Michael Kelly filed 1,160 evictions between 2009 and 2016. That is the equivalent of one eviction filing every 2.5 days. Kelly operates over 40 LLCs and currently owns over 500 properties in the City of Detroit. Kelly’s most prominent company is Detroit Property Exchange which offers low income residents land contracts on dilapidated housing. Houses most of them are eventually evicted from.
Land contracts are common in Detroit. Traditional financing is often unavailable and housing prices are generally below the lending floor for mortgage brokers and banks. In addition, the longer history of racial discrimination in lending continues to limit credit opportunities for minorities, particularly in poorer areas of the city (NYT 2018).
These factors, combined with a flood of discounted housing in the 2006 mortgage crisis and the tax foreclosure crisis following the financial crisis, positioned speculators like Kelly to exploit Detroit residents. Detroit Property Exchange uses land contracts with large down payments, high interest rates, and clauses that make eviction easier and more likely. In these contracts, a late payment, of even a single day, often results in buyer becoming a month-to-month tenant facing eviction. Unlike a mortgage, and in the way these contracts are currently enforced by Detroit’s 36th District Court, buyers build no equity in the house and lose all of their investment when evicted.
In a 2018, study by my colleague Eric Seymour and I, Kelly had the highest rate of eviction of known contract sellers in Detroit. Between 2005 and 2015, Kelly acquired 777 properties, primarily from the tax foreclosure auction and turned his properties over through eviction 1.5 times between 2009-16. This churn rate does not account for the fact that only about 350 of Kelly’s properties were being offered on land contract or for rent, which is closer to 3 evictions per property.
In 2011, Kelly defended all of his practices telling Christine MacDonald of The Detroit News, “People went out West speculating for gold. That’s what it is. You need speculators. It’s called investors” (MacDonald 2011a).
Unlike many speculators who have one or two methods, Kelly’s holdings and speculative practices are multi-faceted. He is savant at catching wrinkles or errors in the city’s property records. Reports in The Detroit News covered his attempts to demand rent after purchasing a tax foreclosed parcel that included the front door and parking spaces at a strip club. Another time he threatened to evict an operating business from its plant after purchasing a parcel on the shop floor (MacDonald, 2011b, MacDonald 2012).
In addition, Kelly holds a number of parcels near potential development sites, buying low, doing nothing, and waiting to sell to the developer or city at an inflated price. Some of these properties are held by non-profits under names like Detroit Youth Gardens LLC.
Nearly a decade ago, Kelly actively used the Wayne County Tax auction to limit his property tax liability by allowing properties to go into foreclosure and then repurchasing them for the $500 minimum bid. There is more about that process here.
Wayne County’s tax foreclosure auction is the primary pipeline for property acquisition by Kelly. In addition to serving as a means to avoid tax obligations, Kelly purchased occupied housing in tax foreclosure, negotiated a land contract with the former owners still living in the house, and then failed to pay property taxes leading to a second foreclosure (DED 2014).
In 2009, at the height of the foreclosure crisis, undercover television reporters recorded seminars held by Kelly associates showing potential buyers how to take advantage of federal stimulus program. Participants were encouraged to buy derelict properties that Kelly’s companies acquired at auction and apply for the $8000 federal incentive. The incentive was split between the buyer and seller. Buyers were instructed to walk away from the property. The walk away was essential as the stimulus money did not have to be repaid if the house burned or was destroyed within two years (Wolcheck 2009, Oosting 2009).
In all, Kelly is one of the most creative and effective purveyors of misery and blight in the city. Despite the notoriety of his practices the Wayne County Treasurer continues to sell properties to Kelly and his companies at auction. Until recently, the City of Detroit has done very little to intervene in his treatment of tenants or his production of blight. The 36th District Court which hears landlord-tenant actions has ignored the broader legal questions around Detroit Property Exchange land contracts and more often than not sides with Kelly over Detroit residents.
References:
Akers, J and E Seymour (2018) Instrumental Exploitation: Predatory property relations at city’s end. Geoforum 91: 127-140.
Akers, J (2017) A New Urban Medicine Show: On the limits of blight remediation. In Why Detroit Matters, (ed. B. Doucet) Policy Press: Bristol UK.
DED (2014) The fight for Sandi and Kenny. http://www.detroitevictiondefense.org
NYT (2018) The Race-Based Mortgage Penalty. March 7 https://www.nytimes.com/2018/03/07/opinion/mortage-minority-income.html
MacDonald, C. 2011a. Private landowners complicate reshaping of Detroit. The Detroit News, Mar 03.
MacDonald, C. 2011b. Detroit area investor gains from others’ real estate mistakes. The Detroit News, Mar 03.
MacDonald, C. 2012a. Homeowners buy back own property, dodge taxes. The Detroit News, Feb 03.
Oosting, J. 2009. ‘Walk away stimulus plan’ uses tax credit to scam. Detroit: mlive.com.
Wolcheck, R. 2009. Walk Away Stimulus Plan. Hall of Shame. Detroit: WJBK Fox 2.
Urban Praxis 