Maryland Towns and Counties Seek New Rights to Seize Vacant Properties
2018-04-03 | BALTIMORE SUN
April 03 --The vultures perching on the roof of the abandoned Eastern Shore house seemed like a bad omen to Cindy Smith as she strolled by with her dogs.
Smith, who battles blight for Dorchester County government, said the owner of the vacant, century-old home in Cambridge stopped paying property taxes almost a decade ago. The problem is well known in Baltimore , where thousands of vacant properties are stuck in the tax auction process, with debts soaring over time.
Now officials from counties and towns across Maryland are pushing the General Assembly to change the laws governing the auction system to help them combat blight in communities from the Eastern Shore to Garrett County in Western Maryland .
Generally, when property owners fall behind on taxes, local governments auction off liens on the buildings to investors, filling their coffers immediately rather than waiting for taxes they may never collect.
The investors can then charge interest and try to collect on the debt to earn a profit beyond what they paid for the liens. If investors fail to collect, they can foreclose.
But in cases where the debt exceeds the value of a property, the system breaks down.
The Maryland Senate unanimously passed a pair of bills last month that would allow counties to seize vacant properties and sell them outright without first offering the debt to investors, a so-called "dirt not debt" approach. The measures, now pending in the House of Delegates , also seek to give officials several new powers that only Baltimore now has. They would gain the authority to keep properties out of tax sales if they have been designated for redevelopment and to waive tax liens to make it easier to sell properties.
Smith is not a housing expert. She administers state and federal grants for Dorchester County . But since county officials decided to pursue a more aggressive strategy for eliminating vacant houses in 2014 she has, to her surprise, emerged as an influential voice on eliminating the legal impediments to their new approach.
"I never thought that I'd be spending time in Annapolis and going to Baltimore ," she said. "This was just a simple conversation between employees of this county trying to solve a problem."
Last year Smith joined a state task force that helped craft the package of legislative proposals designed to establish a faster process for seizing vacants and selling them to new owners. The approach is supported by organizations representing towns and cities, housing activists and developers.
But investors who buy tax debts oppose the proposed reforms. They warn that such legislation would undermine the original intention of auctions to give local governments tools for immediate revenue collection rather than getting into the real estate business.
Aaron Naiman , an attorney who represents investors, said he's worried the pending bills are the first step toward entirely replacing the tax auction system. If investors were asked to buy properties rather than the right to collect debts, Naiman said, his clients would no longer be interested.
Supporters of the changes said towns and cities need new ways to deal with properties that fall deeply into tax debt and get left to fall further into neglect -- threatening to hurt property values throughout a neighborhood.
Kim Graziani , a technical adviser at the Center for Community Progress , a national group that studies blight, told lawmakers during a hearing in February that local officials need the legal changes so they can act quickly.
"Time is the worst enemy of any vacant and abandoned property," Graziani said.
In Cambridge , the cost of mowing grass at vacant properties was the first indication that county officials needed a new approach.
Cambridge , a city on the Choptank River , has a population of just 12,000, but County Manager Jeremy Goldman said in some ways it's quite similar to the state's largest city.
"The demographics in Cambridge mirror the demographics in Baltimore ," Goldman said. "You have some real challenges economically."
In 2014, Goldman gathered his staff to devise ways to deal with houses like the one with the vultures on the roof and another 250 like it. The houses were racking up unpaid taxes and seemingly doomed to blight the historic streets of the waterfront town.
"It ends up being a demolition-by-neglect kind of problem," Goldman said.
When investors can't get an owner to pay -- and then give up on the property themselves -- counties typically put the buildings back through the auction process and hope that new investors buy the debt.
But they have had another option all along: If no one buys the tax debt at auction, local government can seize the property by foreclosing and then put the house on the market.
Local governments rarely take that approach, but Dorchester County officials decided to try it.
They pressed ahead with seizing buildings, and by 2016 the county had taken ownership of 110 properties. Smith took on the job of marketing them, getting signs printed up offering them for sale.
Dorchester officials say they've already seen success.
"Talk about an avalanche," Goldman said. "Within three days we had hundreds of offers on the properties."
The county has since refined the system, requiring minimum bids and scoring offers to favor buyers who want to live in the properties.
The properties range from the grand to the humble: the former mansion home of Civil War-era governor Thomas Holliday Hicks , parts of which date back to the 18th century, and a store with affordable apartments up above. The store operates out of what was once a vacant building that the county foreclosed on in 2015 and sold the following year. What was once a drain on the city is now producing income and property taxes and providing a service to the neighborhood, Smith said.
The approach has cut the number of problem properties in the county significantly, but there are still about 30 properties repeatedly cycling through the tax auction: Investors buy the liens, fail to collect on the debt, give up, and the property winds up back in the tax sale. By law, the county can't just take such a property unless it first offers it at tax sale and finds that no one wants it.
That's why Dorchester County and other local governments want the law changed.
For Smith, the vulture house -- a two-story home built in 1920 three blocks from the river -- could have been turned around far faster under such rules. The county has finally filed the legal papers to foreclose on the property, but the matter remains in court.
"It's about getting control of a property faster," Smith said.
The owner could not be reached for comment.
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