Red-tagged dream home turns into red-tape nightmare

Tabitha Castilla watched her two daughters roll down the sidewalks on Stafford Street in south Lansing on their hoverboards and smiled.

“I love that they can be out here and play like this without having to worry about them,” the 40-year-old single mother said.

In March, she closed on the 1937 ranch house in a quiet neighborhood with a dream of updating it. The property sat empty for two years after Wells Fargo foreclosed on it. The hot water heater was stolen and the kitchen sink was ripped off the wall, among other damage. It’s unclear if this was done by squatters while the property was vacant or if former residents did this in retaliation for a foreclosure in 2021.

In April of last year, the city red- tagged the house, meaning it must be brought up to code before it can be occupied.

Undaunted, Castilla imagines her three children and her elderly grand-mother living in the single-story home. It has a huge double lot with massive mature oak trees throughout.

She paid $44,900 in cash for it.

She’s sunk an estimated $11,000 to $12,000 into it since then. She’s replaced windows, doors and the roof and purchased a hot water heater. She’s reflooring the house in large tiles and working on the gutted-out kitchen. She’s sealing off her garage to make a sitting room, bathroom and bedroom for her grandmother. She’s pulled the requisite permits.

But her dream of moving her family into the home before winter is in jeopardy. Despite owning the property outright, she can’t find a mortgage or loan because city fines and fees related to the property being red-tagged while owned by Wells Fargo are being counted as part of her total annual tax obligation for years to come, even though once she brings the property up to code, those fines and fees end. That totals $8,837.61, including property tax — and the catch is that banks look at it as if it is all property tax, even though property tax is less than 25% of the amount.

With an annual income of just $25,000 a year from her employment as a security guard, the banks argue she can’t afford the high taxes.

“I cannot get a loan, any type of loan,” she said.

She needs to borrow $25,000 to pay for installing the water heater, wiring and other essentials so she can move into her dream home.

City spokesperson Scott Bean said the city cannot can’t remove or separate those red-tag-related costs from the assessed tax rolls, because otherwise if Castilla goes into tax foreclosure, the city can’t recoup the fines and fees.

Castilla has been exploring various options to get out of this Catch-22.

She’s gone to Capital Area Community Services.

“They told me that I do qualify for a $7,500 grant — only if I lived in the home,” she said. Living in a redtagged home is a misdemeanor in the city. She rents in the Churchill Downs neighborhood.

The Michigan Department of Health and Human Services offers grants of up to $25,000 for home repairs. But the program has a two-year waiting period and requires the applicant to live in the property. Castilla said she was told by a caseworker to sign the paperwork claiming to live in the property, which could be considered fraud.

City of Lansing officials said it’s a frustrating gray area.

“Unfortunately, this is a situation where a resident purchased a red-tagged home with good intentions to fix it and make it livable, but now she is stuck,” wrote Bean. “The city wants to see all red-tagged homes repaired and made livable. Buyers need to be fully aware of what they are getting into when purchasing one of these homes.”

Castilla’s crunch is not the first time the city has seen a red-tagged property turn into a nightmare for a well-intentioned property buyer, Bean said. Banks won’t provide mortgages or home equity loans on red-tagged property, he said, because the equity doesn’t exist in the property because of its condition.

“Too late, they realize there is little to no financial assistance available to assist,” he said.

Ingham County Treasurer Alan Fox said Castilla’s situation illuminates a larger problem in trying to address the city’s red-tag property crisis.

“It’s a sticky question that I’ve had some talks with the city about, about how you really do make it easier for people to take a red-tagged house and make it into something when it’s not their fault that the red tag is there,” Fox said by phone. “We’ve got various people articulating that we’ve got all this housing, it’s just that it’s red tag. People can’t live in it. We need to do something about that. That does require some innovation that nobody’s really figured out yet.” When the county sells property in tax foreclosure auctions, the staff attempts to “warn people about things like this possibly happening happen.”

“But we have no legal steps that we can take to make that work,” he said. “And, and that’s frustrating to us too.”