Land Banks Help Stabilize Properties

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Created by Congress through the Housing and Economic Recovery Act of 2008, the Neighborhood Stabilization Program (NSP) is helping communities address the costs of the current foreclosure crisis. The program provides nearly $4 billion to every state and some localities with high foreclosure rates to acquire property, demolish or rehabilitate abandoned properties, or offer downpayment and closing cost assistance to low- and moderate-income buyers. Land bank development is another authorized — and increasingly popular — use of NSP funds. Land banks can be a valuable tool for mitigating the negative effects of vacant and tax-foreclosed properties, in that they provide a means of assembling, managing, and promoting reinvestment in delinquent properties and neighborhoods.

The main objective of land banks is to return vacant, abandoned, and tax-delinquent properties to productive reuse.

Overview

The main objective of land banks is to return vacant, abandoned, and tax-delinquent properties to productive reuse. The methods used vary by jurisdiction and are based on state authorizing legislation. Some land banks, such as the one in Cleveland, Ohio, are located within a city or county government, whereas others, such as the Fulton County/City of Atlanta Land Bank Authority (LBA) and the Genesee County Land Bank in Flint, Michigan, operate as nonprofit entities.

State foreclosure laws and land bank governance determine how a land bank takes ownership of properties. Generally, land banks acquire tax-foreclosed properties through a sheriff sale or other judicial foreclosure process. Atlanta and Genesee County also receive properties through donation. Because they have limited resources, land banks must set priorities for property acquisition and disposition. Land banks evaluate acquisitions based on property location within a targeted area or on revitalization goals. Subsequent dispositions may be linked to a larger revitalization strategy, affordable housing goals, or other considerations. For-profit and nonprofit developers or individuals may purchase banked properties. Potential buyers generally must meet specific requirements to ensure a property’s productive reuse and redevelopment. Land banks also have the ability to abate property taxes and clear outstanding liens; these are powerful tools that can be used to enhance property marketability and reuse.

Dealing With the Rise in Residential Foreclosures

Established land banks in Atlanta, Cleveland, and Genesee County are adapting their business models to better address the rapid escalation in residential foreclosures and to prevent further neighborhood decline."The rise in foreclosures has accelerated our activity," comments Evelyn Sternad, land bank manager for the city of Cleveland. Established in the early 1970s as one of the country's first land banks, Cleveland's model concentrates on acquiring vacant and abandoned industrial, commercial, and residential land. The land bank takes ownership of foreclosed properties that are clear of structures. This requires close coordination with city inspectors to identify properties with structures slated for demolition, city planners to identify potential reuse, and the city's finance office to acquire a property and then clear taxes and liens from the parcel. "Currently, we are seeing increased demand for side- and adjacent-lot acquisition," says Sternad. Driving much of this demand are homeowners located in older neighborhoods with small lots who want to expand their property by purchasing an adjoining lot.

Before the rise in foreclosures, the main focus of Atlanta's LBA was helping to facilitate affordable housing by removing property encumbrances and selling lien-cleared properties to community development corporations. "Now we're developing partnerships with banks to help us predict how future interest rate resets and foreclosures in Alt-A and no-doc loans will affect our inventory and costs," says Barry Jones, interim director for LBA. He expects that current foreclosure activity will increase the authority's inventory from 125 to 500 parcels. Banks are increasingly looking to the authority to take ownership of real estate owned (REO) assets. By donating the property to the authority, a bank can move a foreclosed property off its books, thereby reducing its tax liability. Once in the land bank's inventory, REO assets can more easily be tracked and maintained to prevent further decline." Our involvement with REOs also helps prevent predatory investors from flipping properties, and ensures that properties are returned to the tax rolls as the market improves," notes Jones.

Michigan law enables the Genesee County Land Bank to play an active role in neighborhood revitalization. In addition to acquisition and disposition duties, the land bank undertakes redevelopment of commercial, residential, and vacant properties. "Our method is intended to reverse the downward trajectory of a particular property," says Dan Kildee, Genesee County treasurer and chairperson for the Genesee County Land Bank Board. Stemming decline starts with removing the property from the market and securing it through board-up or demolition. Deliberate investment then guides planning for property reuse, possible improvement, and, ultimately, disposition.

Arresting the Slide

Land banking serves as an interim or stopgap strategy in managing residential foreclosures and their effects on neighborhoods. Successful use of the tool often depends on coordination with local planning efforts. When developing a land bank, Kildee suggests that it's important for a community to have reasonable expectations for what a land bank can achieve, develop a predictable and transparent acquisition and disposition process, and link any land use decisions to "a rational and publicly approved plan."

More information on land bank development can be found in the report, Land Bank Authorities: A Guide for the Creation and Operation of Land Banks by Frank Alexander, at www.lisc.org/content/publications/ detail/793/. Additional information on Genesee County's Land Bank is available at www.thelandbank.org. HUD provides an overview of eligible uses under the Neighborhood Stabilization Program at www. hud.gov/offices/cpd/communitydevelopment/ programs/neighborhoodspg/.