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Land Banks: A Viable Solution for Revitalizing Abandoned, Derelict Properties

Vacant, abandoned, and tax-delinquent properties are often grouped together as “problem properties” because they destabilize neighborhoods, create fire and safety hazards, drive down property values, and drain local tax dollars.1 The U.S. Fire Administration reports that, from 2010 to 2012, an estimated 25,000 vacant residential building fires were reported annually in the U.S2 These fires result in an estimated 60 deaths, 225 injuries, and $777 million in property loss each year.3 Abandoned properties also are known to attract crime. A study done in Pittsburgh showed that the rate of violent crime within 250 feet of a recently vacated property is 19 percent higher than the rate in the area between 250 and 353 feet from the property; furthermore, the longer the property has been vacant, the greater the effect it has on crime rates.4 A report done in Austin found that 34 percent of vacant properties studied were used for illegal activities; this number increased to 83 percent if the properties were unsecured.5 Not only do these crimes pose a public safety concern, but they also drain police department resources and cost taxpayer dollars.

Blighted properties also cost local municipalities the resources needed to clean and maintain the properties in an effort to fulfill their duty to protect the public health, safety, and welfare of its community. For example, a study in Philadelphia calculated that the city spends more than $20 million annually to maintain some 40,000 vacant properties, which cost a conservatively estimated $5 million per year in lost tax revenue to the city and school district.6 Chicago officials estimated that, in 2010, they spent an estimated $875,000 to board up or secure 627 properties, and officials in Detroit estimated costs of $1.4 million to do the same for 6,000 properties over a period of nearly a year and a half.7 Additionally, abandoned and vacant properties drive down the surrounding property values, which results in lowering the property taxes that most municipalities rely on as a primary source of revenue.8 According to Emory University Professor Frank Alexander's research, "failure of cities to collect even 2 to 4 percent of property taxes because of delinquencies and abandonment translates into $3 billion to $6 billion in lost revenues to local governments and school districts annually."9

Land banks were created to address the many problems municipalities incur due to these abandoned properties. Land banks are typically created by local ordinances, pursuant to state enabling legislation, and operate, not as financial institutions, but, instead, as governmental entities or non-profit organizations.10 To convert the liability of an abandoned property into a productive use, they acquire title to problem properties and then transfer the properties to new purposes or new, responsible owners.11 Land banks are better equipped to undertake this task than other public or nonprofit entity because they are often given special powers to do so.12 According to the Center for Community Progress, “When thoughtfully executed, land banking can resolve some of the toughest barriers to returning land to productive use, helping to unlock the value of problem properties and converting them into assets for community revitalization.” 13

Special Powers and Legal Authority of Land Banks

To make land banks an efficient and effective system to eliminate blight, they are granted special powers and legal authority pursuant to state-enabling statutes.14 These statutes allow “land banks to streamline blight removal and create a nimble, accountable, and community-driven approach to returning problem properties to productive use.”15 Although the statutes differ widely from state to state, some of the more recent examples of comprehensive land bank legislation have granted the following powers:16

  • Obtain property at low or no cost through the tax foreclosure process
  • Hold land tax-free
  • Clear title and/or extinguish back taxes
  • Lease properties for temporary uses

Negotiate sales based not only on the highest bid but also on the outcome that most closely aligns with community needs, such as workforce housing, a grocery store, or expanded recreational space.17

Some have expressed concern that land banks have an unfair advantage in competing with private markets. In reality, however, land banks were created as a response to a large number of blighted properties that the private market has rejected.18 The private market is uninterested in these properties for a number of reasons: clouded title, back taxes, and/or high cost of repairs.19 A land bank, therefore, is one solution for municipalities to deal with these discarded properties and convert them into community assets.

Structure and Operations

There are around 120 land banks and land banking programs across the United States. They are quite diverse in their structures and operations,20 varying greatly in terms of the size of cities, locations, and economic conditions in which they operate, the size of their inventories, their staff capacity, their legal authorities, and their goals and programs.21 However, Payton Heins, associate director of Michigan Initiatives at the Center for Community Progress, and Tarik Abdelazim, associate director of National Technical Assistance for Community Progress, both noted authorities on blighted properties and the land bank process, have determined a list of certain best practices successful land banks and land bank ordinances tend to share:

  • Links to the tax collection and foreclosure process. Frequently there is a strong link between tax delinquency and abandoned properties. Creating a strategic link between tax foreclosure process and land banks is important because auctions rarely lead to a positive outcome with problem properties. Land banks are a tool that can be used to acquire and convert tax-foreclosed properties to productive use.
  • Scaled operations in response to local land use goals. Land banks need to be designed in a way that coincides with local land use goals and community needs. No matter the size of the land bank, it should operate based on a strong understanding of community priorities and goals, and guided by neighborhood, local, and regional revitalization plans.
  • Policy-driven, transparent, and publicly accountable transactions. Land banks must build and maintain trust with the public through complete transparency in the establishment of priorities, policies, and procedures that govern all actions. These ground rules and policies must be established prior to any transactions and regularly revisited with public input. Creating websites that offer members of the public full access to accurate, up-to-date information pertaining to all land bank operations, programs, policies, and activities, including sales listings and past transactions, is an important part of the transparency process.
  • Engagement with community stakeholders. Engaged community members are not only most directly affected by a land bank’s work, but they also best understand the community’s history and goals. Successful land banks have found creative and consistent ways to inform, engage, and empower these active residents to help prioritize land bank interventions and develop long-term solutions.
  • Coordination with other local or regional tools and community programs. A land bank should be used as a tool to support locally-developed land use goals, and not a goal in and of itself. Successful land banks facilitate and work within diverse collaborations across the public, private, and nonprofit sectors that share similar economic and community development goals.22

Though a land bank is not a cure-all, in the right environment and with the right structure, a land bank can be a key tool for turning blighted property into productive property.

Funding Sources

Land banks incur significant costs converting problem properties into productive properties.23 Therefore, it is critical that land banks have consistent, hopefully dedicated, funding sources.24 Land banks can be funded through many different sources, including revenue from the sale of properties, foundation grants, general fund appropriations from local and county governments, and federal and state grants.25

Land banks in Michigan and Ohio have received a significant portion of their funding from the federal Hardest Hit Funds, while land banks in New York and Illinois are greatly supported by the National Mortgage Settlement Funds.26 Some states have enacted special legislation that creates financing mechanisms for land banks.27 In Michigan and New York, land banks are able to recapture 50 percent of the taxes on properties returned to the tax rolls for five years.28 In Ohio, special fees imposed on delinquent taxpayers provide a dedicated source of funding for land bank operations.29

Role of the Attorney General

While a land bank is its own separate entity, attorney general offices (AGOs) have often played a role in supporting land banks, and have seen great improvements in their state as a result. Below are four examples of how some AGOs have facilitated in the efforts of land banks in their own states.

Illinois

Illinois Attorney General Lisa Madigan has successfully used funds obtained through the 2012 settlement with the major mortgage servicers. In 2013, she announced that $70 million from the settlement would go towards assisting housing efforts throughout the state.30 Six million dollars were used to start the Cook County Land Bank, estimated at the time to be the largest land bank in the country, and to support the already existing South Suburban Land Bank.31

Since the Cook County Land Bank was created, it has acquired over 330 properties, mostly blighted, abandoned homes, but also vacant lots, commercial buildings, and industrial sites.32 The land bank has sold over 230 of these homes, mostly residential, back to rehabbers, who have had great success turning these once blighted properties, into revitalized, safe, and productive properties.33 This has resulted in larger scale neighborhood revitalization and stabilization.34 The land bank has also reached self-sustaining status, meaning that it does not use taxpayer dollars to operate.35

Michigan

In Michigan, Attorney General Bill Schuette entered into the settlement with mortgage servicers following the mortgage foreclosure crisis.36 Michigan state law allocated $25 million of the settlement to create a Blight Elimination Program that demolished abandoned properties, promoted public safety, stabilized property values, and enhanced economic development opportunities.37 Ten million dollars went to the City of Detroit to eliminate blight near select schools; removing dangerous structures provided a safer route to and from school for children, and overall neighborhood stabilization.38

The Michigan Land Bank (MLB) has seen successes in removing blight throughout the state. As of Aug. 15, 2014, the MLB completed a total of 768 demolitions. One important tool that the MLB has is its ability to initiate Expedited Quiet Title and Foreclosure Actions to address title issues that are often associated with tax reverted property and the tax foreclosure process.39 Clearing liens or clouds in a property’s title is important in making the property marketable. The MLB has initiated litigation to clear title to a number of properties under the Neighborhood Stabilization Program through the appointment of special assistant attorneys general.40 This has encouraged economic development projects throughout Michigan.41

New York

In 2013, New York Attorney General Eric T. Schneiderman began granting millions of dollars to New York land banks through the Land Banks Community Revitalization Initiative (CRI) – a grant program administered by his office that distributes portions of the funds New York received in a settlement with banks involved in the mortgage crisis.42 Since 2013, more than $30 million has been invested in New York land banks through the CRI.43 AG Schneiderman also worked with the state legislature to increase the number of land banks permitted in New York from 10 to 20.44 Since 2013, New York land banks have reclaimed at least 1995 properties from abandonment, returned over 700 properties to the market and back into productive use, and have demolished (or are in the process of demolishing) over 400 unstable structures.45

As a result of these efforts, New York has seen many successful outcomes. In Rochester, the land bank is currently working on renovating 70 formerly blighted properties to create homeownership options for low- and moderate-income residents.46 The City of Schenectady was able to convert vacant and blighted properties into Tribute Park—a large park in an area in great need of greenspace.47 The land bank in Suffolk County has been able to take over the liens on abandoned and environmentally- contaminated factory buildings and sell these liens to responsible investors who will hold clear title and will remediate the contamination and rehabilitate the properties.48 Not only does this result in fixing up of the property and turning the property back into a tax-paying property, but it also helps create jobs and improve quality of life of community members.49 These are only a few examples of the successes of New York land banks and the attorney general’s CRI.50

Ohio

In 2012, Ohio Attorney General Mike DeWine launched the “Ohio Attorney General’s Moving Ohio Forward Program” in an effort to repair and rebuild communities following the mortgage foreclosure crisis.51 This program was initiated following a settlement with mortgage lenders and earmarked $75 million of that settlement to go towards demolition efforts in Ohio.52 The program resulted in the demolition of more than 14,600 blighted housing units.53

Land banks from all over Ohio benefitted and were able to partner with Habitat for Humanity, NeighborWorks, and other organizations to tear down blighted structures and rebuild on the property and turn it back into tax-collected and productive use.54 Land banks also were able to turn some property into green space and side lots, which has resulted in beneficial community uses such as playgrounds, community gardens, and expanded parking.55 Also, Ohio officials began to notice that neighboring property owners began to take better care of their property once the blighted property was restored.56

The Ohio program resulted in improved neighborhoods with fewer public hazards and increased property values.57 One of the more beneficial results was a drop in criminal activity, as many of the abandoned properties were being used for illegal drug activity and manufacturing.58 It also helped foster local partnerships and bring community members together.59

Conclusion

Land banks are a useful tool that can help states combat blight and turn “unproductive” property back into tax-earning property or into a beneficial use for the community. Improving blighted property has benefits that extend far beyond simply cleaning up an eyesore, such as decreased crime rates and increased property value of neighboring lots. Attorneys general, in conjunction with land banks, can play an important role in ensuring that neighborhoods are revitalized, communities are made safe, and abandoned properties are cared for once again.

Endnotes

1 Frank S. Alexander, Ctr. for Cmty. Progress, Land Banks and Land Banking 15(2d ed. 2015).

2 U.S. Fire Admin., Vacant Residential Building Fires (2010-2012), 15 Topical Fire Report Series, issue 11, 2015, at 1.

3Id.

4 Lin Cui & Randall Walsh, Foreclosure, Vacancy and Crime, 87 J. Urb. Econ. 72(2015). The effect of time of vacancy on crime appears to level off at around 18 months. Id.

5 Funders’ Network for Smart Growth and Livable Communities, Vacant Properties and Smart Growth: Creating Opportunity from Abandonment, 1 Livable Communities @ Work, no. 4, Sept. 2004, at 5.

6 Econsult Corporation, Vacant Land Management in Philadelphia: The Costs of the Current System and the Benefits of Reform, 9, 11 (2010).

7 U.S. Gov’t Accountability Office, GAO-12-34, Vacant Properties: Growing Number Increases Communities’ Costs and Challenges 37 (2011).

8 Zhenguo Lin, Eric Rosenblatt, & Vincent W. Yao, Spillover Effects of Foreclosures on Neighborhood Property Values, 38 J. Real Est., Fin., & Econ. 387 (2009).

9 Funders’ Network for Smart Growth and Livable Communities, supra note 5, at 6.

10 Dan Kildee & Amy Hovey, What Is a Land Bank?,NSP Land Banking 101: What is a Land Bank? (Sept. 2010), available athttps://www.hudexchange.info/resources/documents/LandBankingBasics.pdf; Frequently Asked Questions on Land Banking, Center for Community Progress (Dec. 16, 2016, 12:47 PM), http://www.communityprogress.net/land-bank-faq-pages-449.php. Land banking programs can also be developed within existing entities, such as redevelopment authorities, housing departments, or planning departments. Id.

11Id.

12Frequently Asked Questions on Land Banking, supra note 10.

13Id.

14Payton Heins & Tarik Abdelazim, Ctr. for Cmty. Progress, Take it to the Bank: How Land Banks Are Strengthening America’s Neighborhoods 11 (2014).

15Frequently Asked Questions on Land Banking, supra note 10.

16“It is important to note that a land bank is not a “silver bullet” for communities struggling with blight. Though land banks are uniquely designed to help reduce problem properties, the policies, priorities, and activities of a land bank must complement other community strategies and activities, such as strategic code enforcement, smart planning and community development, and effective tax collection and enforcement.” Id.

17Heins & Abdelazim, supra note 14, at 11.

18Frequently Asked Questions on Land Banking, supra note 10.

19Heins & Abdelazim, supra note 14, at 11.

20Id.

21Id.

22Id. at 11-13.

23Frequently Asked Questions on Land Banking, supra note 10.

24Id.

25Id.

26Id.

27Id.

28Alexander, supra note 1, at 58.

29Id.at 60-61.

30Press Release, Illinois Attorney General, Attorney General Madigan Announces $70 Million to Help Rebuild Illinois Communities Devastated by Foreclosure Crisis: National Foreclosure Settlement Funding To Advance Neighborhood Rebuilding Efforts (Jul. 17, 2013), available athttp://illinoisattorneygeneral.gov/pressroom/2013_07/20130717.html.

31Id.

32Maya Dukmasova, The Cook County Land Bank Is Chipping Away at Abandoned Properties One House at a Time, The Chicago Reader, Aug. 12, 2016, available athttp://www.chicagoreader.com/Bleader/archives/2016/08/12/the-cook-county-land-bank-is-chipping-away-at-abandoned-properties-one-house-at-a-time.

33Dennis Rodkin, Land Bank's Foreclosure Sales Helping Stabilize Neighborhoods, Crain’s Chicago Business, Nov. 22, 2016, available at, http://www.chicagobusiness.com/realestate/20161122/CRED0701/161129985/land-banks-foreclosure-sales-helping-stabilize-neighborhoods.

34Id.

35Id.

36Wayne Workman, Mich. State Hous. Dev. Auth., Report of the Michigan Land Bank Fast Track Authority of the State of Michigan 6, 13 (2014).

37Id.

38Id.

39Id. at 17.

40Id.

41Id.

42Thomas P. DiNapoli, Office of the N.Y. State Comptroller, Land Banks Enter the Fight Against Blight 7 (2016).

43Office of the Att’y Gen. of the State of N.Y.’s Cmty. Impact and Innovation Unit, Revitalizing NY State: A report on New York Attorney General Eric T. Schneiderman’s Land Bank Community Revitalization Initiative 8 (2016).

44Id. at 1.

45Id.at 4.

46Id. at 11.

47Id.at 12.

48Id. at 14.

49Id.

50Id. at 11-21.

51Mike DeWine, Ohio Att’y Gen.’s Office, Ohio Attorney General’s Office Moving Ohio Forward Demolition Grant Program: Program Summary 2012-2014, at 1 (2015).

52Id.at 1.

53Id. at 6.

54Id. at 11-12.

55Id. at 13-14, 21.

56Id. at 13.

57Id. at 7.

58Id. at 8.

59Id.at 15-16.

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