In many communities, there was rapid over-development and money far too easily loaned. As a result, prior to 2008, properties were simply sold for too much money. A correlation between the availability of the loan dollars and the underlying market demand created a false “post” economy and took the market somewhat away from “fair market value.” It was in the context of so many fraudulent mortgages, fraudulent credit applications, and the overzealous desire to make a dollar that created what has been a tough market for the last 3.5 to 4 years.
On one hand, the market is the market. If the money is available to buy a piece of property and the property buys and sells at that price, that becomes the market. The whole notion of fair market value is premised upon a cash transaction. That means that the seller receives the cash. Yet, when there is too much mortgage money available, or mortgages are not properly related to the underlying value and demand for property, the market is effectively dislocated.
For the city of Detroit, the problem is two-fold. We do not have Mortgage Resolution Partners entering the market to buy through the eminent domain process and then profit off of the loans such as is being contemplated in Richmond, California. Rather, in Detroit at this time, no one has any credit or any interest at all in property. We are stuck with a ridiculous land contract market, with tax assessments totally unrelated to value, further skewing the market.
Exacerbating the problem is the difficulty and lack of capacity of the average residential property owner, especially land contract purchasers, to successfully navigate the procedural assessment process. So long as our assessments are unrelated to value and the tax rate is as high as it is now, Detroit residential properties will continue to be challenged.
Further, the land contract market is now the market of choice in Detroit. Mortgage money is not readily available from savings and loan institutions. Given this, without a national banking association as the foundation, the land contract market is all that is available. This creates an additional problem because there is help available to those who have borrowed from banks and savings and loans; help which is unavailable to land contract purchasers.
On the other hand, the notion that a private investor can benefit by the market via the eminent domain process of a local community irritates most of us. The whole idea of a private party benefitting from the public use tool reviles our notions of independence, liberty, and its concomitant base value of private property rights. These are difficult issues!