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Legal Issues Update: Municipality Actions in Property Preservation: Detroit as an Example

Posted By USFN, Friday, June 26, 2015
Updated: Friday, September 25, 2015

June 26, 2015

 

by Matthew B. Theunick
Formerly with Trott Law, P.C.
USFN Member (Michigan)

On July 15, 2009 the Detroit Land Bank Authority (DLBA) held its first meeting. The DLBA was empowered through a seven-member board, appointed by the Mayor of Detroit and the Detroit City Council, with the authority to manage tax-reverted properties, to clear titles, and to buy, sell, demolish, and/or rehabilitate properties in the City of Detroit. From its initial genesis in mid-2009 to its current status as an institution with more than 56 full-time and 34 part-time employees, the DLBA has recently seen the scope of its work — and its reach — increase dramatically under the stewardship of Mayor Duggan (who came into office in 2013 in the wake of Detroit’s historic Chapter 9 bankruptcy.)

In its designated role to help clean up blight and abandonment in the City of Detroit, the DLBA has sold more than 125 homes in online auctions (via www.buildingdetroit.org) since May 5, 2015, collecting in excess of $2 million in sales. The home prices typically range from $1,000 to $100,000 in the auction sales, providing prospective buyers with unique opportunities to obtain bargain prices and the City with new owners who will hopefully become worthy stewards of these properties now, and into the future. (Estimates vary, but there are up to 78,000 vacant homes and/or abandoned buildings in the City, along with 90,000 vacant lots.)

While no one has seriously questioned the imprimatur of the DLBA’s mission and much of the good work that the DLBA has accomplished, the DLBA is, nonetheless, not without some compelling criticism. By way of illustration, in its efforts to ameliorate blight and abandonment in Detroit, one of the key weapons in the DLBA’s arsenal has been for the mayor and the DLBA to file a more-or-less, one-size-fits-all form complaint. Named as defendants in an in rem cause of action are twenty to thirty separate property addresses, with claims of common law public nuisance and statutory public nuisance, alleged in an effort to obtain agreements for the repair of the properties; to effectuate transfer of title to the properties; to possibly abate the alleged nuisance through demolition actions; along with seeking money judgments for the costs, fees, and expenses incurred by the City in abating the nuisance.

Problematic with the City’s form complaint is that it is typically assigned to the same judge to oversee the City’s claims for relief from the defendants. Additionally, the mayor & the DLBA immediately request an Ex Parte Order for Alternate Service, along with an Ex Parte Order to restrict the transfer or encumbrance of the properties, both of which are typically granted as a matter of course. Additionally, the form complaint seeks “equitable relief and/or compensatory relief from Defendants, and any and all owners and interest holders of record...”. The City then goes on to list a number of purported statutory and/or ordinance/code violations and alleges that, “The owners and interest holders of the Defendant properties have violated one or more of the following state laws and/or ordinances...”.

An obvious concern with the City’s form complaint is that it conflates the rights of mortgagors with that of mortgagees, as if they were one and the same. Typically, a bank or mortgage lender has simply provided the necessary funding to the property owner for the purchase of the subject property, and has had no direct involvement or control in the circumstances that led to the property’s current state. Also, in cases where the lender has not taken the property to a foreclosure sale, it generally lacks the power to effectuate change or rehabilitation of a property — short of filing its own action for waste, which only further adds to the overall cost of servicing the mortgage loan.

As such, while the City’s efforts to combat blight and abandonment in the City of Detroit are certainly laudable, the City’s endeavors to take outright title to the properties; to extract settlement agreements from the mortgagors and/or mortgagees for the rehabilitation of the properties; and/or to demolish the properties is often undertaken at a high cost to innocent parties — ones who have had no hand in the circumstances leading to the City’s current status. Thus, when presented with a complaint similar to that of the DLBA, care should be taken in timely responding to, and defending it. There are potentially high stakes involved, which could include losing the entire lien interest in the subject property, along with damages.

Copyright © 2015 USFN. All rights reserved.
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