Loophole Allows Some Detroit Property Owners To Stiff City On R/E Taxes & Water Bills, Then Buy Back Subsequently F'closed Homes For Pennies On The $1

In Detroit, Michigan, The Detroit News reports:

• Landlord Jeffrey Cusimano didn't pay property taxes on seven of his east-side rentals for three years, owing the city of Detroit more than $131,800. Typically, that would mean losing the properties. But Cusimano not only got to keep them — his debt, including interest, fees and unpaid water bills, was virtually wiped free.



• Cusimano and a growing number of Detroit property owners are using a little-known loophole to erase tax debt by letting their properties go into foreclosure and then buying them back a month later at the Wayne County Treasurer's auction for pennies on the dollar.



• It's legal. But that doesn't mean it's fair, said homeowner Marilynn Alexander, who lives on Fairmount next door to one of Cusimano's rentals. The landlord owed $26,200 in taxes and other fees on the bungalow, but bought it back in October for $1,051.



• "He shouldn't be able to get away with that," said Alexander, a 57-year-old laundry worker who said she scrapes together every year her $1,500 in property taxes at the house where she's lived for 20 years. "That's not a fair break to anybody else out here."



• Critics described it as a growing problem as the foreclosure crisis deepens. A record number of properties — nearly 14,300 — are expected to be auctioned this fall, and officials predict more owners will try to buy back their properties.



• The News identified about 200 of nearly 3,700 Detroit properties sold at auction last year that appeared to be bought back by owners, some under the names of relatives or different companies and many for $500. The total in taxes and other debts wiped away was about $1.8 million.



• "I don't think it's OK; it's just how things are," said Cusimano, who argues Detroit taxes are so unfairly high he was forced to buy back the foreclosed properties. At the September auction, the properties' prices are the debt that's owed. But in October, the county treasurer sells off whatever is left at a $500 opening bid. That's where most of the sales happen, including owners buying back their properties.(1)

For more, see Owners escape tax debt by rebuying foreclosed homes.

(1) Use of this and other so-called 'foreclosure redemption schemes' is not unheard of. For more on foreclosure redemption schemes used by clever property owners and real estate operators in attempts to 'squeeze out' lien-holding creditors, see:

• Nelson, Grant S., The Foreclosure Purchase by the Equity of Redemption Holder or Other Junior Interests: When Should Principles of Fairness and Morality Trump Normal Priority Rules?, 72 Mo. L. Rev. 1259 (2007) (contains heavily-cited discussion on various foreclosure redemption schemes involving lienholder 'squeeze-outs' by the owner of the property in foreclosure);



• Minnesota Appeals Court Slams Hammer On Foreclosure Redemption Scheme Involving Use Of Sham Note & Mortgage By Property Owner To Squeeze Co-Owner.