Thursday, January 24, 2013

A New Approach to Tax Forfeitures

Post and stock photo (of a tax-forfeited property) by the Hawthorne Hawkman.

The previous post outlined the problem of tax-forfeited properties in north Minneapolis being scooped up by slumlords.  A good discussion happened on the North Talk Facebook page that helped shape a few ideas for a solution.  What follows is based on my current understanding of the issue, and may change as things develop.

But as it stands now, the first concern is that the resale of tax forfeitures is heavily skewed towards the expansion of problem properties in our community.  The houses are sold as-is, they are not listed on the MLS (because apparently the County cannot or will not contract with a Realtor to list them), open houses are held, but attended almost exclusively by landlords, flippers, and fools.  Out of those prospective buyers, bids are placed at the auction, and the financing mechanism of 10% down and ten yearly payments makes it too easy for bad actors to add to their inventory.

The City of Minneapolis and approved development partners do often pick up some homes, but the majority are left to the auction process.  Changing that process seems daunting at first, because... least some of the disposition process is governed by state law.  At this early stage, I am not clear whether those laws would need to be rewritten entirely, whether a non-legislative governing body could adjust them somehow, or whether the statutes could simply be reinterpreted in a different fashion.  For the time being, I'm going to leave that potential solution alone and explore options that could be more nimbly implemented.  After all, this is likely not an issue for the pricier tier of tax forfeitures in other parts of Minnesota.

So the first step would be to define either the area or the price point at which the new process could be applied.  I'll propose zip codes, as they're easier to understand than neighborhood boundaries or census tracts.  Based on statistics like foreclosures, boarded/vacant properties, or median income, we can define a few zip codes as "impacted areas."  In those impacted areas, every tax forfeiture would be sifted through multiple parties as a new owner and end use is sought.

The City of Minneapolis and approved private and non-profit developers would have a chance to add properties to their inventory, as they do now.  But currently most tax forfeitures are passed up by these partners.  Instead, most properties should wind up in the hands of trusted parties.  That likely would mean designating one or more entities as an intermediary owner while an end use is found.  The Twin Cities Community Land Bank could be one such partner, or the City or another developer could take on more properties.

Because I don't want to inadvertently confuse people into thinking an organization has decided to take this on, or that I have a preference for who should do so, I'm going to refer to that partner as simply "the middle man."

The middle man would then hold the bulk of the properties after development partners pass on them.  The middle man could look for other approved private or non-profit buyers, or place the properties on the MLS as purchase/rehab candidates, or simply hold them for a while as a new use is determined.  Some houses may need demolition, and others that are borderline could wind up in a landfill if no feasible use is found.  Even then, the immediacy of feeling like we need to demolish a house to keep it out of the hands of a slumlord will be removed from the decision-making process.

Presumably, the middle man would not do much rehab work themselves; they would just hold the property while a new owner is sought.  But they would be able to weed out the known bad landlords and simply not entertain their offers. 

A plan with this framework would accomplish several things; it would allow Hennepin County to dispose of tax forfeitures in a way that complies with existing state law.  Problem property owners would have a harder time acquiring new houses.  We might see fewer demolitions, and we almost certainly would see a more level-headed process for how demolitions are determined.  We would have more owner-occupants, more good renters, and with more rehab work, more local jobs.

This is just an early proposal.  If there are ways these ideas could be improved upon, please share.  We've got the attention of our elected officials and public servants, and change is in the air.


  1. So, here is what I don't understand.

    It is quite obvious to anyone who actually lives in our community that the Cities policies are not working. Who the hell is making these decisions and why aren't our elected officials moving to correct the problems they are causing?

    Is our government so bureaucratic that the leaders are powerless to enact reforms?

    1. We have a meeting coming up with some of our city and county officials to discuss reforms. I'm not interested in a blame game about why somebody else didn't do something before. I want to focus on who can do something now, and I think that's going to bring about some positive changes here.

  2. The real solution is tax forfeiture prevention, not trying to find neater ways of cleaning up the mess. We have to look at why we are having so many forfeitures- The city driving properties "underwater" with fines? Crime driving residents out and leaving behind worthless properties? Unrealisticly high property assessed values in poor neighborhoods? All of the above, and more?

    "Business as usual" will not solve this problem, and neither will reforming the sales procedures alone. And as the owner of a property in the city that I'm forced to forfeit, I'd like to attend any meeting you can arrange on this issue.

    1. I'm sorry your property is in forfeit, that is unfortunate. However, can you acknowledge that some of the very issues you are raising are driven by the commodization of properties? I'll skip the first point for now because if I remember correctly, you inherited a property that comes with a lot of strings attached for repairs and I agree building permit fees are onerous and pretty much useless if a city inspector never shows up to check the work. As for the last two points, crime is facilitated by absentee property owners, absentee property managers, ad nauseum--I think this blog and others have demonstrated as much. Thirdly, the perspective of property values from an investor's point of view should hold far less weight than homesteaders, and the reason is obvious: investors trying to make money will always approve of driven down values and that harms those of us who own and live in our homes as a HOME and not, what has become, a very lazy way to make a lot of money that negatively affects scores of people, without consequence. It is finally time to institute consequences and accountability, and if that means Joe Shmoe can't make bank renting out substandard residences on Section 8 handouts, then he should fail. People are free to start businesses in the US, but if our society won't even acknowledge a right to food, then it certainly shouldn't guarantee a right to have a ill-founded business succeed.

  3. On a SOMEWHAT related topic, Hawkman, I wanted to draw your attention to the most recent comments on this blog post.


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