USED TO BE, when Detroit flexed its muscle, we all got stronger. In the 1950s, being able to turn a bolt or drive a rivet meant you could make it in Detroit.
Writer Elmore Leonard was a Detroit native and said about his hometown: “There are cities that get by on their good looks, offer climate and scenery, views of mountains or oceans, rockbound or with palm trees. And there are cities like Detroit that have to work for a living.”
But today’s Detroit has been knocked to its knees. Decades of mismanagement, corruption, and economic pain hollowed out the city of its people and reduced much of it to ashes.
There wasn’t a single villain that led to Detroit’s fall—there were many. But who are the heroes best suited to help Detroit stand up again? Many Detroiters believe that—armed with the right tools—Detroit’s public servants and government leaders can bring the Motor City back. Can they? Or will salvation come from outside the system?
A tech guy comes to Detroit
When Jerry Paffendorf moved to Detroit in 2009, he wasn’t coming home or moving for a job or a girl. He was an almost-30 tech guy who wanted to create something positive in a place where positive somethings needed creating.
“I was interested in Detroit because the idea behind the internet is that it networks people together even if they’re not physically present,” Paffendorf explains. “I had been in San Francisco and New York for three or four years, which is sort of where you’re supposed to go when you’re building internet stuff. And I was attracted to trying to build something new and interesting online in a place that wasn’t known for having that happen.”
Paffendorf very much looks the “tech guy” part: tall and lanky with thick wisps of wavy blond hair falling above clear-rimmed glasses. He’s got that confident-but-approachable demeanor that makes you feel like he’d be willing to talk to you all day.
Once in Detroit, he quickly found his “something positive” in addressing the city’s blight problem. Over the past 60 years, Detroit’s population has been cut in half, which means there’s a lot of empty space. Neighborhood streets that hundreds of middle-class Ford, Chevy, and GM factory families used to call home are now graveyards of burned-out bungalows housing only a few dozen people.
That’s blight. And blight begets more blight—once a neighborhood starts to go, the emptiness and decay spread like a virus.
This is what Paffendorf saw when he moved to Detroit. Blight was rotting the city from the inside out, and government officials had no idea how to solve it.
The task force road map
Detroit declaring bankruptcy in 2013 ended any hopes that the city could pull itself out of its downward spiral. With estimated debts of $20 billion, it was the largest municipal bankruptcy in American history.
The New York Times was blunt about the city’s outlook: “There is no road map for Detroit’s recovery.”
Yet the “Detroit Blight Task Force” was trying to create that road map. The task force was a partnership of private companies; non-profits; and the federal, city, and county governments. While most of Detroit’s elected and emergency-appointed officials were consumed with the budget crisis, the task force focused on the city’s physical emptiness. According to The Detroit News, the task force would dole out $300 million in aid for Detroit, $100 million of which would be used solely to fight blight.
Dan Gilbert, the Detroit-born billionaire CEO of Quicken Loans, was leading the task force. Gilbert knew that safer neighborhoods were desperately needed to bring people back to the city. In an interview with The Atlantic, he zealously vowed to eliminate Detroit’s blight—“not part of it, not some of it, not most of it, but all of it.”
But to eliminate blight, you need to know where it is. Detroit and task force officials quickly realized there was no reliable single source for data on the blight crisis. Getting vital data on property taxes, crime, fire response, construction activity, and utilities meant going to dozens of government offices and hatcheting through mind-numbing bureaucracy. And when you’re trying to rebuild a crumbling city, that’s simply not an option.
Gilbert needed a data guru. So he hired Paffendorf.
Ever the data evangelist, Paffendorf saw Detroit’s blight as a problem that better-organized information could solve. To fill the city’s data vacuum, he founded Loveland Technologies, which develops mapping technology that governments, developers, and nonprofits use to put land to effective use and help people in need.
Gilbert and the task force needed a complete view of Detroit’s blight problem, which meant knowing what neighborhoods had residents living in them, what neighborhoods had the most abandoned or damaged houses, and where task force money and resources should be spent. To create that view, Loveland conducted a full-scale citywide property survey to give the task force a street-by-street, lot-by-lot view of Detroit.
Paffendorf hired 200 workers to travel every inch of the county (Detroit sits in Wayne County) to log photographs and data on each property’s condition (houses, vandalism, etc.). Then the Loveland team plugged all that into a database and cross-referenced it with utilities records, crime records, and property tax and foreclosure records from Wayne County.
The more Paffendorf’s team filled out Loveland’s database, the clearer the picture of Detroit’s blight crisis became. And when that picture became clear enough, he could point directly at the problem: Property tax foreclosures.
Anatomy of a property tax racket
For years, if you owned a house in Wayne County, you knew your property taxes were high— way too high.
A Detroit News investigation revealed that, on average, Detroit homeowners were overtaxed by at least $3,700 a year. The investigation cited examples illustrating how many homeowners were stuck in a vicious cycle:
Detroiter Anna Bolden knew something was wrong with her tax bill after she bought her west side brick bungalow in a tax foreclosure auction for $4,800 in 2011. That year her bill was $2,600, with the city taxing her as if the house was worth $57,000.
“My taxes shouldn’t be this high,” the 55-year-old first-time homeowner remembers thinking when getting her bills. “My house was only $5,000, why am I paying this money? I went down (to city and county offices) to ask questions, but it’s like everybody is giving you the runaround,” she said. “It makes you feel like they are cheating you … but what can you do?
If a homeowner like Bolden fell behind on her inflated property taxes for more than three years, the county would foreclose on her home, sell it at auction, and keep all the money from the sale—even the amount over the delinquent taxes. In lawsuits challenging Michigan’s property tax system, PLF and other attorneys have pointed out how extreme and despicable this practice is. Even King George III wasn’t allowed to keep auction proceeds above a homeowner’s debt.
At best, the county was converting homeowners to renters. At worst, it was making them homeless.
This cycle was playing out for thousands of homeowners across Wayne County. And by overlaying his database of the most blighted neighborhoods with Wayne County’s foreclosure records, Paffendorf found the blueprint for Detroit’s blight problem.
“It was kind of like turning a light switch on in a dark room,” Paffendorf explains. “It was like, you knew there were a lot of blighted and vacant properties and vacant spaces in the city, but it hadn’t really been granularly quantified like that. Being able to overlay tax foreclosure with that kind of data showed that almost all the properties that were vacant and abandoned had been through tax foreclosure. And then we could see that there were tens of thousands of occupied homes the county was about to take away and auction.”
With Loveland’s database, Paffendorf discovered that approximately 80% of abandoned and blighted properties in Wayne County had gone through the county’s foreclosure process. By looking for a solution to Detroit’s blight, the Loveland team discovered how government was creating the problem through property tax foreclosures.
Public Act 123
Detroit’s foreclosure problem didn’t emerge overnight. It grew and metastasized over two decades.
In 1999, Wayne County’s treasurer Raymond Wojtowicz was facing a problem no government official wants to face: growing expenses and shrinking tax revenues.
Wojtowicz had been treasurer since the mid-1970s and saw this problem coming. Detroit had consistently lost population since its peak of around 1.8 million residents in the 1950s. And fewer residents meant less tax money for the county. But as any trip to the DMV will tell you, government is painfully slow to adapt. Wayne County was paying for a government built for nearly two million residents with the tax revenue from half that many people.
Detroit officials appealed to a higher power for help: the Michigan legislature.
The state’s help came in the form of Michigan Law Public Act 123. Public Act 123 made the property tax foreclosure process easier and quicker for county governments. As the Wayne County Treasurer’s website explains: “The new act reduces the amount of time to pay taxes from approximately five years to two years. Property owners with taxes that are two years delinquent will be foreclosed and the property can be sold at a public auction. Not paying taxes will now result in higher interest charges and fees.”
On some level, this change made sense. Wayne County literally had neighborhoods sitting abandoned, but county officials had to wait at least five years before they could foreclose on abandoned properties (for unpaid property taxes) and sell them to families or developers. In theory, Public Act 123 would give local governments the ability to stop blight before it began, and for almost a decade after Public Act 123’s passage, Wojtowicz’s office diligently collected delinquent property taxes and returned abandoned properties to good use.
But the 2008 financial crisis changed everything.
After the ’08 crash, homeowners across the country were falling behind on mortgage and property tax bills, and homes were being foreclosed at record rates. But as bad as it was nationwide, the crash was threatening to cripple the already-cash-strapped Wayne County.
Wojtowicz knew every government lever he could pull to get something done—because he’d designed most of the levers himself. The most well-known aspect of Public Act 123 was the shortened window for delinquent property taxes, but Wojtowicz knew how the law also allowed county governments to potentially make millions by foreclosing on delinquent homes and selling them at auction.
Until then, Wojtowicz’s office had worked mostly with homeowners who fell behind on property taxes, allowing them to pay what they owed and keep their house. But there’s a lot more money to be made by selling a house for thousands of dollars than in collecting a few hundred in delinquent property tax bills, so starting in 2008, the county began selling more and more foreclosed homes at the county’s property tax auction.
A recent Reason magazine article explained how toxic this practice can be: “The law empowers county treasurers to act as debt collectors. In the process, it creates a perverse incentive by allowing treasurers’ offices to retain excess revenue raised by seizing and selling properties with delinquent taxes—even when the amount owed is minuscule, and even when the homes aren’t abandoned or blighted at all.”
Raymond Wojtowicz died in January 2020, which means we can’t ask how he truly felt about constructing the government system that would go on to take hundreds of thousands of homes away from Detroit homeowners. But regardless of how he felt about it, Wojtowicz became the architect of one of the largest transfers of wealth from low-income, mostly minority, homeowners to government in American history.
Trying to reform from within
The Detroit Blight Task Force’s main strategy for removing blight was demolition—tearing down abandoned, damaged, and dilapidated buildings. Loveland’s database made that possible. But now Paffendorf had the data showing how the property tax foreclosure system was actually causing Detroit’s blight, and he was ready to share it with the people who could stop it. After all, if government created the problem, government was best suited to fix it, right?
Yet in 2015, when Paffendorf started discussing his findings with the government officials who just months earlier had been sounding the alarm about combatting blight, the responses ranged from indifferent to hostile. Then, when Paffendorf couldn’t get anywhere with bureaucrats, he started talking to Detroit media about the problems with the city’s foreclosure system. But when they started seeing stories in the news about their program, officials from the treasurer’s office told him to stop talking about foreclosures publicly.
Paffendorf didn’t know if it was just general apathy from bureaucrats uninterested in change, or an active desire to keep a system that was hurting people. He was realizing that while better data could be a solution to Detroit’s problems, it wasn’t the solution the government wanted.
Luckily, by this point Paffendorf wasn’t alone in his fight.
In 2015, multiple homeowners who’d fallen victim to Michigan’s broken foreclosure laws filed lawsuits challenging the constitutionality of Michigan’s foreclosure system. Each homeowner lost in the lower courts, but PLF was able to step in and provide free representation in multiple cases. One of PLF’s clients was Uri Rafaeli, a retired 83-year-old engineer who accidentally underpaid the property taxes on his rental property by $8.41 (that’s right, eight dollars and forty-one cents). The county foreclosed on Rafaeli’s property, sold it for over $24,000, and kept all the profits, leaving Rafaeli with nothing. Rafaeli claimed that the government violated his Fifth Amendment property rights by stealing the equity he had in his home. Christina Martin, the lead PLF attorney on Rafaeli’s case, explained, “Everyone should pay their taxes, but the government becomes a thief when it takes not only taxes, interest, penalties, and fees—but the entire property and all of an owner’s equity.”
Paffendorf began sharing data on Detroit’s foreclosure crisis with Martin and showing her the damage these auctions were inflicting on homeowners and the city. But he also started learning more about the other states where local governments were abusing foreclosure laws like in Michigan. At least 13 states nationwide have foreclosure laws similar to Michigan’s Public Act 123. This meant that the foreclosure abuse (called “home equity theft”) Uri Rafaeli was fighting wasn’t just a Detroit problem. It was a nationwide problem.
Out with the old (treasurer)
By 2015, Raymond Wojtowicz was 86 years old and had been Wayne County treasurer for 40 years. He’d survived political scandals, financial crashes, a shrinking county population, and Detroit’s bankruptcy. But even the most battle-tested politicians have to call it quits eventually. With a year left on his term, Wojtowicz announced his retirement.
In an interview with Crain’s Detroit Business, Wojtowicz sounded reticent about giving up his post, “Most people have goals and plans. I really haven’t thought of what is going to happen. I will miss the interaction with the employees. I won’t be in this building anymore, but maybe I’ll be a visitor.”
Wojtowicz still knew how to work the system, though. By retiring early, county officials— not voters—would hand-select an interim treasurer to finish his term. An optimist might view this move as an easy way to ensure a smooth transition after a longtime official steps down. A realist views this as an easy way to ensure the political machine stayed in power
But political machine or no, when Wojtowicz announced his retirement, Paffendorf filed to be a candidate. He knew this could be the chance to accomplish what data alone couldn’t.
“I was so frustrated that there wasn’t a workable plan for changing the system that I put my name in, got interviewed for the position, and basically presented a whole platform of what I would do as treasurer,” Paffendorf explained. “I didn’t expect they would pick me for a million reasons, but I thought it was my duty to say, ‘Look, here’s what you can do differently.’ And in fact, the material I put together, the presentation I put together, was called, ‘What the Next Treasurer Should Do.’ So, whether it’s me or somebody else, here’s a list of things that would make a really big difference.”
Paffendorf wasn’t selected, but his presentation caught the attention of the new treasurer, Eric Sabree. Sabree was seen as a reformer, and hopes around Wayne County were high that he would usher in a new era of fairer government.
“Everybody was really hopeful about seeing change then,” Paffendorf recalls. “Treasurer Sabree had been deputy treasurer for maybe four or five years prior and was just known to be a good, caring guy. We were excited when he got into office.”
Sabree’s office admitted that the foreclosure auction was kicking some people out of their homes, but the government was in the dark about the scope of the problem. So Sabree hired Loveland in 2016 to conduct a study of how Wayne County’s foreclosure auction affected vacancy rates and the overall number of abandoned properties.
Loveland’s study showed how Wayne County’s foreclosure auction had increased home vacancies by 60% over the past few years. Yet when Paffendorf shared those findings, he faced the same apathy from county officials as before. And Sabree was on record discussing how much Wayne County and Detroit relied on revenue from the foreclosure auctions to pay for basic government services.
It appeared that Sabree and county officials knew the foreclosure process was slowly bleeding Detroit of its people. But by now they were addicted to the revenue and the power, and stopping cold turkey could collapse the entire system (or worse, get them kicked out of office).
A change in the tides
After Loveland’s vacancy study was ignored by Sabree’s office, Paffendorf faced the fact he’d been avoiding for years: Wayne County’s foreclosure auction wasn’t an unfortunate side effect of a bigger reform plan; the foreclosure auction was the plan— and no amount of data could change that fact.
“Seeing stuff like that and seeing that there wasn’t a willingness to openly address what was happening, that sort of naturally led to us working more independently,” Paffendorf explains. “We very much tried to work with the government to make some changes, but it was just obvious that wasn’t going to satisfy them.”
Paffendorf continued to be a leading voice in the media about how poisonous the Wayne County foreclosure auction is and the damage it does to Detroit. Fortunately, around the same time that Paffendorf was stepping into his role as independent reformer, the tides were starting to shift and spotlights on Detroit’s foreclosure system were appearing from multiple angles.
First, in 2019, The Detroit News published an investigative report exposing an illegal scheme involving Eric Sabree’s family and Wayne County’s foreclosure auction. The investigation found that, starting in 2011, Sabree and his family not only won underpriced properties through the foreclosure auction (which violated county nepotism laws), but Sabree made sure the county never foreclosed on or fined his family members who didn’t pay their property taxes.
That investigation (and Sabree’s refusal to cooperate with The Detroit News in an attempt to kill the story) led to a Wayne County Ethics Board investigation and an FBI investigation. The ethics investigation eventually was dropped (since many Detroiters didn’t even know the Ethics Board existed, it was a miracle that it happened in the first place), but the FBI investigation is ongoing.
The second tidal shift came from the courts. The Michigan Supreme Court agreed to hear Uri Rafaeli’s case challenging the constitutionality of Michigan’s foreclosure law.
At the Rafaeli oral arguments, Christina Martin presented a compelling case for Michigan homeowners like Rafaeli. The justices seemed befuddled at the logic behind Michigan’s foreclosure process. At one point, a justice asked the state’s attorney if the state was worried that “it wouldn’t get its eight dollars back?” When the state’s attorney compared homeowners struggling to pay their property taxes to toddlers refusing to do their chores, Martin reminded the court that “the government is not our parent whose job it is to police if we keep our room clean; the government’s job is to protect our rights.”
The Michigan Supreme Court is expected to hand down its decision in mid-2020, and if the court rules in Rafaeli’s favor, it could effectively end Michigan’s foreclosure racket once and for all.
Change coming
Paffendorf has been fighting the war to end Detroit’s broken foreclosure system for nearly a decade. When reflecting on his time in Detroit, he joked about how far he’d come from being a naïve out-of-towner with big dreams.
“Put a sticker on me, I was ignorant of pretty much everything when I first came to Detroit. We knew there was a tax foreclosure auction and that there were all these properties going up for sale.” But it took Paffendorf years to realize that data alone couldn’t solve the problem, that “there was a more nefarious underlying problem.”
These days, Paffendorf is writing a book about Detroit’s foreclosure crisis and is hoping that a happy ending will soon emerge: “I think it’s more likely now than it’s ever been that something is going to give.”
Michigan didn’t invent home equity theft and Detroit isn’t the only place it’s happening. If it ends here, county governments across the country will still be foreclosing thousands of homes and taking the equity for themselves.
But there is hope.
PLF is filing lawsuits and working with state legislators nationwide to end this practice. Each state will be a unique battle and each battle will take time to win—luckily there are more Uri Rafaelis out there willing to fight.
Paffendorf, Martin, and Detroit homeowners are hoping this battle is almost over.
For decades, Detroit was the city that built America’s engine. It’s a city that grits through pain, and comes out the other side stronger—even if that strength comes with scars.
Detroit will be back. Its villains can hurt it, but they will never break it; the true Detroiters won’t let them. Because true Detroiters—no matter where they’re born—are the heroes of Detroit’s rebirth, and true Detroiters don’t know how to quit. Their city can get knocked down, but they will always make sure it gets back up.
