Economic Development, Government, and Real Estate

Kent Land Bank flips its houses in 2014

All 110 of the KCLBA’s marketable houses will probably be sold by year-end.

December 26, 2014
| By Pete Daly |
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Land Bank
Executive Director Dave Allen shows off one of the land bank’s properties in northwest Grand Rapids. Photo by Pete Daly

Kent County Land Bank Authority had a good year, in the view of its executive director, Dave Allen, and not just because the Michigan Court of Appeals upheld the dismissal of a lawsuit filed against it by a group of disgruntled real estate agents and investors.

In partnership with GRAR real estate agents, builders, developers, investors, homeowners and nonprofit organizations, KCLBA enabled the restoration of about 110 tax-foreclosed properties it had acquired and to has sold them all. Eighty-seven were sold by real estate agents on the MLS and 23 through partnerships with nonprofit housing corporations. The properties are located in Plainfield Township, Kentwood, Wyoming, Grandville, Nelson Township and Grand Rapids, but about 85 percent are in the city of Grand Rapids. KCLBA has a special development agreement with the Grand Rapids Economic Development department because most of the county’s residential blight is concentrated in core Grand Rapids neighborhoods where property values are the lowest.

The KCLBA requires in advance that purchasers of its properties provide written construction specifications and estimates, and proof of financing. That requirement shows that $2,245,000 in contracts were awarded to private contractors for new construction and renovations.

Allen has noted that, prior to the establishment of the KCLBA, the city of Grand Rapids had sold 455 foreclosed properties at auction in a three-year period, but only 35 building permits were pulled after those sales, indicating to him the new owners of the other 420 homes probably never intended to restore them but rather just rent them out.

Nonprofit housing organizations that bought KCLBA properties spent $250,000 in construction contracts with private contractors, bringing the total value of construction contracts to $2,495,000 in 2014, according to estimates by the land bank.

The KCLBA was previously awarded $2.5 million in Hardest Hit Demolition Funds from the Michigan State Housing Development Authority for demolition of blighted homes in Grand Rapids to support large-scale housing developments and new housing starts involving smaller homebuilders. In 2014, the KCLBA used $1.45 million of its demolition funds in support of $16 million in development of 116 new housing units. Those projects were:

  • Trowbridge Flats: 66 apartment units, a $10 million development
  • Fairview Homes: 9 high-end townhomes with an investment of $1.5 million
  • Fulton Group: 12 high-end rental units, $1 million development
  • Hansen Machine: $1 million in expansion, five jobs created
  • 616 Development: 14 apartments, $1 million in new development
  • 131 Pleasant: $100,000 building addition
  • Habitat for Humanity: 15 new homes, $1.5 million investment.

About 10 houses, out of about 120 the KCLBA took in, were in “deplorable” condition.

“We didn’t even feel they could be saved, so we used our demolition grant and demolished them,” said Allen.

Demolition is a last resort for the KCLBA. It struggles to restore homes that otherwise would remain unsold and eventually be condemned. One example is a house on Covell Avenue NW. Allen said the owner defaulted on his mortgage and when he finally abandoned the house, he angrily blocked all drains and turned on all the water taps. It was three months before anyone entered the house and found the water still running. The interior floors were buckled, the basement was flooded, and mold required the house to be virtually gutted before restoration.

Launched in 2012, the KCLBA is a county government-established authority, a public-private partnership governed by a board of directors representing government stakeholders. It is self-funded and does not receive funding from the Kent County government. The board is guided by a 16-member advisory council composed of individuals representing the private sector and local government. These individuals are involved in the community and have expertise in various specialties relevant to KCLBA work, including real estate transactions and municipal and financial services. A for-profit organization, its mission is to acquire distressed, vacant residential properties and return them to productive use. Its long-term goal is the elimination of blight to increase property values, preserve neighborhood character and promote economic development.

Not long after it started, the KCLBA and its partners were sued by a group of residential real estate agents who claimed they had a legal right to bid at auction on 44 tax-foreclosed properties that went directly to the KCLBA. At trial, the court ruled against the real estate agents, but they appealed.

On Dec. 18, the Michigan Court of Appeals affirmed the trial court rulings, granting summary disposition to the municipal defendants: the city of Grand Rapids, Kent County, Kent County Land Bank and the Kent County Treasurer. The Court of Appeals ruled the process followed by the municipal defendants was and is in accordance with Michigan statutes.

Grand Rapids City Attorney Catherine Mish said the confirmation of the city’s land acquisition procedures is welcome news.

“We felt we followed the law right from the beginning and we’re glad they upheld that. We look forward to getting back to work for the residents of Kent County and continuing to follow the County Commission’s land bank subcommittee guidelines for our work,” said Allen.

Allen said foreclosures appear to be on the decline in Kent County, probably the result of property values beginning to increase after the crippling drop during the Great Recession.

All of the foreclosures that result in properties acquired by the KCLBA are property tax foreclosures; none of them are mortgage foreclosures by lending institutions, according to Allen. In fact, he said, the legal cost of foreclosure is so high that many banks “have gotten a lot more sophisticated with their mortgage foreclosures.”

What often happens now with “problem” properties, particularly in urban core areas where home values are the lowest, he said, is “rather than foreclose on them, (the lenders) just stop paying the real estate taxes, which is perfectly legal for them to do.”

“And then it becomes a county issue,” he added.

According to the Kent County Treasurer’s office, there were 204 tax foreclosures in the county in 2014. Allen estimates more than half were in Grand Rapids.

“We took on everything in Grand Rapids last year. That’s our second year of doing that,” he said.

Allen said when the Land Bank takes on a property, it is restored, “and we clear the title and that’s the most important thing we do. Most of the properties we take in have very messy title work, tons of liens.”

Allen said the biggest difficulty is dealing with tax foreclosures on homes where the mortgage has been resold to Fanny Mae or Freddy Mac or is insured by FHA, and is still held by one of these government-sponsored enterprises, or GSEs.

“That is probably 95 percent of all the foreclosures we’re dealing with right now, and they are a major problem” because “there’s layers and layers of extra red tape,” said Allen.

On a GSE-backed mortgage, he added, it takes an average of 680 days to go from the start of foreclosure to clearance of the title by a judge.

Since its founding three years ago, the KCLBA has put more than 400 homes back in use and on the tax rolls.

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