Margaret Dewar of the University of Michigan blogs about her new article in Journal of Planning Education and Research, which investigates reuse of abandoned property in Detroit and Flint. You can download the article free until August 31, 2015.
By Margaret Dewar
In cities like Detroit and Flint, population loss and employment decline have led to abandonment of thousands of commercial and residential properties. Owners stop paying property taxes, which then sends the property into tax foreclosure, after which governments sell tax liens or sell the property at auction, depending on state law. The objectives of the sales are to recoup at least some of the lost municipal revenue quickly and to move property back into private ownership. But this system is not the best approach to assure abandoned property returns to productive use that yields future tax revenues.
My research on reuse of tax-foreclosed property in Flint and Detroit, Michigan, shows that policymakers and planners have choices about what abandoned property becomes even when demand for property is weak. In particular, the method of sale of tax-foreclosed property has ramifications for future use.
In Michigan, counties are required by law to offer tax-foreclosed property at auctions. While this allows governments to receive immediate revenue if the property sells, it also leads to prolonged disinvestment. Auctions have not allowed prospective bidders with long-term investment horizons to inspect properties. Purchasers deliver full payment within 24 hours at most, and they have received quit claim deeds with uncertainty about ownership of the property. Those with the financial means to accept these difficult conditions are often in the business of flipping properties, or extracting payment from renters, without making improvements. This cycle continues until the county again takes the property for failure to pay taxes.
A land bank in Flint and a city department in Detroit have tried a different strategy: a managed sale approach. This involves allowing planning staff more scrutiny of prospective owners and their plans for reuse. The turn-around time is longer, but it allows interested purchasers have an opportunity to inspect the property, perfect title, and arrange financing.
In comparison to auctions, managed sales may lead to more owner-occupied homes, additions of side lots to homes and businesses, and redevelopment—uses more likely to result in future tax revenue. I also found that managed sales are associated with much better property conditions than were auctions. A smaller share of properties sold through managed sales remained vacant lots. Fewer properties returned to tax foreclosure or experienced speculative flipping.
The auction system is not helping the recovery of distressed cities. Officials can both improve outcomes following auctions and increase the use of managed sales.
To encourage more reuse of properties following auctions, officials can assure that those most likely to use property productively know about the properties to be auctioned. I found that homeowners and businesses, nonprofit developers, and landlords who maintain property may not be aware of the auctions, but they may want to buy. Government officials acquiring property for a public purpose often did not realize that property they wanted was up for auction. Approaches to improve knowledge about tax-reverted property sales include open houses for prospective buyers to examine property and communication with nonprofits and government agencies interested in property in specific areas. Auctions could allow more time for a purchaser to find funds to pay for property and clear title.
In addition, public officials could reduce the share of foreclosed properties sold at auctions by advocating for changes in state law. New legislation could eliminate the requirement for auctions. A better post-foreclosure system would see a land bank or another public institution receive properties in order to sell them with the goal of assuring productive reuse.
Margaret Dewar, Professor of Urban and Regional Planning, University of Michigan
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