Dispossessing Residents: Municipal Bankruptcy and the Public Trust

Juliet Moringiello, Associate Dean for Research and Faculty Development, Widener University Commonwealth Law School, Harrisburg, PA 

Municipal bankruptcy occupies an obscure corner of bankruptcy law. Although the federal law for resolving municipal financial distress is located in chapter 9 of the Bankruptcy Code, there are significant differences between the bankruptcy processes used for municipal bankruptcy and the bankruptcy processes used by individuals and business entities. Constitutional constraints imposed by the balance between federal and state power enshrined in the Tenth Amendment dictate much of the structure of chapter 9. As a result, chapter 9 lacks some of the governance controls that exist in the other bankruptcy chapters.

Another significant difference between municipal bankruptcy and other types of bankruptcy is the role of bankruptcy in distributing the debtor’s property. A liquidation bankruptcy under chapter 7 distributes all of a debtor’s property to its creditors, which  is the floor for distributions in a reorganization bankruptcy. According to the public trust doctrine, a municipality has no property that can be forcibly distributed to its creditors. Municipal property belongs to all of the municipality’s residents and is thus held in trust by the municipality, immune from seizure by creditors.

So why talk about bankruptcy in a symposium about dispossessing Detroit? One of the most contentious issues in municipal bankruptcy is the treatment of pensions, and indeed bankruptcy can result in reduced pension payouts. But all residents stand to lose something in bankruptcy that is not property and is not always entitled to constitutional protection: voice.

Some criticize the municipal bankruptcy process because it leaves control of the bankruptcy in the hands of the municipality and therefore effects no change in the conditions that led to the bankruptcy in the first place. If a dysfunctional city government played a role in the distress that led to bankruptcy, there is nothing in the Bankruptcy Code to dislodge that government. While true, that’s only one half of the story. Chapter 9 of the Bankruptcy Code was designed to work with state financial intervention schemes. We saw that in Detroit, where the Emergency Manager had the primary role of guiding the city through the bankruptcy.

Back to dispossession and the public trust. There are several types of intervention – in Michigan, the Emergency Manager displaces city government as a bankruptcy decisionmaker. In Pennsylvania, a municipal receiver does not displace city government. The receiver takes the lead in making the decisions necessary to resolve municipal financial distress but must work with the elected officials to implement a recovery plan. Any municipal recovery plan can involve the sale of municipal property because the public trust doctrine means only that such property is immune from a forced sale, not a voluntary sale. Outside of the property context, public trust can mean trust in the process, and if the state insolvency scheme is viewed as a takeover, the citizens will feel dispossessed of their voice. In fashioning an intervention process, states should consider the impact of that process on the voice of the residents who are so critical to a city’s ongoing recovery.

Contract Selling as a Form of Property Dispossession

Beryl Satter
Professor of History, Rutgers University-Newark

A sure-fire way to lose one’s property is to pay too much for it — or to buy it on terms that are so onerous as to be predatory.  Both problems are endemic to properties purchased “on contract,” that is, on an installment plan.  I detailed the full repercussions of predatory contract sales in my 2009 book Family Properties: How the Struggle Over Race and Real Estate Transformed Chicago and Urban America.  That book described the mid-twentieth century exploitation of black Chicago homebuyers through predatory contract home purchases, a period during which banks’ refusal to make mortgage loans to African Americans left many with no alternative but to buy on contract.  Unfortunately, since the 2008 subprime meltdown, the practice has been revived, with predictably tragic results.

From the buyer’s perspective, purchasing a property on contract (also known as an “installment land contract,” “contract for deed,” or legally, “Articles of Agreement for Warranty Deed”), combines the worst of buying and renting.   In a contract sale the seller of the property provides the credit for the purchase – but on harsh terms.  Buyers must make a down payment.  They are also responsible for taxes, insurance, maintenance, and interest.  However, most installment land contracts specify that if the buyer misses even a single payment, the contract seller can repossess the property, keeping everything that the buyer invested to date.  Most also specify that all maintenance on the property is the responsibility of the contract buyer.  If the price charged for the property is excessive, or if maintenance costs are unusually high, then a missed payment and subsequent loss of the property is not uncommon.

In the mid-twentieth century, contract selling became an easy way for white speculators to exploit African Americans’ dreams of home ownership.   In cities across the country, speculators used borrowed money to buy properties from whites.  They then immediately sold those properties on contract to black buyers – routinely charging them double, and sometimes quadruple, the prices they’d paid.  Black buyers who could not keep up the exploitative payments lost their homes.  In Chicago, many of the most active contract sellers repossessed scores of properties every year – retaining the down payment and all money that their black buyers had invested to date. 

Contract selling died down in the 1970s as the now nominally illegal practice of bank redlining lessened in frequency, and as flawed federal housing programs created new ways to exploit black homebuyers.[i]  Unfortunately, it has reemerged in full force since the 2008 subprime meltdown.  Hedge Funds like Harbor Portfolio Advisors have purchased thousands of foreclosed homes from Fannie Mae (the Federal National Mortgage Association) for about $5000 each. They sell these properties days later at massive markups — $30,000 to $60,000 each. These properties have often been abandoned for years, and are in severely deteriorated condition, yet the contract buyer is solely responsible for the often staggering costs of restoring them to a habitable condition.  These costs mire them in debt and force them to miss payments, ensuring the loss of their properties.  Once again, those with plentiful access to credit are using contract sales to manipulate minority buyers’ dreams of mobility in order to entrap and defraud them, resulting in enrichment for the hedge funds, and property dispossession for those most in need. [ii]

[i] On the 1970s FHA-HUD scandal, see Keeanga-Yamahtta Taylor, Race For Profit:  How Banks and the Real Estate Industry Undermined Black Homeownership (University of North Carolina Press, 2019). 

[ii] On the recent resurgence of predatory contract selling, see Jeremiah Battle Jr., Sarah Mancini, Margot Saunders, and Odette Williamson, “Toxic Transactions:  How Land Installment Contraacts Once Again Threaten Communities of Color,” National Consumer Law Center, July 2016, https://www.nclc.org/issues/toxic-transactions-threaten-communities-of-color.html

“Dispossessing Detroit”: Learn More and Full Schedule

Hear from the Symposium team’s Nathan Santoscoy, Michigan Law student and Detroit native, about tax foreclosure crisis in Detroit and some of the conversations we’ll be having at our Symposium on Nov. 9:

Learn more about the Detroit story that will be our lens for conversation at “Dispossessing Detroit.”

The full schedule is below. If you have not yet RSVP’ed, we encourage you to do so soon: https://dispossessingdetroitsymposium.com/rsvp-comment/

We’re excited to see you there!

Symposium: Saturday, Nov. 9, 2019
8:30 a.m. – 5:00 p.m. @ Michigan Law School

Hutchins Hall | 701 S. State St., Ann Arbor, MI 48109

Continental Breakfast and Check-In
8:00 – 8:30 AM | Main Floor Lobby, outside of Hutchins 100

Property Dispossession is Nothing New: A Historical Overview
8:30 – 9:30 AM
Panel discussion on the historical instances of land dispossession experienced by people living in the Detroit area and more broadly.

  • Bernadette AtuaheneProfessor of Law, Chicago-Kent College of Law
  • Beryl SatterProfessor of History, Rutgers University-Newark
  • Louise SeamsterAssistant Professor of Sociology and Criminology and African American Studies, University of Iowa
  • Michael WitgenDirector of the Native American Studies, Program and Associate Professor of History and American Culture, University of Michigan

Municipal Bankruptcy: Who Gets What?
9:35 – 10:35 AM
Panel discussion comparing the experiences of Detroit, Puerto Rico, and Harrisburg, PA and the citizens who call these places home during and after bankruptcy proceedings.

  • Michelle AndersonProfessor of Law, Stanford Law School
  • Juliet MoringielloAssociate Dean for Research and Faculty Development and Professor of Law, Widener University, Commonwealth Law School
  • John PottowJohn Philip Dawson Collegiate Professor of Law, University of Michigan Law School
  • David SkeelS. Samuel Arsht Professor of Corporate Law, University of Pennsylvania Law School 

Dispossession in Other Forms: A Closer Look at Detroit 
10:45 – 12:15 PM
Short presentations or conversations on various topics. Each conversation will be limited to 15-20 minutes with 5 minutes for audience questions and will be held three times over the course of an hour and a half. 

  • Right of Refusal
    • 10:45- 11:10 AM; 11:15- 11:40 AM; 11:45- 12:10 PM
    • Speakers: Michele OberholtzerDirector of Tax Foreclosure Prevention, United Community Housing Coalition and Eli SavitSenior Advisor to Detroit Mayor Mike Duggan
  • Changes in the Detroit Real Estate Market 
    • 10:45- 11:10 AM; 11:15- 11:40 AM; 11:45- 12:10 PM
    • Speaker: Joshua AkersAssistant Professor of Geography and Urban & Regional Studies, University of Michigan-Dearborn
  • MorningSide v. Sabree: The Tax Foreclosure Crisis
    • 10:45- 11:10 AM; 11:15- 11:40 AM; 11:45- 12:10 PM
    • Speaker: Michael SteinbergProfessor from Practice, University of Michigan Law School 
  • How Data Informs Policy
    • 10:45- 11:10 AM; 11:15- 11:40 AM; 11:45- 12:10 PM
    • Speaker: Jerry Paffendorf, Co-Founder & CEO, LOVELAND Technologies

12:15 – 1:15 PM

Ramifications of Dispossession: Activism and Lived Experiences
1:15 PM – 2:15 PM
A panel discussion addressing the ways dispossession has affected community members and activists. 

  • Sonja Bonnet, Community Legal Worker, Detroit Justice Center
  • David Pitawanakwat, J.D. Candidate, University of Detroit Mercy School of Law and University of Windsor Faculty of Law  
  • Simone Sagovac, Southwest Detroit Community Benefits Coalition

Revitalization Today: Urban Renewal and Eminent Domain
2:30 – 4:00 PM
Panel discussion on the role of revitalization efforts in cities throughout the country. 

Dispossession Reform Round Tables
4:00 – 4:45 PM
Small group discussions with speakers and participants discussing reforms to current issues of land dispossession. Small groups will reconvene to report possible reforms.

Closing Remarks
4:45 – 5:00 PM
Small group discussions with speakers and participants discussing reforms to current issues of land dispossession. Small groups will reconvene to report possible reforms.

Detroit Engagement Day: Sunday, Nov. 10, 2019
10:00 a.m. – 4:00 p.m. @ Detroit

Helping Detroiters “Step Forward” Into Secure Home Ownership

As a part of the 2019 Journal of Law Reform Symposium “Dispossessing Detroit: How the Law Takes Property,” JLR is excited to partner with the United Community Housing Coalition to host a clinic for Step Forward Michigan applications on November 10th. 

After the 2008 financial crisis and downturn in the housing market, Michigan used federal government funding to establish Step Forward Michigan, a program to help homeowners struggling to make mortgage, property tax, or condominium fee payments. Over 30,000 homeowners have received assistance through the program, which is set to end on December 1, 2019. 

The program provides qualifying homeowners with interest free loans of up to $30,000 to help them catch up on delinquent property taxes, mortgage payments and condominium association fees. The loans are forgivable at 20 percent each year, as long as the property remains the homeowner’s primary residence. If the homeowner is still living in the home after five years, the loan is completely forgiven.

To be eligible to apply, the homeowner must have experienced an involuntary hardship that led to the delinquency. Examples of qualifying events are a medical emergency, job loss, divorce, death, or one-time unforeseen out-of-pocket expenses like home repairs. Additionally, the homeowner has to have enough income to cover their future mortgage and property taxes once they are caught up. They must also show that they do not have sufficient cash reserves in their bank account to cover the relevant payments. 

A one-time unexpected event can spiral into financial trouble with outsize consequences. JLR is excited to partner with UCHC and provide Detroit residents with assistance in completing Step Forward applications and moving towards resolving any delinquency in their home ownership-related payments. This is just one of many legal reform strategies that we will discuss at Dispossessing Detroit – RSVP to attend the Symposium here!

Sources: https://www.stepforwardmichigan.org/en/, http://cedamichigan.org/2017/07/step-forward-michigan-program-helps-struggling-homeowners/

Announcing JLR’s 2019 Symposium: “Dispossessing Detroit: How the Law Takes Property”

The Michigan Journal of Law Reform is pleased to announce that its Fall 2019 Symposium,  “Dispossessing Detroit: How the Law Takes Property” will take place on November 9, 2019. All events on November 9 will be held at the University of Michigan Law School.

RSVP to the Symposium today!

The Symposium will bring together a diverse range of academics, practitioners, and community members to speak on this important topic through the lens of the Detroit experience. We aim to have attendees learn, connect, and deepen their understanding of property dispossession and related topics. 

A few of our speakers include:

  • Michelle Anderson, Professor of Law, Stanford Law School 
  • Bernadette Atuahene, Professor of Law, Chicago-Kent College of Law
  • Amina Kirk, Senior Legal and Policy Advocate & Organizer, Detroit People’s Platform
  • Simone Sagovac, Southwest Detroit Community Benefits Coalition
  • Eli Savit, Senior Advisor to Detroit Mayor Mike Duggan
  • Louise Seamster, Assistant Professor of Sociology and Criminology, University of Iowa
  • David Skeel, S. Samuel Arsht Professor of Corporate Law, University of Pennsylvania Law School 

On November 10, 2019, JLR will partner with the United Community Housing Coalition to host an HPTAP (Homeowners Property Tax Assistance Program) application clinic. This event will take place in Detroit. 

We look forward to sharing more with you about our program in the coming weeks – and we look forward to seeing you there!

Announcing JLR’s Fall 2018 Symposium: “Alt-Association: The Role of Law in Combatting Extremism”

The Michigan Journal of Law Reform is pleased to announce that its Fall 2018 Symposium, “Alt-Association: The Role of Law in Combatting Extremism” will take place on November 17, 2018, with a spring-board conversation on Monday November 12, and a introductory talk on Countering Extremist Violence on Friday, November 16 with panel participant Prof. Khaled Beydoun.

All events will be held at the University of Michigan Law School
Hutchins Hall — 625 S State St, Ann Arbor, MI 48109
South Hall — 701 S State St, Ann Arbor, MI 48109
(The two buildings are across the street from each other, separated by Monroe Street.) 

Pre-Symposium Conversation & Presentation

Monday, November 12, 2018
Springboard Conversation
11:55 AM – 12:55 PM | Hutchins B60A (Robert B. Aikens Lower Commons Skadden Study)

  • Stephanie Sanders, Lecturer & Diversity, Equity, and Inclusion Officer, Ford School of Public Policy
  • Nora Krinitsky, Michigan Mellon Fellow, LSA History of Art

Please join us for a conversation focusing on the intersections of race, creed, orientation, politics, identity, and labeling in the study and impact of “extremism.” We will also examine the assumptions, premises, problems, feelings, and conclusions generated by the Symposium panel prompts: (1) what is “extremism” and (2) how can the law combat it? Concepts and comments from this session will be provided to JLR‘s Symposium panelists and moderators for incorporation into the events on Nov. 17th.

Friday, November 16, 2018
Countering Violent Extremism (CVE) Grant Discussion
10:00 – 11:30 AM | Hutchins 116

Symposium speaker Professor Khaled Beydoun will give a 20 minute presentation on Countering Violent Extremism grants and their impact on immigrant and Muslim communities, followed by Q&A.

Symposium Schedule

Saturday, November 17, 2018
Registration & Breakfast
8:30 – 9:00 AM | South Hall

Introduction & Alt-Association 101
9:00 – 10:00 AM | South Hall 1025

Defining Extremism
10:15 – 11:30 AM | South Hall 1225

  • David Dinielli, Deputy Legal Director, LGBTQ Rights and Special Litigation, Southern Poverty Law Center
  • Yazier Henry, Lecturer in Public Policy, Ford School of Public Policy
  • Rana Elmir, Deputy Director, ACLU of Michigan
  • Javed Ali, Towsley Policymaker in Residence, Ford School of Public Policy
  • Moderator: Don Herzog, Edson R. Sunderland Professor of Law, University of Michigan Law School

Lunch & Keynote Address
11:45 AM – 12:45 PM | South Hall 1225

  • Speaker: Sammy Rangel, Executive Director and Co-Founder, Life After Hate

The Role of Law in Responding to Extremism
1:00 PM – 2:15 PM | South Hall 1225

  • George Selim, Senior Vice President, Programs, Anti-Defamation League
  • Kimberly Buddin-Crawford, Policy Counsel, American Civil Liberties Union of Michigan
  • Khaled Beydoun, Associate Professor, University of Detroit Mercy Law School
  • Alex Kirshner, Associate Professor of Political Science, Duke University
  • Phyllis Gerstenfeld, Professor of Criminal Justice, California State University, Stanislaus
  • Moderator: Len Niehoff, Professor from Practice, University of Michigan Law School

Design Jam: Combating Extremism in Our Communities
2:30 – 5:30 PM | Robert B. Aikens Lower Commons

5:30 – 6:30 PM | Robert B. Aikens Lower Commons

Post-Symposium Debrief Conversation 

Monday, November 19, 2018
Debrief Conversation
11:50 AM – 12:50 PM | Hutchins B60A (Robert B. Aikens Lower Commons Skadden Study)


More information on the speakers, and the location of the events, may be found on the Symposium’s website 

For more information, comments, or questions, please contact the Symposium office at JLRSymposium52@umich.edu

Announcing JLR’s 2018 Symposium: “Changing Winds: Environmental Regulation in the Trump Administration”

The Michigan Journal of Law Reform is pleased to announce that its 2018 Symposium, “Changing Winds: Environmental Regulation in the Trump Administration,” will take place on February 10, 2018 in Michigan Law School’s South Hall, 625 South State St., Ann Arbor, MI.

The Symposium will run from approximately 9 A.M. to 5 P.M. and will feature the following panels and panelists:

Environmental Federalism: Erin Ryan, Erum Sattar, Justin Fisch.

Environmental Regulation and Real Business Cycles: Matthew Miller, Ed Hirs, Andrew Weissman.

Climate Change in the Trump Age: Elizabeth Geltman, Gabriel Tabak.

The 2018 Symposium’s Key Note Address will be delivered by Robert Billot of Taft Stettinius & Hollister.

A detailed schedule of the 2018 Symposium may be found here.

For more information on the Symposium, please contact Brendan Harvey, Managing Symposium Editor, at harveybr@umich.edu.

Announcing JLR’s 2017 Symposium: “Stemming the Breach: Cybersecurity Reform for the 21st Century”

The Michigan Journal of Law Reform is pleased to announce that its 2017 Symposium, “Stemming the Breach: Cybersecurity Reform for the 21st Century,” will take place on February 11, 2017 in Michigan Law School’s South Hall, 625 South State St. Ann Arbor, MI.

The 2017 Symposium will run from approximately 9 A.M. to 5 P.M. and will feature the following panels and panelists:

Civil Liberties: featuring Marcy Wheeler, G.S. Hans, and Harley Geiger

Corporations: featuring Scott Shackelford, Ari Schwartz, and Alan Butler

National Security: featuring Harvey Rishikof, Cindy Cohn, and Ahmed Ghappour

The 2017 Symposium’s Key Note Address will be delivered by Former Congressman Mike Rogers


A detailed schedule of the 2017 Symposium may be found here.

For more information on the Symposium, please contact Peri Tenenbaum, Managing Symposium Editor, at perilten@umich.edu.