A BOAT LIES on its side in an empty lot. Abandoned in a neighborhood miles from the water, a neighborhood where no one can afford boats, let alone the truck and the trailer that would haul the boat there. But there lies the boat. Now multiply that boat by fifty or even a hundred, tossed over the years in lots all over the city. It isn’t a metaphor. They come from the suburbs, dumped in Detroit because that seems to be the easiest and cheapest way to dispose of such a thing. They dump other things too, none of it legal, and it all becomes a part of a neighborhood.
There are other stories that are harder to see. An empty, boarded up house might represent someone who has moved on, a symbol of the abandonment this city has seen as thousands of people have, over time, moved out beyond the city limits.
But that emptiness might indicate another history.
Numerous banks that held mortgages on Detroit homes have, in the past decade, forced the evictions of delinquent owners. Then, after evicting the owners, these banks have not taken the next step of actually foreclosing on the homes, instead leaving the Detroit properties in legal limbo, empty and decaying.
The banks have abandoned tens of thousands of these homes, all over the country, but according to a 2010 Government Accounting Office study, they walked away from more homes here in Detroit than anywhere else, costing the city millions of dollars a year in unpaid taxes. For a city cutting services like police, schoolteachers, firefighters, and where they’re shutting down parks, it’s not hard to explain how much that money matters.
Why wouldn’t the banks just take the logical step of foreclosing on the home? By doing so, the bank could resell the house, recouping some of their losses.
But in Detroit, the value of a home barely covers the cost of the bank’s lawyer appearing in court, and once they have foreclosed, the bank will be liable for the empty home’s taxes.
So, the bank walks away, the house becomes worthless, abandoned, a probable site for arson, making all the homes around it lose value, more clichés of urban blight scarring the landscape. Then people from the suburbs drive by and say, “Why can’t those people take care of themselves.”
I made an offer on a foreclosed home, a beautiful empty Queen Anne on West Grande Boulevard, not far from Clark Park where I play tennis. The realtor told me the bank would probably get back to me in a month or so. Because it involved a foreclosure, he warned that it might be as long as twelve weeks.
My plans for the house were fairly simple, and I began looking for contractors who could do the work. I got to know the next-door neighbors, a nice couple who had beautifully restored their own home.
After twelve weeks I contacted the realtor and he said he would call the bank. Then the neighbors called to tell me homeless people had broken in. Though I had no legal right to, I paid to secure the building. By the middle of the summer, 24 weeks after I had signed my offer and after the neighbor called about two more break-ins, I told the realtor the deal was off. We withdrew the offer from the bank that had never bothered to respond to it in the first place.
That house is still empty, and the neighbors have moved away.
Some people say the city is the way it is because the poor rely too much on government handouts; that they’ve lost the ability even to work and the motivation to take care of themselves. There are anecdotes about how the poor are gaming the system, driving around in Cadillacs.
Last fall, I went to clean out another abandoned home in Detroit. We had bought it for $1,000 at a city auction. The home was filled with the previous resident’s belongings, a grotesque sea of possessions, clothes, books, broken furniture, all of it soiled and worthless. The pieces left behind told fragments of a story. There was a letter from the resident’s mother, telling her she believed in her daughter; there was a letter from the resident’s boyfriend or husband, telling her he understood he had screwed up and when he got out of prison he was going to do right by her. There were children’s toys and college textbooks (Architecture! Design!) and a resumé that listed her experience working at every fast food chain you can think of (Wendy’s, Church’s, McDonald’s, etc.). There was medicine, and there was a Bible. I wondered where she and her family had gone. I had a feeling they had not driven away in a Cadillac.
Across the street was a crack house. Cars came and went, reinforcing the fact that there is no stereotypical addict. White people, black people, Hispanic, rich and poor. It was a quiet and orderly business. A kid sat playing in the parked car while his dad disappeared inside for awhile. A man I can only describe as “a scary looking dude” came and stared at us cleaning up the house. I was tempted to ask him if he knew where the girl and her family had gone.
Next door was a Bangladeshi family. They have a beautiful garden in the backyard. They did not seem particularly bothered by the crack house. Down the block was another abandoned house. A few weeks later, it burned down. I had to wonder who did more damage to the neighborhood, the crack house or the banks that walked away. I figured it was probably a tie.
It might sound like I am looking for a villain; I’m not. Though clearly, the drug dealers are profiting from people’s weakness (“criminals!”), and some might say the same of the banks, pushing the mortgages on people who wanted but couldn’t afford them (“evil corporations”), and some might blame whoever took that mortgage out in the first place (“those people”), while others remain high-minded about it all and speak in coded phrases and economic abstractions.
But for the most part, everyone is well intentioned. They are all doing what they believe they are supposed to do. They are responsible, and they do their jobs. At the banks, quarterly and annual profits goals are set and must be reached or there will be layoffs, and if it is a system that creates undesirable, even tragic, outcomes, well, as long as profits are met, nobody seems to question those systems, for profits and “growth” seem to be the only objective measurement to which we are held in our society. It may be the tragedy of our times, but it’s also one we collectively refuse to examine.
Meanwhile, up the street, a group of artists have taken over other abandoned homes, activating the entire block. Community gardens have sprung up to feed the neighborhoods, and new urban farms are supplying the new restaurants that have opened downtown. Positive forces are working against the entropy, and the void will be filled; the city sits at a natural crossroads, it is only a matter of time. But vultures still come in to tear at the wounded beast.
In the papers you can find the story of Michael Mallett, a respected business owner and resident of Natch, Ohio, who bought a historic Detroit home in a historic neighborhood and then hired workers to tear the limestone off of it. The workers had no permits because Mr. Mallett had not bothered to get any, perhaps he thought in this abandoned city no one would notice. But vigilant neighbors did show up and, with the damage already done – an ugly hairlip tear ripped through the center of the home’s façade – the workers were hauled off to jail. But Mr. Mallett wasn’t. He went on with his life. The suburbanites who abandon their boats and garbage and the anonymous junior bankers who sit far away in their vast sea of beige cubes clicking tirelessly towards their profit goals, they all go on with their lives, justifying and rationalizing the various roles they play in the abandonment of the homes, the devaluation of surrounding properties, the subsequent impact on the tax rolls and city services (schools, cops, firemen) and the ruin of neighborhoods that a lot of good, hard-working people still call home.
You know, those people.
I appreciate your intentions – there is plenty of blame to go around – but you’re oversimplifying a complicated situation. And this animosity risks alienating the potential to make banks part of the solution. Why shouldn’t they be persuaded to take a constructive role? And why shouldn’t their expertise be useful as allies? After all, none of these decaying houses and neighborhoods were built without bankers lending in exchange for a mortgage. You aren’t going to get any bank (nor any of your own clients) to throw good money after bad. But… you might catch more flies with honey.
When a bank looks at its portfolio of delinquent mortgages, they run down a decision tree. Steer owners to a federal loan modification? Encourage a short sale? Forgive some principal?
Unfortunately, the income and credit of many evicted homeowners just aren’t enough for these workout options. And that’s not simply a bank’s greedy judgement. It’s also the judgment of your insurance company and your pension fund, who lend the money to banks to lend out to homeowners. And its also the judgment of the federal government, who guarantees and lends money through the conduit of mortgage banks.
Of course, that is also the business judgment of the bank’s shareholders (who by and large are our pensions and insurance companies – so we’re an attenuated part of the problem, too). Wholesale reform of banking, housing, and corporate law — the things that keep most distressed homeowners from a second chance — might be a hypothetical solution, but it’s not one that anyone should hold their breath for.
The bottom of the bank’s decision tree is foreclosure. It’s the last resort because it is the most expensive, risky, and time consuming. Why go through with a ten-thousand dollar hostile transaction, and get the deed on a house that needs fifty thousand dollars in renovations to be habitable, if nobody is lining up to pay the break-even price? That is a huge social and economic problem, and the blame for it does not belong on only the doorstep of the banks and the suburbanites.
What these “bad guy” banks need is for the “good guys” to give them a better option – one that lets the bank cut its losses, do so as a matter of routine for a large volume, and fast enough to conserve the condition of houses without visiting harmful externalities upon whole neighborhoods.
Land banks seem like a good solution. It’s the business of the land bank to restore the value of homes fallen on hard times, and help neighborhoods pivot from dire straits to a more sustainable order. But land banks are under-resourced and have yet to reach fully mature capacity. In other words, they are not that big a branch on the decision tree of mortgage banks.
So why not brainstorm about how to build capacity of land banks, build stronger business partnerships between them and mortgage banks, and build their share of the market for severely delinquent homes?
I bet your skills and experience could actually go a long way to carry that ball forward.
It’s not an oversimplification, it’s a fact: Banks evict and then they don’t foreclose & they don’t pay the taxes on the homes. The neighborhoods are destabilized and other property values suffer. The banks should be persuaded to take a constructive role, they need to be the good guys, they need to show up and work out effective broad based solutions, if for no other reason than to selfishly protect their other investments in the neighborhood. And if they don’t do it, they should be called on it. I’m not against banks, I think they’re an incredibly valuable tool for development. Community based banks used to serve their communities, large international banks generally don’t, they don’t have much interest in it. It’s not worth their time, they’re busy playing at a whole different level. What they historically do respond to is upsetting p.r, loud civic pressure and the serious threat of legal action.
You’re oversimplifying plenty, and you’re wishing for a world of Jimmy Stewart bankers (that never existed).
First, you make a goose/gander fallacy. Plenty of people fall short on their mortgages for reasons that don’t have anything to do with morals or foresight. When that happens, the legal system allows banks to foreclose on homes and sell them to satisfy unpaid loans. The very same legal principle allows local governments to foreclose on homes to satisfy unpaid property tax. It is not a fraud against the bank when a homeowner does not pay the mortgage, and it is no more a fraud against the city when a bank does not pay the property tax bill.
This would not be a contentious debate if, at tax-foreclosed property auctions, the city could command prices large enough to satisfy unpaid taxes plus the cost of the process. For the city’s balance sheet, it would be all the same in the end. But that is not the current state of reality. The supply is too big, the demand is too small, and the quality is too low. You’re pinning blame on a symptom instead of a sickness.
If the world were different — if the city could get good prices at auction and shore up tax rolls — then banks could also get good prices at foreclosure sales. Thus, the bank’s incentive would be keeping up the property taxes so they could return foreclosed homes to a functional real estate market.
Let’s be real here. The essential function of a bank is to turn math into profit. But they cannot be charities. By law, they cannot use shareholder money without a reasonable judgment it will return profit. If there is a method to deliver larger returns, or smaller losses, in managing a portfolio of foreclosed homes, they will eventually follow it. Thus, the real trick here is building institutions that banks can regard as a reliable way to cut their losses. In other words, I think that means building the capacity of land banks.
As a final aside, most of the time banks are great at making sure cities receive their property taxes. Every modern mortgage requires a portion of the monthly payment to be set aside for property taxes. That’s because if the taxes don’t get paid, the city gets to foreclose on the house and the rug is pulled out from under the bank’s loan. It is a perfect example of how the capitalist interest of the bank is perfectly in line with the public interest of the city.
Now, let’s not get into a peeing match. Lets put this energy into something constructive.
No one believes your apologetics. We can see what the banks are doing with foreclosed properties in poor neighborhoods — they’re letting them rot, letting them be invaded by druggies, letting them burn.
And on purpose, to ruin the neighborhoods. No matter what their PR people say.
Hey, just so you know — my 9 to 5 job is handling finance for Habitat for Humanity. I am not a PR shill. I think that surely puts me on the side of the people.
My comment was only describing the nature of reality. You don’t have to believe it but you can’t deny it.
But Cameron, you aren’t describing the nature of reality. You’re being an idealist. You say “As a final aside, most of the time banks are great at making sure cities receive their property taxes. Every modern mortgage requires a portion of the monthly payment to be set aside for property taxes. That’s because if the taxes don’t get paid, the city gets to foreclose on the house and the rug is pulled out from under the bank’s loan. It is a perfect example of how the capitalist interest of the bank is perfectly in line with the public interest of the city.”
The entire point of my article is that in TENS OF THOUSANDS of homes all over the US and especially in rust belt cities, banks have walked away from the homes. They do not pay taxes, they do not finish foreclosing on the people they have evicted, they push the homes into a netherworld where they rot. That’s what they had to settle with the DoJ for a shit ton of cash, because they were so fundamentally NOT in line with the public interest of the city. And the DoJ undercharged them because it did not add in the devaluation of ALL the other neighboring homes whose value was pulled down. Please do not ignore the fundamentally destructive nature of what is going on here and what institutions are driving forces behind it. What you describe is the ideal of capitalism. It’s actuality – it’s reality – behaves in a very different fashion.
I know ‘the nature of reality’ in my own small town low-income neighborhood, which is on the west coast and is not Detroit. There are several foreclosed bank-owned houses within a block of me, one on my street, that have been vacant since 2009 or thereabouts. Not maintained, broken into multiple times, rotting. Havens for drug dealers, who have proliferated like roaches.
Bank of America-owned, all of them.
No one believes the apologetics anymore. The banks are deliberately destroying municipalities.
Cameron is right, not only are you oversimplifying, you are being incredibly short sighted. Tying Detroit’s plight to the recent nation wide housing market crises without examining the fact that Detroit has remained relatively unchanged since the late 60’s / early 70’s is indeed attempting to vilify banks and as a whole, capitalism. In fact, those of us who clearly remember the Detroit of the 1980’s – that of the Devil’s night, murder capital, with not even a viable downtown to save it – know that Detroit is actually in better shape today. The problems still remain as heavily as ever, but the last time there was as much commerce downtown (Casinos, stadiums, bars, restaurants) as there is now was probably the lat 50s. Why? Capitalist moves made in a very short period by the only half way decent mayor Detroit has had in 60 years (Dennis Archer), but I digress. None of this is to mention that, since the 70s, over half of the city’s homes have been rental properties. If capitalism is to blame, why doesn’t this happen in other communities. Oh, I know your answer: the homes are worth more, so the banks can foreclose. But, why are the homes worth more? It has nothing to do with “these people” or “those people” and everything to do with corrupt politics and horribly run city govenrment. This is a great case study for the current bloated government method being adopted around the country.
Dan what the what? Who is oversimplifying here? I said nothing about “capitalism.” If you know anything about me you know I am a fun loving and highly functional capitalist, working hard for the man every night and day in a vibrant capitalist system, supporting a wide range of responsible capitalist institutions along the way. I’m am glad you know all my answers, it will save me some time here but I think you will logically agree that defrauding a city government of hundreds of thousands of dollars in tax revenue only makes it more difficult for that city government to function, whether it be Detroit or Chicago (second on the list of cities hit by bank walkaways) or any other rust belt city. And I respect Archer as much as the next guy, but to give him credit for all the good that has occurred is another gross simplification that rudely leaves out a lot of very real efforts by hard working people, some of whom were in the city government, some of whom still are, and others who are simply happy, optimistic capitalists looking to create opportunity anywhere they can. Onwards.
Toby, here’s the gist of your article: “At the banks, quarterly and annual profits goals are set and must be reached or there will be layoffs, and if it is a system that creates undesirable, even tragic, outcomes, well, as long as profits are met, nobody seems to question those systems, for profits and “growth” seem to be the only objective measurement to which we are held in our society. It may be the tragedy of our times, but it’s also one we collectively refuse to examine.”
Sounds to me like you’re talking about capitalism. That’s where you lead the reader. When in fact, maybe your point is that some banks are breaking laws and should be held accountable for that. My point is that is not how your article reads.
It’s the only point in the article where you try to assign a reason. In that, you have vastly oversimplified. Yes, I understand Archer wasn’t alone. But, the reason he left was too many that fit into the Kilpartick/Conyers bracket were working against him. Understand this and you will understand Detroit politics: Archer had two recall attempts against him in two terms. Kilpatrick had zero. I also understand there are plenty of people working to improve things in Detroit. Unfortunately, they are being denied progress at too many turns by people who have created a culture of robbing the system blind. Is it right for banks to do what they have done? NO. But, I really think this part of it is simply a byproduct of the rest of this mess. While we should hold the banks responsible for their (extremely small) part in this, focusing on them alone only serves to avert people’s attention to what is really needed: A complete takeover of this city by the people who actually pay for it. i.e. not allowing the people who have robbed the system for decades to continue to do so. To write an article without focusing – at least in part – on the vast, decades long corruption that has sunk this city is beyond rude. It’s simply a distraction from the real problem, that, if it leads even one person to ignore the root cause, is reprehensible.
None of this is to mention the true problem with the housing bubble and the crash that was predicted as early as 2000, which is also way more complicated than just blaming banks. For that, we would need a much longer discussion.
Other than that, I’m glad to see you’re working hard to help build something in Detroit and I wish you the best of luck.
To say that it is irresponsible and destructive to have profits and growth as the only measures of success is a far cry from being an indictment of capitalism, it is an indictment of short-sighted, short-term, unethical leadership.
I’ll admit that the destruction that many banks have caused by walking away from thousands upon thousands of neighborhood homes may indeed only be an “extremely small” part of Detroit’s problems, I’m not sure, from a certain perspective the invention of central air-conditioning was probably a much larger cause of the city’s demise, but I have read a lot about the city and this plague of bank walkaways has been largely uncommented upon.
On the other hand I’ve found there are always people from all walks on hand to share their opinions on the historic corruption and incompetence in city hall.
I suspect if you yourself lived on a block in the northeast section of town and your neighbor had been evicted and instead of actually foreclosing on the house and putting it back on the market the bank had instead stuck the house in a legal limbo so that it only attracted maybe squatters or maybe arsonists, I suspect that if that was happening literally in your backyard, while you tried to raise your kids who had to walk home past that house every day on the way to school, in your gut you might not think that those banks were merely an “extremely small” part of the problem.
I’m not offering a perspective on all the city and its citizens have suffered, there are plenty of well educated people with deeper roots around ready to take a swing at that, all I’m offering is a picture of a neighborhood.
Good article Toby!
As a life-long Detroiter (70+years) welcome to the city and keep up the good work.
You are hacking away at a systemic problem. Everyone is acting in a pre-programmed manner and probably no one is acting illegally. However, corporations are always trying to maximize profits. Unlike real humans, they do not have to consider the social costs of their behavior. If their profits will increase 1% by closing a plant in Detroit and moving the production to Mexico, that’s what they do. The fact that this might result in thousands of people losing their jobs with all the negative ramifications to society does not enter into their decision-making. Those social costs never appear on the books of the corporation.
It’s a poorly evolved system that’s at fault. And your trying to change it makes you dangerous to those folks who are making a profit off the system.
There are lots of other people in this city who see what you see and other systemic problems as well. And they’re are also trying to change the system. They hold demonstrations to prevent foreclosures or against bank bailouts, they fight to change laws that favor corporations, or polluters etc.
You are just scratching the surface of these problems and this is a much longer discussion. But you’re on the right track. Good luck.
I loved the article. It showcases so much of what is wrong with Detroit — and what promise it has. I believe I speak on behalf of everyone when I say that we ALL want Detroit to revitalize, rebuild, resurrect — but often times good intentions are cast aside.
More than anything else, I believe that we’re at the ultimate racial crossroads — in many cases, people still make this into a “White v. Black” argument and prejudice blocks many attempts at helping the city out.
I truly believe that years of corruption, greed, mismanagement, embezzlement, fraud and such have created such a hole to dig out of that the only way to go is up.
Unfortunately, many great plans have been voted down by City Council. From the charter schools (Facebook $150m), Mayor Bing’s plan to bulldoze and relocate (which was shot down but was a great idea), to the State stepping in with Belle Isle to become a state park…the stories are many but the premise is the same.
At some point, the residents in Detroit need to embrace ALL help and not resist — the greatest good for the greatest number needs to prevail. The Kwames, the Matty Morouns, the City Council — all need to stop working for themselves and work to actually help the city come back to where it once was before.
I’m seeing baby steps — but it’s time for giant leaps.
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Thank you for this. I believe the issue is indeed quite complex, however this is a part of the problem that outsiders are not necessarily aware of. My corporation does business in ever village, town, burg, and city in America. I know when I look at daily shipping reports to just write off anything going to certain streets of Detroit. Sophisticated fraudsters from surrounding areas know what is abandoned, use it as a ship to address, and go and sit at those lots/buildings to await delivery. This is issue impacts price points and services to not only those in Detroit, but in wealthy enclaves such as Princeton, NJ, Greenwich CT, and Beverly Hills CA. So if someone thinks the poverty and abandonment is a “Detroit” problem – or a Michigan problem they are only kidding themselves. It is the entire coutry’s problem when a city dies. I take it as seriously as the problem in my own backyard 50 miles down the road in Camden NJ from my posh home in Bridgewater. It’s not “those” people – it is us American people. And it’s not socialism to say that. It’s the capitalist in me that says I want more people to buy my company’s “stuff”. What happened to those people in Detroit and how do we get them back there buying phone, cable, Internet AND wireless services from us?
HI, Mr. Barlow. I lived in Detroit as a boy, until 1971. I’m interested in obtaining images of the Grandmont-Rosedale neighborhoods from the 1960s for a project I am working on. I lived on Longacre and attended the Edison Elementary School. If you have or know where I might obtain such pictures, please let me know. I’ve never lost faith in the City of Detroit, and I firmly believe it can be made as peaceful and beautiful as it ever was. Thank you, sir.