Delinquent property taxes, foreclosures and an idea for sweeping reform
On a scalding Thursday evening, 75-year-old Clara Crawford nurses a 7UP inside the Shively Community Center. A slight woman, with a grandmother’s inviting smile, she sits at a long white foldout table covered by brochures and a sign-up sheet for a tax lien clinic.
Tonight, Crawford and her husband of 50-plus years, Loy, volunteer at the event put on by a coalition of nonprofit and advocacy groups dubbed Local Options for Kentucky Liens (LOKL).
Last summer, the Crawfords arrived at the free clinic in need of help. Crawford folds her hands on her lap, pushes her purple-framed glasses up into her short, brownish-gray hair, and recalls the unfortunate mess.
Diagnosed with leukemia several years earlier and struggling to keep up with exorbitant medical bills (even with health insurance coverage), the Crawfords let their property tax bills slide.
“We were working on three years of delinquent tax bills,” she says. “And our tax bills had been bought by those outside people — you know, vultures is what I call them.”
The “vultures” she speaks of are third-party tax purchasers. Every year under Kentucky law, these organizations buy up delinquent tax bills from the Jefferson County Clerk’s Office after warnings have been sent to property owners by the Jefferson County Attorney’s Office. Those purchasers are then entitled to tack on attorneys and administrative fees.
Crawford says once her delinquent property tax bills were sold (for the two properties that they own), they doubled from roughly $10,000 to $20,000. She remembers trying to explain to an attorney for the “vulture” her medical situation over the phone. His response?
“We don’t want to hear any sob stories. We want our money,” she says.
Things got worse. The third-party purchaser of Crawford’s tax bill threatened to foreclose. Fortunately, that didn’t happen. The Crawfords took out a loan and paid the bill.
For a time, though, it was conceivable that the Crawfords’ Buechel home would sag into a state of foreclosure, potentially becoming one of the city’s roughly 7,000 vacant or abandoned homes.
Jane Walsh, with the Network Center for Community Change, wants this damaging domino effect eliminated, as do many other LOKL advocates who are pushing for several sweeping legislative changes at the state level. The reforms are based on a successful model crafted by Michigan’s Center for Community Progress.
First, rather than selling unpaid tax bills (or liens), cities would have the option to float a bond and buy up their own overdue tax liens with fees and interests. The second reform would allow cities to efficiently foreclose and keep the money from subsequent property sales, helping to pay back that bond. Finally, land bank reform would let cities wipe titles clean, assemble land, and seek productive use for empty properties. (As of now, Metro’s land bank is only equipped to accept donated land.)
Walsh says collectively these widespread, complex changes would prevent vacant and abandoned homes from idling in “perpetual limbo ... that codes and regulations spend hours and hours and hours citing but getting no return.”
Sounds like a fix. But some in Metro government have concerns. First, Metro’s bonding capacity is fairly maxed out. Also, the idea of assuming control of thousands of vacant and abandoned properties is nerve-wracking in 2012. Will there be a market for this land?
Finally, and perhaps most pressing, property taxes fund several county departments as well as Jefferson County schools. John Schardein with the Jefferson County Attorney’s Office says the third-party purchase of unpaid bills helps guarantee money in the coffers right away.
“Over the last few years, government has been desperate for money,” says Schardein. “So they like getting the money as soon as possible.”
But it’s important to note that only about a third of unpaid tax bills get bought.
“They buy the ones they think they can collect,” Schardein says. “For the most part, they’ll leave properties they think won’t be economically feasible to sell at the courthouse door.”
While a third of the tax liens eventually get redeemed, a third never makes good on their debt. Presumably it’s that last third of property owners who are at risk of tumbling into foreclosure, ushering in a medley of neighborhood headaches.
“For many, many years, Metro and, particularly the last administration treated urban land strictly as a liability,” Walsh says. “And really it’s going to take a profound change in perspective to say, actually, this land is an asset if we are aggressive about assembling it and planning with neighbors for its productive use.”
Pat Mulvihill, general counsel for Mayor Greg Fischer, says research is underway to assess the compatibility of the Michigan model in Kentucky.
“I think we’re going to continue to look at all ways to address this issue,” he says, adding that the mayor has budgeted $125,000 to foreclosure on 100 problematic vacant properties this fiscal year.
It’s likely, though, that any dramatic legislative changes will only materialize if Mayor Fischer leads a push for them in Frankfort. (A side note: Fischer recently appointed Mary Ellen Wiederwohl as chief of strategic initiatives for Metro government. According to the Kentucky Legislative Ethics Commission, she has worked as a lobbyist for Tax Ease Lien Investments 1 LLC for the last two years. Tax Ease is one of the state’s largest third-party lien purchasers.)
For now, the Jefferson County Clerk’s Office is scheduled to hold its delinquent tax bill sale on July 18. While the number will likely decrease with last-minute payments, more than 8,500 unpaid tax bills for 2011 are listed for sale.
LOKL is holding one more tax lien clinic for those behind on property tax bill payments on Thursday, July 5, from 5-7 p.m. at 4018 W. Market St.