Tuesday, January 22, 2013

Tax Forfeitures are a Slumlord Pipeline

Post and photo by the Hawthorne Hawkman.

On my occasional forays downtown, I like to stop by the Hennepin County Government Center to look into property histories.  Today's curiosity involved properties repossessed by Hennepin County through tax forfeiture.  One in particular piqued my interest, as it is in my community.  The condemned house was purchased for the amazingly low sum of $11,000 in December of last year.

But that's not the whole story, nor even the most infuriating part.  No, what truly amazed me was that the buyer didn't REALLY pay $11,000.  Instead, he put down just...

...$1,100.  A ten percent down payment snagged the property in question.  That, and a promise to pay the remaining $9,900 in ten installments.

Over ten years.

That's right.  $1,100 down and $990 a year can buy you a tax-forfeited house in north Minneapolis.  I still have trouble wrapping my brain around how easy this appears to be, and my mind keeps going back to the old "Crazy Eddie" pawn shop commercials of the '80's.  Hennepin County offers a Christmas sale even Crazy Eddie couldn't beat.



Granted, almost all of the tax forfeitures in this price range are not turnkey.  They will require tens of thousands in rehab costs to bring them back online.  Many are condemned and will hopefully fall under the watchful eye of the Minneapolis code compliance process.  Even so, and even at much higher prices than the example above, tax forfeitures have got to be a feeding trough for notorious and aspiring slumlords.

Even roughly quadrupling the price doesn't make much difference in its feasibility for the negligent landlord.  At $40,000, a $4,000 down payment and a $3,600 yearly payment makes it ridiculously easy.  The Mahmood Khans and Bashir Moghuls of this world have that kind of dough at their fingertips.  Theoretically, these kinds of owners could do just about anything with a property that they acquired that cheaply.

Put minimal work into it to get it barely up to code, and it's already cash-flowing.  If the area seems like it's getting better, you could just sit on the house and wait for it to be worth more.  Or a sale on contract for deed could be done to almost any buyer.  Ever wonder how people (usually sign spammers) can advertise that they'll sell you a house without a credit check?  Well on a contract for deed property acquired this low, the only thing that really matters is the up-front payment.  That will cover the acquisition cost for the next year or more.  Even if the new buyer never makes a payment, the slumlord still comes out ahead.

As I explained this phenomenon to some neighbors, the first reaction was, "Let's pool our money and beat the slumlords at their own game!"  The bigger picture eventually came into focus:  why does this game exist in the first place?  The seller in question is our own government.  They are selling properties in a way that enables owners of problem properties in our neighborhoods--people that are KNOWN as slumlords, no less.  At prices this low, sold in this manner, slumlords may almost be the exclusive buyers.  Even with the ability to buy at auction under an LLC, the County has to know who the bad actors are, and those people continue to acquire more and more.  And this has been allowed to happen for how long?

We have to cut off the supply and keep county-owned properties out of the hands of slumlords. 

15 comments:

  1. Can you explain more on how a contract-for-deed works? Does that mean the owner becomes more like a bank rather than a landlord (if that makes any sense).

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    1. Contracts for deed are essentially agreements to sell property on mutually agreed-upon terms where the buyer and seller typically avoid traditional financing. The buyer becomes the owner, and the financial terms mirror that of a loan but are often not as beneficial to the buyer.

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  2. Not only is the Tax forfeiture process the pipeline to Slumlords, but Slumlords are the pipeline to the Vacant and Boarded Homes (VBR) that liter our community and drive down local property values.

    Over 95% of the structures on the City of Minneapolis's VBR list are prior Non-Homestead properties that have been defaulted on by slumlords.

    It is no secret that a huge percentage of our tax dollars are going towards public services and law enforcement spent on properties owned by a specific set of non-homestead investors.

    So, how does the City/County address this issue? - They use millions of taxpayer dollars to demo those homes and land bank the lots.

    And they get community support to do this because...It is no secret that the City/County does not have the awareness or willpower to address these problems directly through inspections and license revocation; so they instill fear in local homesteaders that another slumlord will purchase those Vacant properties and began another cycle of nightmare behaviors for the neighborhood.

    Where are our elected representatives?



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  3. So our own government is pipelining properties to slum lords. Actually even giving them a sweat heart financing deal. And then these properties become "problem properties" which (ironically) drain the resources of our government services. Not to mention make it difficult to sell any nearby properties, beginning a ripple effect of disinvestment in the surrounding area. Which of course suppresses values - upon which our tax revenue is dependent. Hennepin County needs to rethink if that $11,000 gain was really in the public interest. And probably need to rethink selling any properties at tax auction at all in impacted neighborhoods.

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  4. So, if this cozy relationship exists between the County and slumlord investors, would it be a stretch to wonder if familiarity with the City is the reason why tax payers can't get any reform of the licensure and inspection of these properties in our neighborhoods?

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  5. I continue to see News reports linking high occurrences of criminal activities to a handful of properties. Are the individuals who own these properties prevented from acquiring more through this process?

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  6. If you want more info on contracts for deed, check out the Star Tribune's investigation, published earlier this month.
    http://www.startribune.com/local/185756982.html

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  7. I just read the article posted above and the comments were telling. Um, we don't have legislation preventing this kind of scam because too many people in this country blame the victim, especially if that victim is poor, undereducated, or not THEMSELVES. We're going to get to a point here in American society that you can't trust anyone, and every time you get f'ed, you'll have a pack of hounds howling a list of 'should haves' at the loser while the winner licks his chops and admits boldly that yes, they are a con artist but they didn't 'force anyone' to sign the dotted line. Humanity left the other apes behind because we figured out that cooperation and working together achieved more for everyone at a lower cost. Good to see we are actively destroying that truth--it'll be the single American accomplishment in nearly 15 years.

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    1. We are there already.

      Anyone who blindly trusts others (especially our politicians and government) might as well get VICTIM tattooed across their forehead!

      Best advice is to get involved in your community and question the world around you.

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    2. Thanks for the reply.
      I didn't articulate my argument very well. I agree that one can't be naive and go through life without skepticism and questioning what is placed in front of your face. What I meant is we've entered an age where many citizens decry any regulation to prevent the hijinks that are going on in this article as if prior knowledge/due diligence is always possible in every situation. Not everyone has the resources (financial and intellectual included) to root out sophisticated scamming, and if we wash our hands collectively of protections and especially consequences for cheaters, then I'm sorry, we've devolved. Frankly, life doesn't have to be that complicated, but unfortunately there is a stubbornness in many Americans to work hard but not intelligently. An intelligent approach does include personal responsibilty, but it also includes accountability from both parties, wannabe slumlords included.

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  8. The sale of this county owned property is public information. The blog post does not mention the purchaser of the property. Neither does the blog post mention whether the property actually had a dwelling on it or whether it was a vacant lot. It is highly unlikely that a notorious slumlord would purchase this property. At $11,000 all that could be purchased is a condemned property or a vacant lot. No notorious slumlord would purchase a condemned property. They are not interested in putting in the amount of money and hassle required to actually get the property into rental condition.

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    1. The property in question does have a structure on it, and that house is in such poor condition it needs to be demolished yesterday. For me to say that, it's got to be very far gone.

      I didn't include the address because the specific address is not crucial to the issue I wanted to raise. There may be a story behind that address soon though.

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  9. Annonymouse 10:49, I beg to differ. Mahmood Khan bought a very large house on the park just down the street from me for only $15,000 at tax auction. That house was condemned. Yet it was a very solid property with many great features that could have been beautiful had it gotten into the right hands. So you can be talking about very substantial properties for that little of money - and yes, slum lords will buy condemned properties as well.

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  10. Slumlords are the first people to buy condemned homes. They have experience skirting the spirit of regulation, familiarity with inspectors, and a phalanx of shoddy laborers who will sign off on substandard work.

    Besides - they won't have to live in these shitholes!

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  11. read about contract for deeds and related topics at:
    http://www.lawhelpmn.org/issues/housing/buying-and-owning-a-home-see-also-foreclosure

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