Distressed Detroit Homeowners Settle Tax-Foreclosure Lawsuit

DETROIT (CN) - A judge signed off on a settlement Tuesday that lets distressed Michiganders pay $1,000 to stay in their homes and seek exemption from property taxes.

The American Civil Liberties Union brought the underlying case two years ago as a class action against Detroit and Wayne County. Accusing the city of having relied on inflated property values to calculate nonpayment of property taxes, the ACLU said the program led to tens of thousands of foreclosures that disproportionately affected black communities.

Homeowners meanwhile called the process of getting a poverty exemption overly complicated and opaque.

Now under a July 3 settlement, homeowners will avoid tax foreclosures and remain in their homes at the cost of $1,000. If a homeowner cannot afford that amount, United Community Housing Coalition will work with them on zero-interest payment plans. The settlement also streamlines the process for owners to apply for the poverty tax exemption program, Homeowners Property Tax Assistance Program.

Michael Steinberg, legal director of the ACLU of Michigan, said that the settlement would help thousands of homeowners stay above water. Empty properties have plagued the city for years, and Steinberg said the city was also a winner because it would have fewer abandoned properties to take care of.

“This agreement will hopefully mark the beginning of the end of the worst tax foreclosure crises since the Great Depression,” Steinberg said in prepared remarks.

Low-income homeowners who are already in tax foreclosure have until July 13 to see if they meet the requirements of Wayne County treasurer to qualify for relief, the ACLU said.

The Detroit City Council voted 7-0 Tuesday to go ahead with the settlement, according to The Detroit News. The agreement means that over the next three years thousands of homes could be saved from foreclosure.

Detroit Mayor Mike Duggan’s aide Eli Savit said the settlement had been months in the making and that efforts to keep homeowners in their homes were already working.

“I think it's just a big win for everybody. It really moves the ball and allows us to work together to keep people in their homes,” Savit said in a phone interview Thursday. "We're just really happy with the outcome and we're looking forward to moving forward together."

Under the terms of the settlement, Detroit will notify all homeowners with residences worth less than $95,000 that they may be eligible for relief through the Homeowners Property Tax Assistance Program. The city will make the process of applying for the program easier by making forms available online at detroitmi.gov.

For property owners whose homes are already in foreclosure, the city has a right of first refusal to buy the houses from Wayne County treasurer before they are put up for auction.

Owners could see their back taxes slashed by as much as 40 percent after the city agreed not to recover its portion of the fees, the ACLU said in a news release.

Wayne County Circuit Court Chief Judge Robert Colombo signed off on the settlement. He had ruled that the case belonged in the Michigan Tax Tribunal, rather than the court, but found that the plaintiffs had stated a claim for race discrimination under fair-housing laws.

The ACLU asked the Michigan Supreme Court to review that decision earlier this year.

At that time, the homeowners’ claim that Detroit made it unduly burdensome for homeowners to get a poverty exemption under the Homeowners Property Tax Assistance Program was still pending.

Six homeowners joined the MorningSide Community Organization, the Historic Russell Woods-Sullivan Area Association and Neighbors Building Brightmoor in the lawsuit. The NAACP Legal Defense and Educational Fund, and the law firm Covington and Burling also represented the plaintiffs.

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