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Question of the Month ~ March 2014

 

Q. Which Midwestern states have authorized the creation of local land banks via legislation?

The foreclosure crisis that followed the 2008 housing crash has resulted in a high volume of vacant properties across the nation. According to U.S. Census Bureau data for the last quarter of 2013, 10.2 percent of all housing units — 13.6 million — were vacant year-round. And while the housing market may be showing signs of improvement, more than 1.2 million properties are still in some stage of foreclosure, according to RealtyTrac, a real estate information firm specializing in foreclosed and defaulted properties.
High foreclosure and vacancy rates are not only symptomatic of economic problems; they contribute to them and are linked with increases in crime and declines in home values and local property tax revenue.
In response, some states — including Indiana, Kansas, Michigan, Nebraska and Ohio in the Midwest — have instituted local land banks: public entities that acquire and manage tax-foreclosed properties. Michigan’s land-bank statute is considered one of the nation’s strongest (it also is one of the most emulated). It allows land banks to recapture 50 percent of the property tax revenue for the first five years after transferring property to a private party. It also permits land banks to borrow money and issue tax-exempt financing.
Michigan’s land-bank statute also reformed the state’s tax foreclosure laws. For example, it reduced the period for foreclosing on vacant, tax-delinquent properties and allowed land banks to acquire all tax-delinquent properties, a practice that, according to advocacy organization Smart Growth America, is a powerful tool in enabling municipalities to rebuild communities. In addition to authorizing local land banks, the state created the Michigan Land Bank Fast Track Authority — a state- operated land bank.
As of early this year, several bills were pending in the Michigan Legislature to revise the land-bank statute. Under the current law, private buyers are given an opportunity to purchase properties through auction before a land bank can acquire a tax-reverted property. However, there have been cases in which local governments have purchased tax-delinquent properties and then sold them to the land bank at cost.
Two measures (HB 4626 and HB 5083) would prohibit local governments from purchasing these tax-
delinquent properties prior to private buyers having a chance to obtain them at auction. HB 5083 also includes a provision that would make any blighted property (regardless of whether it is in foreclosure or tax delinquency) eligible for acquisition by land banks.
Last year, Nebraska became the most recent Midwestern state to enact comprehensive land-bank legislation. LB 97 authorizes local governments in metropolitan Omaha to create land banks to deal with the area’s growing inventory of vacant and abandoned properties. As in the Michigan statute, land banks authorized in Nebraska will receive 50 percent of the property tax revenue for five years after sale of a property.

 

Article written by Laura Tomaka, CSG senior program manager. Question of the Month highlights an inquiry received by CSG Midwest through its Information Help Line, a research service for lawmakers, legislative staff and other state officials. To request assistance, please contact us at csgm@csg.org or 630.925.1922.