In response to criticism from the Kent County Taxpayers Alliance (KCTA) and a lawsuit by a group of local real estate professionals, the Kent County Commission last week approved some changes to how the Kent County Land Bank operates.
Previously, the Kent County Land Bank identified properties that it wanted to purchase from the County as part of the property tax foreclosure process. The problem that the KCTA first publicized is that the Land Bank received preferential treatment and was able to purchase properties before the public auction at prices far below market value. In addition, the Land Bank picked properties solely for the purpose of real estate speculation to fund its operations and not to address blight, as it was designed to do. The statute that created land banks clearly states that the Land Bank will not receive properties until after the public auction process, if any unsold properties are left. This is meant to address the problem of blighted properties which do not sell because they are too expensive to rehabilitate or pose environmental problems.
A lawsuit was filed by local real estate professionals in Kent County to enforce the law as it is written. The suit was dismissed at the Kent County Circuit Court level because the Court ruled that the plaintiffs did not have standing. The issue of whether the law is being violated was not addressed and is yet to be resolved. We supported the lawsuit because we believe that affected parties should be able to sue when the government is breaking the law. The Court begged to differ and decided that essentially no one has standing to sue when the County government is breaking the law. The case is under appeal. The County’s Land Bank Study Committee claims that the legal issue has been resolved, but it has not. The real legal question was never addressed by the Court. There is still a significant, unresolved legal question as to whether allowing the Land Bank to receive properties before the auction process is completed is legal. (Review the statute yourself here. The relevant section is paragraph (6)).
It is KCTA’s position that the Land Bank deprives both local governments and the County government of much-needed tax revenue. Although some County leaders claimed that money received from the foreclosure process cannot be transferred to the general fund, our own Freedom of Information Act request showed that this is not the case. In fact, a significant amount of money is transferred from the foreclosure fund to the county’s general fund each year. (see here and here). In addition, when the Land Bank sells a property that it acquired from the county, 50% of the property taxes collected from that property are sent to the Land Bank for the next five years, further depriving the county and local governments of revenue.
Furthermore, last year the Land Bank was able to acquire properties for only the amount of taxes owed. Our previous work, using the County’s and Land Bank’s own documents, showed that the process in 2012 deprived the County of at least $1 million in revenue, which will need to be made up in other ways, either through cuts or higher taxes.
The changes to the process approved by the County Commission are an improvement. The process has been modified to move the decision on which properties the Land Bank may acquire from the County Commission to local cities and townships. This creates an additional step and allows local governments to weigh the pros and cons of each property transfer. Further, the Land Bank will otherwise be required to bid at the public auction for properties, which improves the process, but now creates a situation with the Land Bank’s public funds will be used to bid against private buyers. In other words, taxpayer money will be used against them.
We stand by the fact that the Land Bank is a solution in search of a problem. It was designed to reduce blight, yet it clearly has stepped way beyond those bounds. There is no significant problem to address that couldn’t be handled in other ways, such as through existing non-profit organizations. While the Land Bank justifies its purchases by claiming that there are quite a few properties that sell at the public auction but then revert back to foreclosed status, the statistics show that only four such homes (0.5%) were re-foreclosed between 2010 and 2012 out of a total of 734 foreclosed properties. The remaining 27 properties that were re-foreclosed were vacant land properties. It isn’t a problem that requires a new County-run bureaucracy that has a significant negative effect on the County’s budget. (See county-provided documentation of re-foreclosures here). It’s important to also note that none of these re-foreclosed properties were requested by the Kent County Land Bank last year.
The Land Bank should be limited to only handling truly blighted properties, not purchasing properties at a distorted, below-market rate solely for the purpose of funding itself. While KCTA supports the recent change, a better next step would be to limit the Land Bank’s mission to addressing problem properties that do not sell at any of the public auctions.