Why Green Block won’t lend on Detroit Land Bank homes
According to its website, the Detroit Land Bank Authority (DLBA) is tasked with “return[ing] the city’s blighted and vacant properties to productive use… Plus, we take our commitment to revitalization one step further with our Compliance program, requiring renovation and occupancy to improve neighborhoods and combat real estate speculation.”
The Land Bank’s stated mission is noble and one we’d love to help further. We don’t believe that good investors speculate. And lately we’ve gotten a lot of calls and emails from investors who’d like to buy homes from the Land Bank, fix, then flip the houses to people who want to buy and live in Detroit. We’re on board with that strategy! And this would speed up the Land Bank’s work.
But we can’t lend on a single one of those soon-to-be-beautiful homes. And it’s not because of our underwriting. Blame Detroit’s Land Bank.
When the DLBA sells a run-down house, it needs teeth to ensure that the house will be renovated to a certain standard and occupied. As it says in their mission, their Compliance program requires renovation AND occupancy to improve Detroit’s neighborhoods. The “teeth” it has at its disposal is a deed reversion clause.
A deed reversion clause is a stipulation in a contract, which in this case states that if the purchaser does not renovate and occupy the property, to which this deed belongs, within a certain amount of time (typically six months), the property will revert to the Land Bank. Oh, and sorry, no refunds!
Under these conditions, it would be foolish to lend on such a property due to the risk of losing it if the work was not completed. But even if we wanted to lend under these conditions, it is actually impossible. Allow me to explain.
We found only three mentions on the whole DLBA website where the phrase, “receive a release of interest on your deed” appears. And nowhere on the site does it mention the DLBA placing an interest on a deed when a property is purchased. A phone call on Friday, January 15, 2021 to the Land Bank and a brief conversation with a friendly, knowledgeable Compliance Officer who identified herself simply as “LaToya” was required to fully understand how the DLBA retained an interest in the property.
She went further and explained that the Land Bank not only retains an interest in the subject property’s deed, but also forbids liens to be placed on properties in which the DLBA has not released its interest. So even if we were willing to assume that you would finish on time, the Land Bank still won’t let us lend against one of their properties until it has been completed (rehabbed and occupied) and their interest released, because we (like nearly every lender) require placing a lien in order to lend.
Green Block thinks the Detroit Land Bank Authority is a great avenue for buying distressed properties. We also think that anyone considering buying one of those properties needs to do a lot of due diligence to ensure that they can comply with all of the regulations and terms. Whether you invest $5000 or $5,000,000, no one wants to lose their investment.