Wayne County judge tightens screws against blockchain real estate company being sued by city of Detroit

The city of Detroit secured a victory in its fight against a blockchain real estate company.

Wayne County Circuit Court Judge Annette Berry this week issued a temporary restraining order against the brothers who control Real Token Inc., or RealT, a Florida-based company that owns hundreds of residential rental properties in Detroit, and which the city has alleged in a lawsuit earlier this month are not kept up to code, resulting in substandard living conditions for tenants.

Berry’s TRO, filed Tuesday, orders that tenants of the roughly 400 properties identified in the lawsuit as owned by RealT affiliates are to withhold their August rent payments and instead pay that money into an escrow account. In a Wednesday news conference, Detroit Corporation Counsel Conrad Mallett said the city over the next week will begin going door-to-door to RealT properties to alert tenants.

“What is critical is that the tenants be aware that the city of Detroit is on their side,” Mallett told reporters. “That the rent that they would pay for August should go into an escrow account, that they will receive — tacked on to their door — a notice that explains to them how to access the support necessary to set up the escrow account so that they are protecting themselves from any eviction proceedings based on the non-payment of rent.”

The properties lack a Certificate of Compliance, Mallett said, and blight tickets have accumulated. Conditions in the properties range from backed-up water in basements to lack of running water and no heat in the winter months. The goal is to use the money held in escrow to force the RealT owners to pay for the needed repairs.

The order also prohibits Real Token and any of its affiliated companies from pursuing evictions from any of its properties that do not have a Certificate of Compliance, as long as tenants are depositing rent into their escrow account.

RealT’s model allows investors to purchase tokens that represent ownership shares of properties. The fractional ownership model often results in hundreds of investors in each property.

While the city’s initial lawsuit identified about 400 properties tied to RealT, which was founded by brothers Remy Jacobson and Jean-Marc Jacobson in 2019, city officials said Wednesday that they believe they have identified another 130 properties owned by the company and which could be folded into the initial complaint or part of a separate complaint.

The TRO says the city “is likely to prevail on the merits of its claims.”

A representative for RealT pushed back on the action and allegations.

“My client has been committed to providing safe, quality and affordable housing in Detroit,” spokesperson Shaun Wilson of Detroit-based Cadence said in an email to Crain’s on Wednesday.

“What the city is attempting to accomplish through the courts is to prevent my client from performing what they agree are critical renovations. By effectively halting the revenue used to fund those renovations, and preventing my client from removing squatters who have no rights to occupy the properties, there are no renovations that can be performed.”

Wilson also said that more than $220,000 of infractions have nothing to do with safety and some violation notices were written years before RealT purchased the property.

After the city filed its lawsuit in early July, a statement from the company said it was committed to addressing the issues at its properties and said it’s been “victims in Detroit of several unscrupulous property management companies.”

Mallett was unsure how much it would cost to bring the properties up to code, but expected the financial cost to be significant. Asked Wednesday about the prospect that the defendants lack the money to do so and that the rent money held in escrow is insufficient, Mallett was blunt in his analysis: “That would be the worst possible outcome.”

— Crain’s Detroit Business reporter Anna Fifelski contributed to this report.