What happens when property owners stop paying their taxes? On January 8, 2012 the Detroit Free Press examined the property tax problem in Michigan (“Unpaid taxes put thousands of metro homeowners at risk of foreclosure”). This story reminds us that cities and counties are losing tax revenue not just as property values fall, but as people struggle to meet expenses.

Eleanor Laidler wants to stay in the same home on Detroit’s west side where she has lived for 19 years. Now she’s among the owners of 42,000 Wayne County properties — 60% more than a year earlier — who could lose their homes or other property because they didn’t pay their taxes.

In the housing crisis of recent years, far and away the majority of foreclosures have resulted because people stopped paying their mortgages. But, especially in Wayne County, tens of thousands of people are at risk of losing their property because they haven’t paid their taxes for three years. In Macomb County, tax foreclosures increased 9.3% last year, but they were down nearly 20% in Oakland County.

The foreclosure list published in Wayne County’s Legal News in November filled 183 computer pages — and more than 90% of the properties were in Detroit.

“We don’t want to take people’s homes, but we can’t pay their taxes for them,” Wayne County Treasurer Raymond Wojtowicz said Thursday. “It’s been very difficult.”

Last year, Wayne County borrowed $128 million to cover unpaid taxes owed to the county and its cities, villages, townships and schools. The county attempts to collect those delinquent taxes, but if it ultimately fails, it bills local governments for their share of the uncollectable taxes.

The county billed cash-strapped Detroit $88.4 million last year for unpaid taxes from previous years, according to the city’s financial statements.

Meisner said the banks are adjusting to the crisis and paying some of the back taxes.

“Now that we’re a couple of years into the foreclosure crisis, the banks are beginning to understand what they own and are paying the taxes on the higher value properties so they’re not lost to back taxes,” he said.

Several places, including Flint’s home of Genesee County, have used their power to foreclose on delinquent properties and turn them over to a land bank, rather than trying to sue absent landlords or banks for the tax arrears, or auctioning off the properties to private buyers.

Michigan had a tax foreclosure process that hopelessly mired tax reverted properties in a legal limbo. This contributed to urban decline in Flint by keeping properties off of the tax roll and out of circulation for up to seven years. In 1999, the Michigan State Legislature created a new, streamlined system for returning tax-reverted properties to productive use (P.A. 123 and a subsequent P.A. 258). This changed the way foreclosed properties were handled by giving outright ownership of these properties to the local County Treasurer after only two and a half years. (See Comparison Chart)

With this new process, Michigan opened the door for communities to reclaim, reinvest in and rebuild their neighborhoods. Thus, the Genesee County Land Reutilization Council (LRC) was created. In 2004, after the State of Michigan passed the land bank legislation, the LRC became the Genesee County Land Bank Authority (GCLBA). The GCLBA uses the new tax law as a constructive community development tool: avoiding the potential neglect or misuse that comes from selling land at auction, the County is able to acquire abandoned land through the foreclosure process and determine the best use of that land. The GCLBA assembles land for transfer to adjacent homeowners, develops long and short-term green spaces, and assembles land for new housing and commercial development. The objective is to restore the integrity of the community by removing dilapidated structures and redeveloping abandoned properties.

Another example of the complicated and shifting relationships between planning, development, property values, and fiscal policy. It will be interesting to see how other communities are being affected by, and trying to handle, growing rates of foreclosures, whether bank- or government-initiated.