Economic Development, Government, and Real Estate

Land bank claims tax auction sales don’t increase value

Slightly more than 300 properties make tax-foreclosure list.

April 26, 2013
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A new analysis by the Kent County Land Bank Authority reveals that tax-foreclosed properties in Grand Rapids, including those sold at the annual public auction, have lost property value at nearly three times the rate of non-foreclosed properties.

This year, 180 properties in the city were foreclosed for unpaid property taxes.

Over the last four years, tax-foreclosed properties in the city have lost $1.9 million in State Equalized Value, an average of $10,690 per property from 2010 to 2013. That loss equates to a drop of 36 percent in SEV.

In 2010, 92 tax-foreclosed properties in the city were sold at the public auction. KCLBA reported the properties lost $881,600 in SEV, or $9,582 per property by 2013. That loss equals a decline of 32 percent in SEV. In comparison, the total residential class in Grand Rapids suffered a 13 percent fall in SEV from 2010 to 2013.

“Tax-foreclosed properties, whether newly foreclosed or previously foreclosed and sold at auction, are losing property values at three times the rate of the city,” read the report released last week.

The KCLBA asked Grand Rapids Assessor Scott Engerson what action could trigger an increase in SEV for a tax-foreclosed property that is bought at auction. He said filing for a building permit indicating that a significant improvement would be made to a property would push the value up.

But the land bank’s analysis found that only 39 building permits were filed for 455 properties that were tax-foreclosed and then sold at the public auction from 2008 to 2012. “This indicates that the buyers were not doing any renovations, doing renovations so minor that they do not require a permit, or doing renovations without pulling permits,” read the KCLBA report.

In addition, the analysis, which was done in conjunction with the city, revealed that the 455 sold properties generated 4,393 code violations, blight cases and nuisance complaints from the city.

“It is clear that tax foreclosures have an exponentially negative effect on property values. Additionally, the auction does nothing but perpetuate the severe drop in (the) condition of tax-foreclosed homes.”

Last year, KCLBA reported it filed for 50 permits.

Also last year, the land bank bought 44 tax-foreclosed properties from Kent County for $422,000 before the auction and sold 19 to nonprofit developers that signed a development agreement with the agency. KCLBA said the redevelopment and sale of those properties resulted in $5.5 million in economic-development activity.

That sale won’t take place this summer, however. Kent County commissioners nixed the idea in March, when they nearly unanimously followed a recommendation to stop the pre-auction sale that came from the county’s Land Bank Process Subcommittee.

Rather than look to the county for tax-foreclosed properties, commissioners directed the land bank to approach the cities and townships. State law allows those units to transfer foreclosed properties to KCLBA as long as there is a “public purpose.”

“I didn’t think we’d respond directly to the report. I don’t know if there is a reason to respond to the subcommittee’s report,” said County Treasurer Ken Parrish, also chairman of the land bank.

As of last week, KCLBA hadn’t heard from a city or township that wanted to transfer a property. “I’m expecting that we will hear from at least one municipality before our next board meeting,” said Parrish. “Once we get requests in front of us, we can have a discussion on quantity.”

“We’re thrust into this situation and we have to figure it out. We have planned scenarios from doing no properties to doing 300,” said Dave Allen, KCLBA executive director.

At one point, the subcommittee briefly discussed selling all the tax-foreclosed properties to the land bank for redevelopment, but finally decided to sell none.

Another source of properties for the land bank is local banks, which donate homes to cut their mortgage-foreclosure costs. KCLBA board member and Kentwood City Commissioner Sharon Brinks suggested the agency should get a city’s approval before it accepts a bank-donated home.

“I think for us to take properties, we need the cities to sign off. The cities need to tell you what they want done,” said Brinks.

“Every municipality is going to do it differently,” said Allen.

County Commissioner and KCLBA board member Stan Ponstein wondered why a city would object to a bank offering the organization a mortgage-foreclosed and vacant house to redevelop.

Parrish said the land bank will encourage the municipalities to develop a policy for bank transfers.

In all, 302 properties are on the 2013 tax-foreclosure list and 180 of those are in Grand Rapids, with 34 being commercial properties or vacant parcels. The remaining 122 properties are in suburban areas. Twenty-seven are residential; 95 are either commercial or vacant parcels.

Last year, 309 properties made the list.

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