes on those properties. Detroit has been ravaged by an unending foreclosure crisis. Predatory loans trapped borrowers into monthly mortgage rates they couldn’t pay, with lenders particularly targeting lower-income minority areas like Detroit. Many of those homeowners are gone now, evicted from their properties. It is a pattern that has sunk property values, making the high property tax rates in Detroit even more unsustainable. But it also has turned banks into the real deadbeats, depriving the city of revenue.

In a foreclosure, the property reverts back to the bank, which then becomes responsible for all maintenance and upkeep, as well as any fees. Some banks simply ignore these responsibilities and refuse to pay taxes or keep the vacant property in good order. The more clever banks stick evicted homeowners with the bill.

Across the country and particularly in Detroit, banks have engaged in “walkaways,” where they start foreclosure proceedings but then find them too costly to complete. They choose not to finish the legal steps to foreclosure, leaving the properties vacant.  Banks that walk away from homes do not have to notify the city, or even the borrower, that they have abandoned the foreclosure process. Borrowers kicked out of their homes then find themselves still responsible for property tax payments.

We know this kind of behavior has occurred all over the country, leaving foreclosure victims stuck with the “zombie title” to an old property for years. And Detroit is ground zero for the phenomenon. A 2010 report of the Government Accountability Office found 500 bank walkaways in just four Detroit zip codes.

It’s impossible to know the real number of bank walkaways in Detroit without a house-to-house study.  Nevertheless, we know of the staggering number of vacant homes in Detroit, particularly in the neighborhoods ringing downtown. Someone is responsible for those properties, and it’s probably the bank. And we know that banks have a financial incentive to cut and run from cities like Detroit, starving their budgets and creating a cascade of blighted properties in their wake.

So while it’s easy to blame Detroit’s financial troubles on deadbeat homeowners, the more appropriate parties to blame may well be the deadbeat banks.

Photo: ifmuth/Flickr

How Deadbeat Banks Pushed Detroit To The Brink Reviewed by on . This week, Michigan will attempt to finalize the assignment of an emergency financial manager for the troubled city of Detroit, essentially taking fiscal contro This week, Michigan will attempt to finalize the assignment of an emergency financial manager for the troubled city of Detroit, essentially taking fiscal contro Rating:

More by David Dayen

Wall Street 427x321

Why Are Big Banks Going To War With A Federal Judge?

The nation’s largest banks have devised a novel way to protect their interests and save themselves from hundreds of billions of dollars in legal exposure. They’re taking a judge to court. Lawyers for 17 banks submitted an unusual filing in the Second Circuit Court of Appeals this week (just listing all the corporate lawyers involved

Read more...

Tags

Comments

  • TheSkalawag929

    If the banks walk away from the foreclosure does that mean the former home owner can go back and reclaim the property for the back taxes owed or nothing at all?

    • http://fuzzytek.tumblr.com/ Stephen Boyle

      It would be ideal – then the house would be occupied, neighborhood security restored, and further deterioration of the dwelling spared.

      • TheSkalawag929

        I agree but I’m sure those scum sucking bottom feeders would find someway to come in after the rehab and take it away. And no one would be there to help the homeowner. AGAIN.

        • http://www.facebook.com/fern.woodfork Fern Woodfork

          You Better Believe It My Friend !! :-( They Are All For Gutting Out America And Selling Out The American People They Too Are Members Of The American Taliban Our Home Grown Terrorists Cells Operating In Plain Sight!!! :-(

          • TheSkalawag929

            I’ll wager that all the governor and the emergency manager manage to do is nothing that will help the city of Detroit.

          • lana ward

            Detroit has been run by dems and unions for YEARS!!! THAT’S the problem!!

          • http://www.facebook.com/fern.woodfork Fern Woodfork

            Your Stinking Ass Till Talking To Me You A One Ignorant Stuck On Stupid Cat Shit Eating Bitch FUCK YOU!!!

          • Tom_D44

            Fern, what are you talking about? Cities don’t have governors. they have mayors. And Detroit has been under 100% democratic rule since 1960. You can’t blame the republicans for that one. And your most recent claim to fame, Kwame Kilpatrick, was just found guilty of a slew of charges which will likely put him in jail. Nice.
            What I really like, in classic Memo style, is how they try to blame the white guy for causing part ot the problem because they all moved out to the suburbs. Maybe the politicians should have built a big fence around the city so that no one could move out just to keep their tax base. You know, rather than build a city where people would want to stay. Pathetic.

          • http://www.facebook.com/fern.woodfork Fern Woodfork

            Michigan Has A GOP Governor I Didn’t Say Nothing About The City!!! When You Say Dems Run It That Mean The Whole 9 Yards!!

          • Inthenameofliberty

            The governor does not control Detroit. The Mayor does. Are you trying to tell me that the Governor of Pennsylvania therefore controls the City of Philadelphia? Oh yeah, that’s right, Philadelphia has been led by a DEMOCRATIC MAYOR since 1952. And the city is BROKE. Stop blaming Republicans – when are you going to realize that politicians from both sides are making foolish decisions that are destroying our country? Two examples of cities that are BROKE led by the DEMOCRATS that don’t answer to the STATE’S GOVERNORS when making the city budgets. your argument does not hold water. The Mayors are responsible for their cities. You trying to pass the blame to someone else is ridiculous.

          • Inthenameofliberty

            Well said.

          • Inthenameofliberty

            REALLY????? Go to wikipedia. It says, quite nicely for ALL to see, that all mayors in Detroit SINCE 1962 have been DEMOCRATS. You are ridiculous. Don’t bother to call me a troll. Won’t stop me from telling the truth. What is wrong with you anyway? I KNOW you can google.

          • http://www.facebook.com/fern.woodfork Fern Woodfork

            Inthenameofbullshit Go Fuck Yourself TROLL!!!

          • TheSkalawag929

            Fern you shouldn’t let lana get you upset. All she lives for is to see how tight she can get rational people wound up. And from the sound of your post she is probably rolling around in her litter box having multiple orgasms. She’s not worth the time or effort.

          • http://www.facebook.com/fern.woodfork Fern Woodfork

            She No Way In Hell Upset Me!! LOL I Just Want her To Stop Talking To Me!! Believe Me She Will, Cause She Know I Don’t Mind Ripping Her A New Asshole!! She’s Only Working With One Brain Cell She Forgets, But When I Go H.A.M. On Her It Come Back Then There’s Silence!! LOL

          • TheSkalawag929

            I think you give to much brain power credit. ;-)

          • http://www.facebook.com/people/Mel-Haun-Sr/1749116655 Mel Haun Sr

            Well, actually, there have been two Dems since 1969

    • bobsog

      No. It is called transmutation. If the former owner acquires title (through tax auction or otherwise) to that property ever again, the prior liens can be reinstated and enforced.

      • TheSkalawag929

        Does the same thing happen if someone other than the original owner takes over the property? Say for example a squatter.

        • bobsog

          No. If any one other than the prior owner buys it at the tax sale. All of the prior liens are wiped out. But you are still subject to City of Detroit Code Compliance : (

          A squatter is just that – a squatter. Enforcing ‘squatters rights” is next to impossible. For one thing the squatter would have to have paid the property taxes for seven years.Even then, it would be an uphill battle for a squatter to get legal title to the property.

          • TheSkalawag929

            Thanks for the info.

  • bobsog

    REALLY??? Do you really think the banks just want to walk away from their collateral?

    The real blame hear is the onerous Code Compliance the City of Detroit imposes on vacant homes.

    There is not a home in Detroit that will pass these ridiculous codes. On a Code Compliance 3, if you don’t have a full basement, good luck to you…. Plumbing, electrical, venting, egress windows, proper rise run on steps, etc… They pretty much say take that old home and bring it up to brand new code. For most, if not all of these homes this renders them completely worthless as it is too expensive to rebuild them from the ground up.

    • TheSkalawag929

      In a single word to answer your question YES. That is exactly what it looks like to me.

      If the banks were so worried about their collateral why did they foreclose? By foreclosing on the current owner and evicting the current owner and then walking away isn’t that a losing proposition all the way around? What other conclusion could you come to?

      Wouldn’t it have been better to renegotiate the loan? That way the owner would still have a place to live, the city has a better chance of collecting property taxes and the banks still make money? That looks like a winner all day every day to me.

      • bobsog

        I can’t disagree with you there…

        • TheSkalawag929

          I wonder if the newly appointed City Manager and the governor will or can go after the banks for the taxes owed on foreclosed properties that they have walked away from. I’m sure that there is some city or county ordinance or state law that can be applied.

      • http://www.facebook.com/fern.woodfork Fern Woodfork

        You Got That Right Banks Walk Away All The Time Who You Think These Boarded Up Houses Belong To!! The Banks!!! They Could Fix Them Up And Rent Them Out But They Choose To Walk Away!! :-(

  • adriancrutch

    Are any of the pro sport teams STILL IN DETROIT? City Limits?

  • http://twitter.com/LostAnarchist S-3

    Detroit is a hotbed for violent revolt/anarchy – we should be on their side fighting accordingly too, IMHO!

scroll to top