Thoughts on How the Middle Class is Shut Out of Moving to Detroit

I know I've been quiet. You all probably thought we gave up or got fed up. Truth is that there has been a lot of activity. That I haven't posted about it is largely due to my loss of sense of humor about the less-than-satisfying developments. In the last months, we got ignored by the one and only lender that had been willing to talk to us; reassigned to two different loan officers; then, because of all the time that had passed, had re-submit all the paperwork and applications; only to spend $400 on and wait for weeks for a very disappointing appraisal. In the meantime, Chai and I started disagreeing about how to proceed, mostly due to our very different coping styles for and tolerance levels for stress. I'll spare you the blow-by-blow and let it suffice to say that we ended up in 5 weeks of couples' counseling and briefly diverted to a Plan B (cutting our losses and finding a different house to buy that doesn't have all the gotchas).

I've kept copious notes about the financing saga, which I hope to find time to write up in this blog. But since we are fresh off elections and still have politics in mind, I have a few thoughts about the obstacles that keep people like us from moving to Detroit. (And, by "people like us", I mean, middle class folks who work for a living and have good credit, some savings to put into a home, and a desire for meaningful community involvement that trumps the common sense motivation to pick a house based on its financial investment potential.)

Inheriting the glut of unpaid residential property taxes

There goes the neighborhood.
Image source.

When we bought the house, the owners wanted $7500 for it.  But there were also $17,200 in back taxes due to the city and county (which they had failed to mention), unpaid for multiple years by deadbeat owners. And just to be clear, these owners were not residents who simply fell on hard times; they were speculators who have a small business built on the buying properties off the auction block and the passing of the cost of renovating them on to people they can pull into a lease-to-own contract. They did not contribute to the neighborhood. They did not contribute to the city services with their tax dollars. They were vultures, feeding off the misfortune of a long-time home owner who went into foreclosure and of potential home buyers who couldn't qualify for traditional loans through banks. 

We resented the hell out of paying the extra $17,200 because (1) that's $17,200 less that we could have to put into restoring the house; and (2) we are basically rewarding predatory behavior by allowing the sellers to shirk their responsibilities and pass the cost on to us. But we loved the house, the neighbors, and the neighborhood, and we did have the cash. So, call us suckers if you will, we indeed sucked it up and offered to increase the purchase price of the house by that much if they paid the overdue balance before closing.

Ours is not the only house in the neighborhood that has been teetering on the brink of foreclosure due to nonpayment of taxes. And those homes tend to sit in disrepair, slowly being reclaimed by entropy and nature. But what if the city and county had a program that forgave back taxes on arm's length transactions on residential properties with the condition that the purchaser make the home their primary residence and does not sell the property for 5 years? It's simple: I, as a buyer, qualify for the program if I am verifiably independent from/unrelated to the seller and will be forgiven all pre-sale, unpaid back taxes after I occupy the residence for 5 years as my primary home. If I violate this, I pay not only the original back taxes that came with the house but any interest and penalties they would have accrued over that time. The neighborhood wins; the buyer wins; the defaulting owner is out of everyone's hair; and the city and county get either a tax-paying homeowner going forward or a fat chunk of change for my failure to comply (which is a lot more than they probably would have got if they put it on the auction block). 

Being tied to an out-of-town job because of its healthcare benefits

What's healthcare got to do with moving to Detroit? Well, as a couple, one of us has a well-paying job with same-sex domestic partner health benefits while the other is not a US citizen and has a significant, pre-existing medical condition. If we were a heterosexual, married couple, one or both us would still first need to secure good health care benefits in Michigan (which would mean finding new jobs). But pile on to that the same-sex part of the equation. Not many employers offer same-sex domestic partner health benefits. And it's not so easy for both of us to land new jobs as the industry that Chai works in (architecture) was hard hit by the recession. Even architects in the booming Denver-Boulder area have been waiting tables and mastering barista skills for the last 3 years.

If it weren't for our desperate need to hold on to that job benefit, we'd have packed it in and moved to Detroit a year ago. Chai would have probably started her own small business, and I would have a lot more leverage to negotiate with my employer to take my job with me, and if they said "no", I would have moved on to the Michigan job search much sooner. As it is, we need that bennie, and until we find suitable, reasonably priced, substitute health insurance for us both, my employer holds all the cards.

I know Obamacare is coming but, frankly, even that doesn't free up the workforce. True universal health care would allow workers to choose cities abandoned by big corporations, to start their own businesses there, and to contribute value and create independence. Really, I constantly wonder if we shouldn't have just up and moved to Canada (where we could also be married, thankyouverymuch). (BTW, that's not hyperbole. Chai is Canadian and it would make a ton of sense.) In fact, we seriously considered it to the point of interviewing for jobs in Toronto before we settled on Detroit. But, call us crazy, we want to be in Detroit.

Being excluded from mortgages based on who qualifies as a primary resident

We bought the house for cash but need a loan for the renovation. Because we are, for the aforementioned reason, still living and working in Colorado, we look to lenders as if we are investors who simply want a vacation home in Detroit. Most lending programs are geared towards buying and renovating primary residences and the rules say that you have to already be living in the state of Michigan and have income there to qualify for them. Our hope had been to get the renovation going while we are still in Colorado and use those three-to-six months of construction time to work on selling our place in Colorado and getting jobs in Michigan. There is an advantage to the neighborhood in that it stops the abandoned, stripped house from deteriorating further and it brings some stability and investment to the area; and it also saves us the expense and stress of moving twice (i.e., paying for a rental while we carry the Colorado mortgage and a Michigan reno loan and paying to pack up our shit and move twice).

To offset lenders' concerns about our intentions, we suggested that they write a special clause in the loan that allows them to levy a serious penalty if we fail to occupy the property within one year of finished construction or if we sell within five years. That way, they make money by loaning to us or they make money by us breaking the contract. Sounds like a win-win, right? They would hear nothing of it. I'm not sure if they were just simply too lazy or too gun-shy to write a contract that wasn't some cookie cutter form or if there is some government regulation preventing them from doing so. Either way, I see no reason why this can't be fixed with the appropriate legislation or government incentives. 

Finding the home undervalued because there are no comps in neighborhoods that are rebuilding from scratch

After all our trials, we still made it all the way through the appraisal stage. And, yes, even with our efficient architectural renovation plans and the good bones of the house, it came back surprisingly low (and we were mentally prepared for low). By law, I think, lenders are only allowed to loan 80% of comps and those comps have to be of homes of similar square footage in a similar neighborhood in the same school district that have sold recently (last 6 months?). If you look around our little 3 x 4 block neighborhood, similarly sized homes have been purchased but at foreclosure prices, and people are holding on to them. So, there are pretty much NO comps in our neighborhood. Also, the neighborhoods on either side of us have homes of an entirely different league (downwards and upwards, respectively). So, sales in those areas don't help. The appraiser was talking about going all the way out to Brush Park to find something that matched, but the lender wasn't willing to accept comps so far away. Obviously, ours isn't the only home in the neighborhood with this difficulty. Recently, a family from, of all places, Colorado put an offer on a duplex in our neighborhood and the deal fell through because of lack of decent comps.

Basically, West Village has a chicken and egg problem. Until renovated homes start selling again, there are no good comps for lenders to use but, without comps, no one who needs a mortgage can buy the homes. Some Detroit neighborhoods (e.g., Grandmont-Rosedale) have dealt with this problem by being their own lender, buying up the dilapidated homes, fixing them up, and not selling them until they get offers that bring up the comps in the neighborhood. It's a great idea but The Villages is equipped for that yet. My understanding is that these rules about comps are the result of increased regulation on the mortgage industry (which was a response to previous under-regulation and poor lending practices). There's a corollary to this chicken and egg problem: Many of the lenders I've spoken to won't give home improvement loans to uninhabited houses; but, of course, you can't make a stripped house habitable without some funds to improve it first.

I'm generally pro-oversight but if the goal is to rebuild neighborhoods and protect owners then, as a country, we may have shot ourselves in the foot with those policies. Should we lobby for exceptions to the comps rule in areas decimated by the foreclosure crisis? Is there some other solution for community lending that doesn't require every neighborhood to set up their own piggy bank?

Paying a premium on home insurance to companies that have cornered the market

Our home hadn't been lived in for 5 years when we bought it. In that time, it housed squatters and suffered scrappers. At this point, it is basically walls, roof, and floor. It's not legally habitable, except by squirrels. But we want to protect our initial investment and the cost of the renovations when they start. Did you know that there are only two insurance companies that will insure uninhabited houses in Michigan? Our coverage costs $1300/year. That's a fat chunk of change we are pissing away while the house continues to decay, our plans sit idle, and we try to get lending gears grinding away. Would it be feasible for the city or a collective of neighborhoods to offer home insurance programs much the way that some neighborhoods are becoming their own lenders?

Like Abraham Lincoln, I believe the function of government is to do for people what they cannot do better for themselves, individually or collectively. Detroit's problems are unusual in their scale, and they require some unusual solutions. I'm not offering much of that here. But maybe this can at least be a start to the conversation.