A Message from the CCLRC President on the Recent HUD Agreement

July 8, 2010

You may have read that the County Land Bank recently agreed to an arrangement with HUD whereby the County Land Bank would take many of HUD’s low value vacant and abandoned properties for $100.

An honest observer or skeptical blogger may ask why should HUD transfer these low value properties to the Land Bank instead of to auctions. The answer, of course, is not always as simple as it looks. These homes that the Land Bank will take will almost always have to be demolished. This is the reason why HUD is willing to "sell" for just $100. The point here is that if HUD sells these properties to a flipper or speculator, the taxpayer is still going to get stuck with the demolition bill at some point. Hence, neither HUD nor the taxpayer gain anything. Flippers and speculators on the other hand don’t buy to fix up. Their business model by design typically is to acquire a property for perhaps $500, only to quickly flip the property to some gullible buyer hoping to get rich by purchasing the home for $1,000. In this fashion the flipper makes a quick $500.

In addition to corrupting the comparables of any legitimate surrounding homes, this new investor who purchases from a flipper quickly finds out that the home is infested with code violations, is in housing court, has water and sewer liens and other nuisance abatement liens which the buyer never envisioned. In the end this buyer can neither afford the accumulating taxes, penalties, fines and code violations. The property gets abandoned or flipped again to another gullible buyer and the cycle continues until finally the property gets tax foreclosed at which time it either gets sold again to yet another speculator or ends up in a city land bank where it finally gets demolished -- all at taxpayer expense in the case of a city land bank. More often, however these properties end up in the hands of the State of Ohio if there are no buyers nor a city land bank to take the property after tax foreclosure. And there the property sits with all its decay, no taxes, no rehab and no action because the state is legally immune from code enforcement.

The state has a couple of so called "auditor" auctions every year at which these properties are auctioned for sale for any price, and sometimes purchased once again for perhaps $100, by those mainly interested in again re-selling for $200 or $300 and the cycle starts again.

This is neither stabilizing to the tax base nor to the tax values of surrounding good properties. This is pure paper speculation. Speculators that transact in this way often are not even interested in getting a key for the property. Instead, their business model is quickly to flip the liability for a price higher than what they purchased it at auditor’s auction.

For those that say HUD should keep up the practice of selling these homes in the flippers market, is this best result for the taxpayer? We at the Land Bank say, "No." What HUD recovers at such a sale is nominal compared to the taxpayer cost resulting from the cycle described above. If a city or county land bank can intervene to cut this cycle and get these properties off the market, real estate values will begin to increase again and blight will be removed quicker. To HUD’s credit, they have come to understand this and we applaud HUD for working with the Land Bank on our common goal to slowly and methodically address this neighborhood crisis. It is not a crisis solved by quick gimmicks, but long and hard toil by all stakeholders -- the Land Bank, neighborhood residents, the city and HUD.

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