
Detroit gentrifiers face daunting task buying $500 homes evicting poor residents - edward
http://www.theguardian.com/money/2014/nov/27/detroits-young-gentrifiers-face-a-daunting-task-in-buying-500-homes-evicting-poor-residents
======
johnohara
It's obvious in many cities, not just Detroit, that government has not been
able to hold up its end of the property tax agreement by providing and
properly maintaining essential services such as water, streets, sewers,
schools, fire and personal protection, and countless other "promises".

Why should homeowners lose their homes to non-payment if their streets are
falling apart, their schools are sub-par, their personal safety is non-
existent, their water pipes are 100 years old, and their government declares
bankruptcy?

Selling off in tax delinquency court, homes with deeds that are free and
clear, is an insult worthy of sustained organized protest. The fact that it
doesn't happen is remarkable.

~~~
bluedino
Not to mention the insane amounts that municipalities are paying towards the
massive pensions and benefits for retired workers. How many existing police
officers are cut in order to pay the pensions of the previously retired?

~~~
themartorana
Edit: rant ahead, not aimed directly at bluedino

I will never understand this. I agree life-time pensions are unsustainable. I
argue constantly for a) all new public employees being enrolled in a 401k and
pensions being phased out and b) offering younger workers buy-outs, allowing
them to invest their contributions themselves in reward for opting out of the
pension system.

But that said - every pensioner out there worked for that pension. It was in
their contract as an employee, a perk that often kept them in public service
jobs, teaching your kids, putting out your fires, and so on.

Every single person that argues for pulling the tablecloth out from under
pensioners would be ferociously mad at the idea of any company canceling or
reneging on a contract.

To me, canceling or changing the pension of a retired (or soon to be retired)
worker is the same as a bank deciding that you can't keep your house after
all, even though you're not delinquent - it's just that the bank could use the
value of your house, and breaking a contract is no big deal.

Get off of the backs of pensioners - they put in their time, worked often for
decades, contracted the promise of some security in retirement, but hey, we
have a financial crisis, and suddenly they're freeloaders.

Pretty much everything about pensions is broken and unsustainable, but that's
not on the worker, that's on those that made the promise, and not keeping it
is just the lowest form of horrible.

Apologies for the rant. I accept the down voting I expect.

~~~
jordanb
Why is a pension "unsustainable" and what's the difference between a pension
and a 401k that makes the latter "sustainable"?

~~~
gred
People often criticize "defined benefit plans" like pensions, where the
employee is guaranteed a certain pension payment by the employer. This
guarantee means that the employer, rather than the the employee, takes on most
of the market risk. Employees (via e.g. unions) often push for pension
guarantees that are likely to exceed realistic market returns, further
increasing risk to the employer (as has happened in many municipalities in the
US). Politicians who are here today, gone in 20 years, are sometimes
incentivized to provide expanded pension guarantees (to make employees happy
today) without adjusting funding (to keep taxpayers happy today).

Defined contribution plans like 401(k)s, which have become much more popular
in the past 20 or 30 years, move the risk to the employee -- nobody is
guaranteeing anything, and your fortunes move with the market. Obviously there
are downsides, but one of the big upsides is that it keeps everyone honest by
forcing employers to fund plans today as needed (e.g. 401(k) matching is not a
hypothetical cost to be faced in 20 years, it's something that must be paid
out today).

[http://en.wikipedia.org/wiki/Defined_benefit_pension_plan](http://en.wikipedia.org/wiki/Defined_benefit_pension_plan)

[http://en.wikipedia.org/wiki/Defined_contribution_plan](http://en.wikipedia.org/wiki/Defined_contribution_plan)

~~~
jordanb
This is a good definition of "pension" and "401k" but it doesn't explain why
the former is unsustainable and the latter is sustainable.

Why is it sustainable to shift all the risk of bad investment, mismanagement
and unexpected longevity away from institutions and onto individual workers?

Are workers in a better position to shoulder those risks than institutions
are? Or are they in a better position to minimize the risks? Do they have
better access to the investment market or greater ability to choose good and
trustworthy managers? Are they in a better position to pool longevity risks?

~~~
ohyes
The difference is that the 401k the matching contributions go into the
employee's fund immediately. The pension is really just a promise of funds in
the future. Historically pensions have been:

a) reneged on by the employer b) underfunded by the employer

It is correct to say that there is no reason a reasonable pension couldn't be
just as good as a 401k, but it hasn't played out. The money keeps getting
spent twice. I personally think this is nothing short of criminal. Because of
the way the 401k works, the money can't be double spent, and you didn't have
this problem of the retirement funds 'disappearing'.

------
xpaulbettsx
If there was anything worth starting a KickStarter for, it would be to raise
money to buy as many of these homes as possible, and give the deeds outright
to the people who already live there. That'd be a really great thing.

~~~
jpetersonmn
According to that article a lot of these people already have paid off the
mortgage and have the deeds to the house. It's that they can't keep up with
the taxes. If you raised money to pay their back taxes, what would they do the
following year? This kind of stuff really is sad, there has to be some
solution to not kicking people that have lived in these houses for 30+ years
because they can't afford the taxes.

~~~
icebraining
_This kind of stuff really is sad, there has to be some solution to not
kicking people that have lived in these houses for 30+ years because they can
't afford the taxes._

There is, the article points it out:

 _Owners can buy their homes back with debts cleared at auction for $500 as a
solution of last resort._

The problem doesn't seem to be the lack of a solution, but knowledge that it
exists and what they have to do to benefit from it.

~~~
corysama
So, the solution is: Don't pay your taxes. Wait for your house to go to
auction. Hope no one buys it. Pay $500 to effectively erase your three year
tax debt. Repeat.

That apparently currently works. It's a clear market signal to the government
that it has no alternative but to put up with you not paying your taxes. But,
I expect if it became widespread, the tax man would see it as a loophole to be
closed.

~~~
AnthonyMouse
There is also clearly something fishy going on there. The only way you get to
pay $500 is if no one else offers to pay more than that, i.e. the market value
of the house is only ~$500. For a dilapidated house in a bad neighborhood that
is entirely possible, but then why are the taxes on such a low value piece of
real estate so high that the occupant can't afford them?

~~~
Scramblejams
Agreed. Other government housing auctions have been recently documented in the
press as bearing signs of bidder collusion. A closer look here would be
welcome.

------
voidlogic
If the current residents can't afford the property taxes, they need to
relocate. On a personal level is very unfair, if its unfair at a societal
level, we can debate. But the reality still stands- If you can't pay your
property taxes, you need to move. It is a financial imperative.

For Detroit in general, these pejoratively described "gentrifiers" could be
the best thing to happen in a long time. What kind of failing community would
not welcome an influx of affluent skilled workers--- A boom of these kind of
folks could even ignite the local services industry and provide jobs for the
remaining lower skill workers.

I feel for these people on a personal level, I really do. But I don't see how
ignoring economic realities is going to help them or their community long
term.

~~~
eli_gottlieb
>On a personal level is very unfair, if its unfair at a societal level, we can
debate.

This has already been debated many times. The right answer is: property taxes
on improvements are a malign disincentive, but property taxes on location/land
value are a beneficial incentive for greater development. Detroit's location
value is basically zero.

~~~
raverbashing
Also on occupation. Low property taxes are an incentive to hoard properties.

------
cyphunk
Are you kidding me? Why isn't this a thing:

    
    
        He had made a previous purchase in the yearly tax foreclosure auction. 
        His coup turned less appealing as he was confronted with the reality of
        removing the owner and then-occupant from her home. Goldenberg sold the
        house back to its occupant for the bargain price of $7,000 – twice what
        he had paid for it, but half what she had owed in property taxes.
    

Meaning why isn't there a protection agency or service that buys houses from
these foreclosure auctions and sells them back to their owners at a bargain???

~~~
gajomi
I agree. This seems like a no brainer. Barring any legal barriers that might
arise in the implementation of such a scheme, it seems like the main
bottlenecks would be

(1) verifying that the current occupant was indeed the original title holder
(2) transferring the purchased title to said previous occupant without
incurring substantial fees

From a the technology standpoint it seems to me like everything else could be
fairly standard CRUD. There might be a bipartite graph between lenders and the
foreclosed upon, simplified by averaging the resources of the former across
all nodes.

Can anyone keen on the Detroit scene pipe in on the legal aspects?

------
jedberg
Ok wait. So the guy paid $3500 to clear $14,000 in back taxes, right? Then the
person who owed the taxes paid _him_ $7000.

Why couldn't the owner just pay the city $3500? Or even the $7,00 she paid to
the other guy?

Why is the city willing to take $3500 from a random person but not the owner?

~~~
mcgarveymr
"One of the things linking them: lack of information. Low-income homeowners
are eligible for tax exemptions. While many residents would meet the
requirements, they must file requests before their taxes are due, neither of
which are readily known pieces of information, Mullane says. Owners can buy
their homes back with debts cleared at auction for $500 as a solution of last
resort."

It seems the problem is a lack of communication. It seems they don't know how
much trouble they are in until they receive the foreclosure notice. The
homeowner is welcome to bid on their house at auction, but if they are outbid
then they are out of luck.

From the city's point of view it is better to try to get as much money back on
the debt by auctioning the house instead of trying to settle at some arranged
value with the debtor, which may be less than what they could get from two
people trying to outbid one another. For example at the end of the article the
debtor could only budget $1,400 for repurchasing his home, but he was outbid
at $3,000.

~~~
rodgerd
> From the city's point of view it is better to try to get as much money back
> on the debt by auctioning the house instead of trying to settle at some
> arranged value with the debtor,

Which is the kind of sociopathic behaviour I'd expect from a sleazy corporate.
It's meant to be public service, not public pillaging.

~~~
mcgarveymr
I understand your point of view, but given the city is not a corporation but
an entity that is supposed to provide basic municipal services to all of its
citizens, services which it has struggled to provide due to a disastrous
financial situation, I can't really agree with it. Detroit has struggled to
provide such services for years now and just recently emerged from bankruptcy
proceedings. It's not really in a position to just take what it can get when
police, fire, and EMS response times are well above the national average and
public transit can't meet its posted schedules.

From what I read in the article, at the very least Detroit needs to do a lot
better job at communicating what is owed by property owners and working with
them on payment plans. If the property owner can't pay, then Detroit should
get whatever it can out of the property however the government sees fit.

------
raverbashing
That's what "having money" (ok, 500 bucks) but no sense of business entails.

Negotiate a rent. You can have a grace period, a rent that starts small and
increases later.

But then again it's people that have limited financial means

