Homeowners seek justice from Detroit Pension Board
By T. Kelly
The Michigan Citizen
DETROIT — Police officers and fire fighters got attention in August for distributing flyers at Tigers’ games, warning fans to “enter Detroit at your own peril.” Their anger at cuts necessitated by a shrinking tax base might well be directed at their own Police and Fire Pension Fund. The fund is out to further decimate neighborhoods by ousting a group of homeowners who never directly borrowed from them.
Paramount homeowners are embroiled in a struggle with politics, public corruption, the pension board and a now defunct investment group. They are paying on homes to which they have no title and owe back taxes.
Their troubles center around a pension board loan of $10 million in 2009 to Paramount Land Holdings. The company bought foreclosed properties for as little as $10 each, resold them for tens of thousands of dollars and never recorded the land contracts.
Paramount Homeowners have two plans to save their homes. They will present them to the pension board at its Nov. 29 meeting. Either proposal will keep them in their homes, both satisfy past due tax bills and help stabilize their neighborhoods.
At press time, documents obtained by this paper cast doubt on the amount of past due taxes. A copy of a cashier’s check dated March 14, 2011 for $129,366.02 payable to the Wayne County Treasurer from Paramount Land Holdings with supporting lists of properties indicates there were some payments on property taxes as promised to Paramount buyers. (See Paramount documents here).
Yet homeowners who believe they are negotiating in good faith are still in jeopardy of losing their homes and caught in a legal morass.
“They are in the wrong forum,” said pension board attorney Marie Racine. “The pension board has no power to accept or reject any proposals. The only one who can is the court-appointed receiver.”
“Baloney,” says attorney Robert Day, Legal Aid & Defender Association, representing a dozen homeowners. “The Pension board is trying to deflect. It is the pension board that loaned $10 million to Paramount. It is the pension board that brought the case against Paramount and which asked the court to appoint a receiver to collect money from the homeowners. It is the pension board that is driving the bus all along the way and calling the shots.”
In August, Judge John Gilles appointed Douglas Diggs and his Grosse Point Park firm, Heritage Realty as receiver. In a phone interview, Diggs said the homeowners had presented one proposal to him and he had accepted it.
“We’re happy to receive proposals. We responded to their last proposal. We didn’t change anything, took it as proposed. We never heard back,” Diggs said. Under that plan, the homeowners would get a deed, pay whatever the value of their house is less what they had already paid for it. Homeowners would pay back taxes.
Steve Babson, member of Occupy Detroit who has worked with the group, explained the group’s new proposals.
“First, the Pension Board would pay the back taxes, removing the threat of tax foreclosure,” Babson said. “The homeowners would then negotiate a settlement with the Pension Board that provides them with legal title for their homes, in return for payments based on fair market value and the sweat equity and cash payments already made to Paramount.”
Under the alternative proposal, the Pension Board would quitclaim the properties to the homeowners at no cost to either party and the homeowners would then arrange with the county for a payment plan on the back taxes Paramount failed to pay.
In 2008, the Pension Fund loaned $10 million to Abner McWhorter, his mother Sharon McWhorter and George and Teresa Kastanes operating as Paramount Limited LLC, court documents reveal Paramount promised to purchase approximately 2,500 abandoned properties in the city, sell them and get them back on the tax rolls. Taxes were to be brought current and properties repaired.
A Wall Street Journal article about the Kastanes accompanied Paramount’s loan paperwork. The article described the Kastanes strategy as successful — buying property for small amounts on the dollar and reselling them for thousands more under land contract. The strategy is a developing form of investing for distressed real estate.
At the time, McWhorter, a Detroiter and partner in Paramount, believed the plan was a “win-win” for Detroit. Increase the tax base for Detroit and create home ownership for city residents. Kastanes’ strategy provided a non-traditional path, only found in a city like Detroit where many lack access to credit. For example, Paramount bought a home for $100 and resold it for upwards of $30,000. Purchasers put down $400 and promised to pay $600 a month for 30 years.
The property scheme began to unravel in 2009 when the pension board said Paramount failed to pay loan installments. Sources close to the deal say Paramount got a hybrid loan with a six-year balloon payment but paid up to $2 million in interest to the pension board.
When the Pension fund sued the Kastanes in April of this year, it charged that the loan recipients operated a fraud against the Pension fund while operating under at least 26 “shell” business entities.
Abner McWhorter died in August 2011. Sources close to McWhorter say the death was an accident, not a suicide as other media reports indicate. The Kastanes fled; both are now in custody; Sharon McWhorter turned over all assets of her son’s estate to the pension board earlier this year.
Homeowners say the Pension board wants title to their homes without giving them credit for their investments in the properties. Homeowners also believe the pension board should be more vested in maintaining neighborhood stability and tax paying residents.
Most owners in the group purchased their homes when they saw For Sale signs posted on properties around the city. Many found themselves out of work, over-mortgaged, or recently foreclosed but ready to embark on buying a fixer-up because the price seemed right.
“I saw a sign. I had just lost my job after 16 years as a surgical tech at St. John’s,” said Kim Pierce, who is fighting to keep her westside home. “It seemed like a good deal. It was $500 a month with $750 down. It was a far cry from what I was paying.”
She took her 401K funds and made the purchase. At closing in January 2011, Paramount representative Nadine Miller said the company would pay the back taxes and water bills and Pierce signed a land contract.
Pierce made the necessary repairs: $2,800 for a new sewer line, a new furnace, hot water tank, two sinks, a toilet, kitchen sink, electric lines and circuit breakers, landscaping. “We put a lot into it,” Pierce said.
One month later there was a yellow bag taped to her front door with a notice from Wayne County that she was being foreclosed for $10,000 in back taxes.
Like other homeowners, Pierce’s attempts to contact Paramount were unsuccessful. “All of their numbers were disconnected.”
Then two months later Pierce received a notice from Al Cipriano of Towne Mortgage of Saint Clair Shores, saying he was now servicing the loan. Cipriano said his company could do nothing about the back taxes because Paramount was responsible for those, Pierce said.
At that point she contacted attorney Robert Day of Legal Aid & Defender Association. He now represents eight Paramount Homeowners. A Lawyers Guild attorney from Ann Arbor is considering a class action suit.
Many Paramount Homeowners have yet to be found, Pierce said. But their numbers are growing.
A dozen of the homeowners attended the Nov. 15 session of the Pension fund board, but were told they had to come back Nov. 29 to plead their case.
Day said the homeowners want due process and the opportunity to defend themselves in court. The pension board, Day said, “turned their back” earlier when he and Ted Phillips from the Housing Coalition tried to make arrangements with the pension board.
Day was able to get the Wayne County Treasurer to grant a temporary delay on the tax foreclosures but a new season of foreclosures has started and many of the homeowners have been notified that they must pay by Febraury 2012 or lose their homes.
The homeowners have a Dec. 17 court hearing when every Paramount Homeowner is supposed to have been legally notified to appear in court to defend themselves.
“It’s an opportunity for the homeowners to appear and defend themselves,” said Day.
Homeowner Greg Lane said, “It makes no sense for the pension board to try and recoup $10 million on our backs.”
“They treat us like welfare folks,” said one homeowner outside the pension board meeting room. “My appraisal was $4,300 with $12,000 in back taxes. We said we’ll give you half, they said they wanted it all. What sense does it make to pay back taxes they were supposed to pay?”
Paramount and homeowners may not reach an agreement.
“The board is pursuing collection of anything they can collect,” attorney Racine said.
The Wayne County Treasurer’s office could not be reached for comment.