G-Sync: Land bank's big deal

I began this week with just two questions. Three hours of conversation and twenty-nine pages of notes later, I may have finally understood how the Kent County Land Bank Authority (KCLBA) operates, thanks to the careful, step-by-step explanation of their Executive Director David Allen. 
 
When I sat down with Allen, I wasn't sure exactly what to expect, but I knew I wanted to know more about an organization that is often demonized if you hear just one side of the story. And you'd be forgiven for asking what a land bank is and why in the world Grand Rapids needs one, as we're in the midst of unprecedented growth and skyrocketing rents in our city.
 
But if I were to listen only to what the land bank's detractors have to say about how they impede free enterprise or the market, then I would have missed the greater opportunity to better understand how ours works.
 
So what is a land bank?
 
The simple answer is that a land bank is a public authority created through an agreement between the county and the state to serve the public purpose of creating economic impact in the cities, villages, and townships where it operates. One of the main areas of focus for land banks is real estate. Land banks ensure that a community's blighted property is transformed from a vacant, abandoned, or bank- or tax-foreclosed status into a state that maximizes the generation of property taxes and preserves property values of the homes around it.  
 
According to Allen, for our land bank to work properly, it needs to perform better than the market when it comes to the re-development of blighted properties in an innovative fashion. The reason for this is because tax and mortgage foreclosure (and the resulting consequence of abandonment, blight, and neglect) most often occurs in concentrated areas. Where are these areas? Allen states that he sees the incidences of blight and neglect of real estate to be in several of our core city neighborhoods and a few outlying villages and townships. These are areas where the homeowners are least able to deal with these complex problems.
 
According to Jessica de Wit in her paper "Revitalizing Blighted Communities with Land Banks": "A Temple University study suggests that, all things being equal, the presence of an abandoned house on a block reduces the value of all the other property by an average of $6,720."
 
How did we get to a land bank in the first place?
 
Prior to the passing of the January 2004 Michigan legislation championed by Flint's Rep. Dan Kildee (5^th district) enabling land banks in our state to be created, the tax foreclosure laws on abandoned properties, according to Allen, were not effective. In the previous system, abandoned and foreclosed properties were not returning to the tax rolls as they should have, and blighted properties were nearly impossible to track. Not only did Congressman Kildee's own county of Genesee become the first and most-exported model as to how to run a land bank for the rest of the country, but other counties soon followed.
 
Now, if your eyes are glazing over, it's no shock to Laurie Craft, program director at the Grand Rapids Community Foundation (GRCF), who long ago figured out that land banks do perform a vital role in our communities. In order to create a counter sound byte to those who cry foul at the very existence of land banks, Craft says community members need to talk more openly about the real benefits of land banks to our neighbors. "Land banks are a vehicle to protect properties and bring land back in sync with the community, creating balance again," says Craft.
 
Allen concurs a balance is necessary. "In Grand Rapids, prior to the forming of the Land Bank of Kent County, 455 properties were sold at auction over a three-year period," he says, describing the transfer of blighted homes into the hands of new owners, many of whom appeared to be seeking rental property. "But of these 455 foreclosed properties only 35 building permits were pulled after the sale." Which led me to a third question.
 
OK, so why didn’t they pull a permit?
 
Typically, when you pull a permit you are signaling that you are restoring a property; it indicates a change is happening that will positively impact the value of a home – a home often purchased at a greatly reduced rate. When 455 properties sell and only 35 requests for permits are pulled, it creates a situation where there is the potential for illegal repairs to commence that could place a household's safety at risk if upgrades are not conducted properly. It also could signal that no improvements will be made, hurling blighted properties into the future, keeping them off the books, their condition remaining a mystery.
 
While many other counties have followed suit since Genesee County pioneered the land bank in 2004, it wasn't until 2012 that Kent County created ours. After Allen was hired via a grant from the GRCF, he was given a year to figure out how to operate with zero dollars from the county. He also had to prove the public good of land banks while ensuring that his agency was truly sustainable. Easier said than done, as Allen would soon learn as he visited Genesee, Ingham, and Kalamazoo County's land banks, seeking their advice.
 
A lot had changed for counties around the state as they weathered the housing crash and, in its wake, many found themselves in a new role: as the babysitters of abandoned property sites. Most of the land banks, while still committed to their mission, had one important message for Allen: if you cannot sell the property you acquire, you will end up with plenty of property that is simply very costly to maintain.
 
To put this in perspective, Genesee County at the time of Allen's visit was holding 28 percent of all the property in the city of Flint. The costs to cities are huge especially in a place like Detroit, which spends approximately $800,000 annually to clean vacant lots -- property that is not generating funds for the community.
 
If Allen had just conducted business as usual, it's doubtful he would have been able to make his goals, much less have a job at the end of this year. But as he read the law and began to understand it more fully, he discovered a unique entry point that provided him a way to not only enact the county's three-point charge, but also a way to assist the housing and community development organizations already at work in our community.
 
Originally Allen sought to secure homes at the county stage of the process but after some tension at the commissioner level from a few well-connected members of this elected body, the land bank was told it was not a good idea for the agency – wholly created and authorized as a government corporation by Kent County -- to seek homes at this stage of the process. This sent Allen back to the law where, again under the blessing of Kent County, he and other nonprofits in our region, who are working to stabilize housing in our area, partnered with the city of Grand Rapids to purchase and facilitate the redevelopment of all the tax-foreclosed properties in our city.
 
By enacting the "public purpose" clause, our city enabled the land bank to act: securing property foreclosed upon by providing a clean title and making the county whole; disposing of these properties to the community through nonprofits or the approved buyers who "shop" at the land bank; but most importantly, protecting our neighborhood's worth and value.
 
It was not a perfect year, as the land bank did make some mistakes investing in some bad properties as well as in how they disposed of the properties. Allen and his staff used to believe they had to fix the homes up entirely before transferring them out, only to learn that their nonprofit housing and real estate clients rather liked being able to hire their own contractors to conduct the work. Now, property that goes through the land bank also helps generate construction dollars for our county.
 
But for all these wins some were still unhappy, including one group who filed a lawsuit against Kent County's land bank via Circuit Court Case No. 12-09669-CH.
 
According to Allen, the land bank has had to defend itself against a lawsuit by a plaintiff over whether it can continue to acquire foreclosed properties via right of first refusal before auction as long as they are purchased appropriately, a matter which has so far been decided in the land bank's favor but is now being appealed.
 
This last summer, I joined members of our community for a first-hand view as neighborhood leaders, real estate businesspeople, and elected officials all boarded a bus to tour homes in the city of Grand Rapids at various stages in their redevelopment. It was nothing short of exhilarating as I heard from new homeowners, minority development firms grateful for the opportunity to increase their equity in our workplace, and proud craftsmen sharing stories of how they modernized spaces within older homes to make them more attractive to the contemporary buyer. 
 
When I inquired about what happens at the final auction, a place where folks pick up foreclosed properties for pennies on the dollar, Allen had another interesting story to share.
 
"We decided we wanted to know more about these auctions so we sent in a person from the office to the sale," says Allen, who sent an associate in his place because of his own visibility. It didn't take long to identify the folks looking to purchase a home at a final auction, as the potential bidders held fat suitcases filled with legal tender at the cash sale.
 
"So, I have never done this before. What is the secret to getting a good deal?" asked the undercover land bank associate.
 
The answer was more shocking than anyone could imagine. One gentleman shared that prior to the auction, he drives around at night looking at the properties from the road (since you cannot enter a sheriff sale tax foreclosure property) to see if any lights are on, indicating someone is living there.
 
After the home is purchased at the auction, often at a low price of somewhere between $2,500-3,500, he heads over to the home after he picks up the title, introduces himself to the tenants as the new owner, and presents them with a new rental agreement, often for around $500 monthly, according to the experienced gentleman.
 
The undercover operative thought that was the end of the story, but the man kept going, saying that since he forms an LLC for the venture to act as the purchaser for the property, he simply collects the rent for three years but does not pay the taxes, letting the home fall back into the system and out of his hands. Since the tax default is not tied to him personally, it will not show up on his credit report and with the $18,000 profit he stands to make off three years of collecting rent on a paid-in-full house, he simply walks away and starts the process all over again with another home at the next October final tax auction. Sadly, there are currently no policies in place at the state, county, or city level that make this behavior illegal.
 
It's this kind of enlightening discovery that has motivated Allen to craft new strategies that seek a balance between government intervention and the whims of the free market. Prior to the establishment of county land banks in our state, abandoned and vacant properties could create havoc within our community as property values declined, flight by blight proliferated, and illegal activities often took root. But the Kent County Land Bank has shown what a keen eye can uncover. Through their steely focus on their mission, they can help restore our communities to health.
 
As to Congressman Kildee, who started a very successful land bank model here in Michigan, he went on to co-found and serve as the president of The Center for Community Progress, a national nonprofit organization, and has expanded his work to 50 cities, creating sound policy to combat blight in other Rust Belt and Northeastern cities via the Brookings Institute.
 
David Allen is on a similar trajectory: he's providing innovative methods that are consolidating efforts and organizations to create greater public good in Kent County, while his fiscal commitment to ensuring fairness and good practices are gaining attention at a national level. Which leads me to a fourth - and final - question.

What should we be doing about this right now?
 
This election season, there are no ballot proposals that address the Kent County Land Bank. But it's an organization quietly doing good in our community, and it's completely at the discretion of our county commission. So when you head to the ballot box next month, don't forget to support government officials at all levels who will support this kind of smart and sustainable developmental policy in West Michigan for the long term. Because our city is growing and changing, and we need smart planning for everyone for the long term.
 
I encourage you to take the time to learn more. There's no short-cut to understanding this complex process that, in my opinion, does perform an incredible amount of good for our community. And as one who has lived in the city for a few decades, I'd say our Kent County Land Bank Authority is a great tool to rid our neighborhoods of blight and restore deserving property to contributing members of our society.
 
The Future Needs All of Us.
 
Tommy Allen
Lifestyle Editor
 
G-Sync Events: Let's Do This! (< seriously, click the link to read about some great things to do this next week.)
 
Editor's note: Due to a hard drive crash, all of the images from my time on the "Vacant to Vibrant" tour were lost. The images this week are published courtesy of the Land Bank of Kent County. For additional information about this mind-shifting tour, please visit Jim Harger of MLive's article on the bus tour, which includes Zach Gibson's insightful photos as to what we saw that day.  – Tommy