Facilitate Reuse of Abandoned, Vacant and Tax-Delinquent Properties

Information gaps, title clearance problems, and lengthy tax foreclosure processes are common barriers to redeveloping abandoned properties. Communities can more easily convert these properties into quality, affordable homes by enacting legislative reforms to the standard tax foreclosure processes, creating shared databases of abandonment indicators, and implementing innovative property acquisition and transfer approaches.

Click on the links below to learn more about reducing barriers to the reuse of abandoned properties:

Develop a shared database to track abandonment

A database that combines property-related information from tax collectors, housing and code enforcement officials, and other government departments can allow communities to begin work restoring abandoned and at-risk properties to productive use.

Reform the tax foreclosure process

Foreclosing on unpaid property taxes and other governmental liens is often a protracted process that involves multiple jurisdictions and still may not yield a clear, marketable title to the property. Legislative reforms can substantially shorten the time frame for tax foreclosures and result in clear titles.

Implement conveyance and receivership programs that expedite redevelopment

Innovative programs, such as vacant property receivership (essentially the court

appointment of a property manager to stabilize and rehabilitate a disinvested property) and voluntary conveyance (the voluntary gift or sale of blighted property to a municipality in exchange for the waiver of municipal liens), can increase communities’ options for quickly rehabilitating abandoned properties without completing a lengthy tax foreclosure. Some forms of eminent domain also may be useful, although somewhat controversial.

 

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Reduce barriers to the reuse of abandoned properties

State and local governments can foster the reuse of abandoned properties by reducing lengthy tax foreclosure processes and allowing properties to leave foreclosure with a clear, marketable title.

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Manage the acquisition and disposition of abandoned properties as part of a comprehensive strategy

A coordinating body, such as a land bank, can be a useful tool for prioritizing communities’ goals while effectively managing property acquisition and disposition.

Use abandoned, vacant, and tax-delinquent properties to create affordable homes

Although disinvested properties are often used for community economic development, using at least                               some properties to create affordable homes may benefit the community both now and in the long run.

Click here to view other resources on facilitating the reuse of abandoned, vacant, and tax-delinquent properties.

 

Develop a shared database to track abandonment

Indicators of abandonment include unpaid property tax bills, code violations, and municipal liens; unfortunately this information is often not available in a single, easily accessible place. To better understand the extent to which properties are vacant, abandoned or in tax-foreclosure, the areas in which these properties are concentrated, and what opportunities might exist to assemble properties for comprehensive redevelopment, some communities have built databases of properties with these characteristics, linked to mapping software.

A shared database with information from tax collection departments, housing and code enforcement officials, and other government entities can allow communities to monitor early warnings of abandonment and address problems early. These databases can be created and maintained by a state or local planning or land use department, a public land bank authority, or by a university or non-profit organization using data, and sometimes funding, provided by the local government.

Solutions in Action

In Los Angeles, California, the Neighborhood Knowledge Los Angeles (NKLA) database allows users to track code complaints, property tax delinquency, and other building-related concerns at either the property or neighborhood level. Users can register for free to gain access to NKLA. Funding to build the database, which was developed by researchers at UCLA, came from the City of Los Angeles Housing Department (LAHD), HUD, and the U.S. Department of Commerce. Its developers believe that the university affiliation persuaded city departments to participate and share data more readily than if the database were developed by LAHD and perceived as resources intended only for “housing” people. A “How-To Kit” in the Help section of the NKLA website provides guidance on the technical process of creating a neighborhood information system as well as the political hurdles which they experienced and overcame in getting NKLA off the ground.

Philadelphia, Pennsylvania’s Building Uniformity in Land Development (BUILD) database provides one-stop access to data from multiple city departments on parcels’ tax delinquency, code violations, vacancy, and sales information. BUILD was developed to facilitate the redevelopment of vacant properties by allowing city staff to track parcels without having to navigate through multiple different agencies’ systems. Users can search by address for specific parcels, or they can search an entire area (such as a zip code or council district). Funding for BUILD came from tax-exempt bonds.

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Reform the tax foreclosure process *

The typical process for foreclosing on unpaid property taxes and other governmental liens can be lengthy and involve multiple layers of jurisdictions (e.g., the municipal government, school district, county, and special taxing districts). After completing this protracted process, there still may not be a clear, marketable title to the property. To allow municipalities to quickly and strategically reuse abandoned properties, state legislation may be necessary to establish a new tax foreclosure process that serves local redevelopment needs.

 

Effective reforms of the tax foreclosure process increase the speed of completing a tax foreclosure while also ensuring that all properties can be transferred with a clear title. A clear title means that the property can be purchased without worrying about old liens or owners coming back to assert claims to the property. This status is also referred to having as an “insurable title” since the property owner can get insurance to protect against losses if there was an error in clearing the title; and as a “marketable title” since having a clear title facilitates marketing and selling a property.
In most states, the current tax foreclosure process involves first selling the tax lien to a third-party and then the third-party invoking the right to foreclose. Alan Mallach calls this process a “two-step proceeding” and notes that it can take five or more years to complete in states with lengthier processes. [1]

Changing to a one-step process of simply selling the title to the tax-delinquent property can result in a tax foreclosure timeline of 18 months to three years. (While discharging the lien, an alternative approach to speeding up the timeline, can also quickly resolve tax delinquencies, it may not serve the community’s interests.

Tax-delinquent properties may be in a state of serious disrepair after having been neglected for years; discharging the lien without an assurance that the property will be restored may allow neighborhood blight and disinvestment to continue.)

State legislation to reduce the tax foreclosure timeline may also establish a judicial process for tax foreclosures. A judicial process facilitates the reuse of tax-delinquent properties by including a hearing prior to tax sale which allows the property to be transferred with a clear, insurable title.

In addition to facilitating the reuse of abandoned properties, tax foreclosure reforms can also give municipalities more flexibility to work with homeowners who are behind on their taxes due to financial struggles without needlessly delaying the acquisition of abandoned properties at the same time. By moving away from the two-step tax foreclosure process, municipalities can safeguard struggling homeowners from tax sale speculators and instead help families to find a way to get their finances back in order and keep their home. See the related section on foreclosure prevention to learn how Rhode Island has managed to help tax-delinquent homeowners despite having a two-step tax foreclosure process.

Solutions in Action

Michigan reformed its tax foreclosure process in 1999. The new law, Public Act 123 of 1999, replaced tax lien sales with judicial foreclosures, reduced the timeline to three years from six, and works in combination with land banking to facilitate the reuse of abandoned properties. The judicial process has stronger due process and notification requirements that allow properties to be conveyed with a clear title. The new law also permits counties to choose not to proceed with the foreclosure if the property owner is experiencing serious financial hardship. The full text [PDF] of the act is available on the Michigan Legislature’s website. A history of the bill and amendments is available here.

In 1995, amendments to the Georgia Code reduced the time required to complete tax foreclosures and enacted a judicial process. The former two-step process of tax lien sales followed by foreclosure on the liens took from three to five years and allowed owners twelve months to redeem the property. The new process can take from 18 months to two years and provides only two months for owners to redeem the property after tax sale. The stronger notice requirements of the judicial process also allow tax foreclosed properties to have insurable titles. Click here to leave this site and view the text of the reform bill. The new law can also be found through the online version of the Georgia Code (browse for Title 48, Chapter 4, Article 5). Similar to the Michigan example above, Georgia’s tax foreclosure process also works in conjunction with land banking.

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Implement conveyance and receivership programs that expedite redevelopment

Some communities utilize alternatives to the standard tax foreclosure process, such as “voluntary conveyance” or “receivership” as a means of accelerating the redevelopment of vacant, abandoned or tax-delinquent properties. Another tool which some communities keep available is eminent domain, particularly “spot-blight” eminent domain for acquiring scattered abandoned properties and “quick-take” eminent domain for expediting the property acquisition process (more on these tools below). Innovative conveyance and receivership programs can bring value back to abandoned, vacant, and tax-delinquent properties and reduce their negative impact on the surrounding community.

Voluntary conveyance allows owners to transfer unwanted properties to the municipality without facing a tax foreclosure. Properties that can be conveyed with clear title can be either given or sold to the municipality, beginning the process of stabilizing or redeveloping the property. (For properties with title clearance problems, it may be more appropriate to foreclose on municipal liens using a strong judicial process that can void other claims and liens.) The impact of voluntary conveyance will be limited by the need for a clear title. Properties of which owners want to divest themselves often have title clearance problems such as outstanding mortgage debt or other non-municipal liens.

Despite this limitation, voluntary conveyance can play a role in the local toolkit for reusing disinvested properties. Voluntary conveyance can save municipalities the expense of tax foreclosure, stimulate community reinvestment and reduce blight, and benefit property owners whose municipal liens may be discharged and who may be able to deduct the loss incurred in the property transfer on their taxes. Voluntary conveyance is part of the toolkit in cities like Trenton, New Jersey, and Covington, Kentucky. Since property owners must be aware of the program and opt to participate, the city of Covington conducted outreach including contacting property owners directly and placing advertisements in the local newspaper.

Another approach, known as receivership or possession, facilitates redevelopment by allowing repairs to begin before the transfer of title. In communities that allow receivership for vacant properties, a governmental or non-profit entity can petition the court to appoint a responsible party, known as a receiver or entity in possession, to rehabilitate a vacant property on behalf of the owner.

The receiver obtains a lien on the property for any rehabilitation expenses and other costs incurred. The lien can also be used to borrow money for rehabilitation expenses. The owner can regain possession of the property by paying the receiver for costs associated with any repair work, or the receiver can foreclose on the lien. Vacant property receivership can be a useful tool for bringing

Solutions in Action

Baltimore, Maryland’s Code of Public Local Laws allows the use of “quick-take” eminent domain to acquire abandoned properties. The city can obtain possession of an abandoned property in 30 days if the court determines that “the public interest requires the City to have immediate possession.” After the city has taken possession, the issue of compensation to the property owner is resolved by the court. If a property had municipal liens and other charges in excess of the property’s value, the owner may receive no compensation and would instead owe the difference to the city.
The city used quick-take eminent domain, among other abandoned property redevelopment strategies, as part of its Project 5000 initiative. The initiative’s goal was to acquire and dispose of 5,000 abandoned properties; according to the city, the initiative led to the acquisition of more than 6,100 properties.

After a 2007 Maryland Court of Appeals ruling, Baltimore may be less likely to seek possession of properties using quick-take. The court found that the expedited version of eminent domain had been used too broadly by the city in assembling properties which could also have been acquired using the standard eminent domain procedure.

According to the opinion, “the City must demonstrate the reason or reasons why it is necessary for it to have immediate possession and immediate title to a particular property via the exercise of a quick-take condemnation.” Click here [PDF] to leave this site and view the opinion.

abandoned properties up to code quickly while preserving the rights

of property owners. However, unless the receiver is equipped to begin rehabilitation quickly, vacant property receivership will have little impact.

The scope of redevelopment able to be completed by a receiver depends on the balance of rights given to the receiver and those kept by the owner. Receivership laws may only allow the correction of code violations or they may allow more substantial renovations. Generally, if a community wants to convert vacant property to a new use, other tools such as tax foreclosure, voluntary conveyance, and eminent domain may be more appropriate.

Solutions in Action

In 2004, New Jersey authorized “orders of possession” (another term for vacant property receivership) in theAbandoned Property Rehabilitation Act. If neither the property owner nor other lien holders submit a realistic plan to quickly rehabilitate the property, the court can appoint an entity in possession to expedite rehabilitation. Repairs can be funded through loans or state grants, and the value of any loan becomes a lien on the property. If the owner does not regain possession of the property, the court can order the sale of the property at fair market value with the proceeds going toward the various liens on the property and providing a development fee to the entity in possession; any remaining proceeds go to the owner. The purchaser of a rehabilitated property can obtain it with a clear, marketable title. Click here to leave this site and learn more about the Abandoned Property Rehabilitation Act.

The Building Code for Baltimore, Maryland allows the use of receivership if the owner of a vacant property has not complied with rehabilitation orders. The court can appoint a receiver to either rehabilitate the property or sell it to an entity that has the demonstrated ability to complete the necessary repairs in a timely manner. If a receiver is appointed to sell a property, the proceeds go toward the costs of sale and then toward any liens. A receiver that rehabilitates the property has the right to manage and rent out the property for up to two years after rehabilitation; the rent can be used to cover operating expenses and repay the costs of rehabilitation.

Some forms of eminent domain may also be part of a community’s toolkit for expediting the reuse of abandoned properties. “Quick-take” eminent domain allows municipalities to gain title before litigating a property’s value, thus reducing delays in acquiring abandoned properties. Municipalities can use “spot blight” eminent domain to acquire properties that are outside of designated redevelopment areas; it can be particularly useful when a municipality has abandoned properties scattered in otherwise healthy neighborhoods.

New Jersey’s Abandoned Property Rehabilitation Act, for example, allows municipalities to use “spot blight” eminent domain to take abandoned buildings whether or not they are in a redevelopment area. According to the Act, a municipality can only take a property if it is on the municipal abandoned property list and if the property owner has exhausted all opportunities to appeal. Compensation to the owner is calculated by determining the fair market value of the reused property, given the conditions in its neighborhood, and then subtracting the full cost of either rehabilitation or demolition and reconstruction. If the costs exceed fair market value, then the owner receives no compensation. Although residents and community groups often oppose its use, eminent domain may meet with less opposition when used for the redevelopment of abandoned properties.

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*This section, and the subsequent section, draw from Bringing Buildings Back: From Abandoned Properties to Community Assets. 2006. By Alan Mallach. Montclair, NJ: National Housing Institute. See Chapters 7 and 8 for more details on the topics discussed.

[1] See the “Making Tax Foreclosure Work” chapter of Bringing Buildings Back: From Abandoned Properties to Community Assets. 2006. By Alan Mallach. Montclair, NJ: National Housing Institute.

 

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