Owners say the city approved their rentals — then banned them entirely
Property owners in a Michigan city are suing after an ordinance wiped out their right to run short-term rentals overnight.
Three LLCs and an individual investor filed a federal lawsuit on February 17, 2026, against the City of Dearborn Heights, Michigan, claiming a sweeping short-term rental ban crossed constitutional lines. The case, filed in the United States District Court for the Eastern District of Michigan, puts a question on the table that real estate professionals across the country are watching closely: can a city simply shut down an entire property use category — one it previously approved — without compensating the owners it leaves holding the bag?
At the center of the dispute is Ordinance No. H-25-02, which the city adopted in September 2025. The ordinance bars property owners from renting any dwelling for 29 consecutive days or less, effectively killing Airbnb-style operations citywide. The only exceptions carved out are for hotels, motels, bed-and-breakfasts, and similar licensed establishments.
The four plaintiffs — Shadowlawn Properties LLC, 5686 Williams LLC, Batata LLC, and Sultan Bzeih — say they did everything by the book. According to their complaint, each property went through the city's inspection process and received a rental Certificate of Occupancy under the same framework used for long-term rentals. They invested heavily in renovations, signed up with platforms like Airbnb, and built functioning short-term rental businesses — all with the city's blessing.
Then the rules changed.
The ordinance does not just ban short-term stays. It also makes it illegal to advertise or list a property for that purpose, whether directly or through a hosting platform. The city justified the move by claiming short-term rentals cause "significant problems" in residential neighborhoods, from drug trafficking to noise and parking complaints.
The plaintiffs push back hard on that rationale. They argue the city already has ordinances on the books to deal with illegal activity and nuisance conditions at any property, making a blanket ban unnecessarily extreme.
The complaint lays out six separate claims. It alleges the ban violates the Due Process Clause by labeling all short-term rentals a public nuisance without evidence. It raises both per se and regulatory takings claims under the Fifth Amendment, arguing the city seized fundamental property rights — namely the right to lease and the right to decide who gets access to the property — without paying for it. The complaint also points to research showing that properties eligible for short-term rental use have sold for an average of 38 percent more than comparable properties without that option, underscoring the financial hit.
On top of that, the plaintiffs claim the ban impairs their existing contracts with Airbnb, exposing them to fines, penalties, and potential suspension from the platform. Two additional claims under the Michigan Zoning Enabling Act argue the properties qualify for nonconforming use protections and that the total prohibition amounts to unlawful exclusionary zoning.
No ruling has been issued yet. But for real estate investors and professionals, this case is worth watching. It tests whether cities that once approved short-term rental operations can pull the rug out from under property owners — and whether the Constitution has something to say about that.
