Vacant and Abandoned Property

In June the Lincoln Institute convened a roundtable of experts from around the country to examine how and why property ownership and title problems exacerbate abandonment. The group debated the merits of public policy intervention, identified policies with the greatest potential for success, and outlined anticipated complications and issues in remedying abandonment. This article reports on that discussion.

The prevalence of vacant and abandoned property in U.S. cities has reached crisis proportions despite efforts to foster reuse of these sites. A mix of macroeconomic and demographic trends, such as deindustrialization, population shifts from urban and rural to suburban communities, and the shrinking urban middle class, have precipitated the decline in real estate demand that can lead to property abandonment in certain neighborhoods.

These trends, along with other factors, have resulted in various abandonment “triggers” (Mallach 2004) depending on the property type: inadequate cash flow; multiple liens; liens that exceed market value; fraudulent transactions; predatory lending; and uncertainties regarding environmental, legal, and financial liability. These triggers often prolong abandonment or relegate a property to permanent disuse, particularly in markets characterized by widespread disinvestment. Many of these triggers also “cloud” the property title and interfere with a potential new owner’s efforts to acquire property title or obtain site control in order to make improvements or commence reuse activities.

Comparable data on vacancy and abandonment across cities are difficult to obtain and vary widely due to different definitions and gaps in data sources, particularly in commercial and industrial land uses. Estimates of the amount of abandoned housing stock range from 4 to 6 percent in “declining” cities to 10 percent or more in “seriously distressed” cities (Mallach 2002). The following city statistics from Census 2000 data and city records only suggest the scope of the problem.

• Cleveland counts more than 25,000 vacant and 11,000 abandoned properties (National Vacant Properties Campaign 2005).
• Baltimore has more than 42,000 vacant housing units, constituting 14 percent of its housing stock, and more than 17,000 vacant lots (National Vacant Properties Campaign 2005).
• Philadelphia’s vacant properties total more than 60,000 (27,000 abandoned residential structures, 2,000 abandoned commercial buildings, and 32,000 vacant lots) with nearly 10 percent of the city’s housing described as abandoned (Black 2003).
• St. Louis has one of the highest vacant housing rates in the country, at over 29,000 or nearly 17 percent of total housing units (National Vacant Properties Campaign 2005).

The abandonment problem is even more profound and perhaps less susceptible to reversal in some smaller cities of less than 100,000 that have lost at least 25 percent of their population over the last few decades. The situation in Camden, New Jersey, East St. Louis, Missouri, and other cities with large-scale abandonment suggests a severely weakened market with multiple contributing socioeconomic factors. Where the number of abandoned properties indicates a systemic problem, there may be an inherent limitation on the ability to stimulate market activity.

This problem has ramifications for the quality of our public and private lives, because abandonment can lead to other detrimental social and fiscal impacts: depressed property values of surrounding properties (Temple University 2001); increased criminal activity; health and safety concerns due to environmental hazards; and additional disinvestment. All of these outgrowths of abandonment raise costs for the city, including site cleanup and demolition, provision of legal services, police and fire protection, and legal enforcement.

As urban vacancy and abandonment increase and suburban open space becomes less available or attractive for development, market pressures may improve redevelopment prospects, as in Boston, Chicago, and Atlanta. However, for several reasons we cannot just wait for this to happen everywhere.

First, the market does not always operate perfectly, in part because it is subject to existing laws and regulations (e.g., tax foreclosure statutes and clean title requirements) that impose high transaction costs to taking title and therefore affect market redevelopment. Some level of public policy innovation is needed, whether reform of existing laws or new laws and practices. Second, preserving open space is arguably a public benefit, but that also implies the need for public action to steer new development to previously developed properties. Finally, decisions about whether to spend public money, time, and effort are not made in a vacuum, but require an understanding of the problem, the available tools, and the resources and skills to implement them.

The magnitude of the problem suggests there are no easy answers. Multiple, interconnected market factors and differing state legal frameworks mean that the remedies to abandonment vary. In an effort to better define the public strategies for addressing the problem in different settings, this article sets forth the challenges of overcoming property acquisition barriers to abandonment, outlines a range of remedies, and explores potential next steps.

Neighborhood Redevelopment in New Jersey

Several years ago, Housing and Neighborhood Redevelopment Services, Inc. (HANDS), a nonprofit community development corporation (CDC) in Orange, New Jersey, tried to acquire an abandoned multifamily property. The property was burdened by tax liens that the city had sold to third-party purchasers, a strategy that cities use to raise revenue for other needs. The lien holders included out-of-state investment groups and speculators, and the current property owners did not have the financial ability or desire to redeem the liens. No entity was taking responsibility for property upkeep, so it sat idle and accumulated more tax liens, further elevating the stakes involved in clearing the title and heightening the financial, legal, and psychological barriers to acquisition. HANDS had a plan for neighborhood revitalization and a productive use for the property, but it lacked the funds for acquisition and the tools to clear the legal title.

Over the past few years, however, New Jersey reformed state programs to provide up-front subsidies for property acquisition, removal of liens, and other activities necessary for CDCs to establish site control (Meyer 2005). At the same time, a new state law, the Abandoned Properties Rehabilitation Act (2004), accelerated foreclosure action on vacant property by eliminating the waiting period between the time a potential new owner gives notice of its interest in foreclosing and lien acquisition. In cases where the owner will not rehabilitate a property, the new law allows the municipality to undertake rehabilitation or find a CDC to do so.

In this instance, HANDS took advantage of the new state law and financial incentives to acquire the multifamily property and convert it into housing for first-time homebuyers as part of the CDC’s larger neighborhood revitalization strategy. A few other organizations have begun to use these tools to acquire and redevelop single-family and multifamily homes around the state.

Ownership and Title Issues

Where abandonment or prolonged vacancy occurs due to owner inaction, two options exist for reuse. First, the property may be left abandoned indefinitely, or until the market changes. Alternatively, a new owner (e.g., the municipality, a CDC, or a private developer) may intervene, acquire the property, and carry out rehabilitation or reuse. It is this second alternative and the remedies for implementing it that concern us here. New methods for acquiring abandoned property will help to obtain property control from unwilling, unknown, or incapable owners.

However, the debate between these two alternatives raises significant issues that need further exploration. If the primary objective is to put the property back into productive use, one impetus for intervention is to eliminate the legal barriers to transferring the property to a new owner. Clear title is a critical issue. The multiple tax liens that encumber the title, and often cause the property’s abandonment in the first place, can cloud the title and prevent effective title transfer.

These title complications can be further compounded by the use of certain supposed remedies. For example, forcing title transfer involuntarily, from an unwilling owner or in abandonment cases where ownership is in doubt, can result in a cloudy title that may jeopardize obtaining title insurance—a mandatory precursor to procurement of conventional financing—and thereafter present title problems whenever the property changes hands. Clear title is part of the larger challenge for many states that do not have efficient, workable processes for moving title into the hands of responsible owners.

Remedies: Laws, Practices, and Tools

Municipalities seeking to reduce their stocks of vacant and abandoned property may be inspired by strategies and programs used in other localities, but they should carefully assess their own situations first. Differences in state laws may require a variety of approaches, such as reforming existing laws; improving local practices and implementation; and introducing innovative new tools. Some remedies to facilitate acquisition of vacant and abandoned properties for redevelopment seek to

• tighten code enforcement practices;
• strengthen nuisance abatement laws;
• pass a receivership law or encourage CDCs and municipalities to use existing receivership powers;
• reform tax foreclosure laws;
• use land banks or similar acquisition vehicles; or
• exercise eminent domain powers.

Remedy choice depends on the property’s stage of abandonment, the current land use (e.g., multifamily rental, single-family house, commercial, or industrial), the property’s ownership status, and state statutes and regulations. A property at an early stage of abandonment due to general neglect and code violations, including conditions that adversely affect the health, safety, or well-being of building residents or neighbors, may be turned around with regular inspections and enforcement. These preventive remedies can slow disinvestment and prevent permanent abandonment by forcing a known owner to either renovate the property or transfer it to another entity willing to do so. Effective code enforcement varies widely because it is a function of local practice, but persistent municipal issuance of orders for code violations is critical.

Localities may also enforce state-authorized nuisance abatement laws to address these code violations by requiring an owner to make repairs or improvements, such as trash removal, structural repairs, and building demolition. If an owner refuses, then the municipality can enter the property to undertake these activities and seek to collect the costs from the owner. If that fails, the municipality may place liens on the abandoned property equal to the costs of these actions, enforcing them through foreclosure actions, or in many states by attaching the owner’s assets. The effectiveness of nuisance abatement laws varies across states, depending on the definition of “nuisance,” the prescribed statutory penalties, and how the local authority chooses to carry out nuisance actions (Mallach 2004).

Significant disinvestment generally occurs where property owners fail to undertake property management responsibilities that cause significant disrepair; stop paying back taxes, utilities, or other public services; and/or allow the property to remain vacant for more than a designated period, usually six to twelve months. Some of these complicated cases require innovative, sometimes controversial remedies.

Under Baltimore’s vacant property receivership ordinance, for example, the city or its CDC-designee may petition a court to appoint a receiver for any property with a vacant building violation notice, though it is generally used in the case of severely deteriorated single-family houses. The receiver may collect rents (if the property is still occupied), make repairs, and attach a super-priority lien on the property equal to the expense; or immediately sell the property to a private or nonprofit developer who will conduct the rehabilitation. Advocates argue that the receivership approach is beneficial because it focuses on fixing the property (bringing an action in rem, literally against the “thing”) rather than on punishing the owner (known as an in personam action, or against the person) (Kelly 2004).

In Cuyahoga County (where Cleveland is located), CDCs have used nuisance abatement as a form of receivership. In these cases, the CDC brings such an action in a special housing court to abate a nuisance and have a receiver appointed, and then the CDC collects the incurred improvement costs from the owner or conveys the property to a new owner.

In both Baltimore and Cleveland, the concept is used effectively against speculating investors who buy inexpensive, dilapidated properties and do nothing but pay taxes, hoping that the revitalization work of others in the community will increase their property values. These “free riders” frustrate efforts to identify them as targets in a legal action by creating sham ownership entities or providing the vacant house as the owner’s only mailing address (Kelly 2004).

Nuisance abatement or receivership actions ultimately may not provide secure title for the subject properties, or may cause properties to be more susceptible to unclear title outcomes. Receivership can create an encumbrance on the title that is difficult to extinguish, thus clouding the title and providing an excuse for banks not to lend on the property. The current title system, as adhered to by title companies and financial institutions, works relatively well for tracking and recording straightforward, linear property transactions, but is not set up to handle properties with multiple liens or encumbrances arising from checkerboard-type transactions that are characteristic of vacant and abandoned properties. Nevertheless, these actions constitute an underutilized and powerful tool, when used in the right legal and market circumstances.

Tax foreclosure is the most commonly used property acquisition tool for local government. It involves the taking of title to properties where owners have failed to pay their property taxes or other obligations to a government entity (e.g., a municipality, school district, or county). Third parties, such as CDCs or private developers, can also use tax foreclosure proceedings, as governed by state law, to acquire properties. The tax foreclosure process is based on the principle that a tax lien has priority over private liens, such as mortgages, so when the buyer forecloses on the tax lien, any private liens are extinguished and the property is acquired “free and clear” (Mallach 2004).

The common problems associated with this otherwise powerful tool arise from the lengthy time periods imposed by state statutes on different stages in the foreclosure process (e.g., the time in which the owner has a right to redeem his or her rights to the property); the length of time that taxes must be delinquent before a sale can occur; and whether the state first requires sale of the liens or sale of the property outright. Constitutionality standards also require strict notice requirements to all parties holding a legal interest in the property. Although rewriting state statutes to reduce or eliminate these time requirements may be a politically protracted process, state law reform can occur. For example, the law passed last year in New Jersey substantially reduced the notice periods, and Michigan’s tax foreclosure reform offers faster judicial proceedings to increase the timeliness of property transfer (Mallach 2004).

An increasingly popular tool is the local land bank, a governmental entity that acquires, holds, and manages vacant, abandoned, and tax-delinquent property. The properties are acquired primarily through tax foreclosure, and then the land bank develops or, more likely, holds and manages the properties until a new use or owner is identified. Land banks can provide marketable title to properties previously encumbered with liens and complicated ownership histories. They also provide localities with a way to create an inventory and monitor properties, and assemble properties into larger tracts to improve opportunities for targeted economic development.

Each city’s land bank is organized and operates differently. Some operate within city agencies, while others exist as legally separate corporations (Alexander 2005). The Genesee County, Michigan land bank has pioneered a way to self-finance redevelopment by using the financial returns on the sale of one property to support the costs of holding other properties, an approach that ultimately reduces municipal costs (Kildee 2004).

Exercise of eminent domain powers pursuant to the Fifth Amendment of the U.S. Constitution is another remedy that transfers real property titles to the government for public use. Targeting blighted properties remains an agreed upon use of eminent domain, although state statutes differ on how it is carried out. Cities are certain to be more wary of using this tool in the wake of the controversial U.S. Supreme Court decision, Susette Kelo et al. v. City of New London, Connecticut, et al. (Kelo), which sanctioned New London’s condemnation of nonblighted private property for economic development purposes. The Kelo ruling has caused state legislatures around the country to consider reevaluating the meaning of public use and limiting the circumstances under which government entities can utilize this powerful remedy.

Without overall market improvements, it is unlikely that these remedies alone can give cities, neighbors, courts, or community nonprofit organizations the tools needed to address the vacant and abandoned property problem. However, anecdotal experience and discussions at the Lincoln Institute roundtable indicate that these tools have been used successfully on a case-by-case basis; whether they affect change on a neighborhood- or city-wide basis and over a period of years is still unclear. Success may depend, in part, on market strength and conditions, but also on localities’ vigilance (for instance, with code enforcement), willingness to take risks and use new tools, and institutional capacity.

Local Impacts of Remedy Implementation

Even where one or more of these tools is legal, available, and effective in eventually converting vacant and abandoned property to productive uses, there are three types of hurdles that may prevent valuable projects from being pursued: local administrative and procedural barriers; unintended and potentially negative consequences; and ancillary local strategies that can enhance or decrease their effectiveness.

Local barriers include costs to cities of administering, managing, and implementing these conversion activities; political opposition, inaction or apathy; and lack of local knowledge or capacity. The up-front costs to cities or nonprofit entities of taking ownership to dilapidated properties and making improvements are not trivial. Also, some tools may require investment in training, innovation, and minor risk-taking by local governments. Studies and experience are beginning to reveal that, for similar reasons, localities are not taking advantage of tools already provided for in some state statutes. One researcher found that local governments in Massachusetts were not utilizing existing mechanisms to address tax delinquent properties (Regan 2000). New Jersey is reportedly experiencing a similar phenomenon, where local entities are underutilizing tools available since adoption of new abandoned property laws and funding programs.

The possibility of unintended consequences fostered by intervention in the market should not be an argument for no intervention, but it is a reminder that any remedy needs to fit market conditions and be used with appropriate reuse restrictions or incentives to avoid new problems. One downside to successful neighborhood revitalization is gentrification, which is the displacement of lower-income residents by new, wealthier residents who can afford the higher prices placed on renovated properties. For instance, in Atlanta and Boston neighborhoods with relatively strong metropolitan-wide real estate markets, carrots and sticks must be used selectively to promote the transfer of abandoned property in some areas. One way to minimize the extent of gentrification is to require that any residential reuse maintain an income mix by preserving a percentage of units as long-term affordable housing. Another model is the nonprofit community land trust (CLT), which generally owns the land and provides affordable housing in perpetuity by leasing it to the building owners (Greenstein and Sungu-Eryilmaz 2005).

Local neighborhood revitalization strategies combined with other appropriate remedies can improve the chances of success as cities and CDCs work to address their redevelopment challenges. These strategies may include documenting and inventorying abandoned properties; targeting pivotal properties in neighborhoods selected for redevelopment; increasing home ownership; forging partnerships with business groups, city hall, hospitals, universities, and other nonprofits; and identifying and reforming significant policies and regulations on tax liens.

Communities must also continue to be innovative and to adapt available tools and remedies to address ever-changing local abandonment triggers. One such challenge is the recent phenomenon of lien securitization, which occurs when one entity buys up multiple liens on multiple properties and bundles or securitizes them for resale. This puts the liens into the hands of investors who presumably have no interest in the local economy or the property’s productive reuse, and can prevent title transfer, especially in weak secondary markets.

Next Steps in Meeting the Abandonment Challenge

Property title and acquisition obstacles are not the only barriers to fostering productive reuse of abandoned property, and removing these obstacles may not overcome the abandonment cycle. However, use of the remedies outlined here is an essential first step, and several next steps could significantly enhance their implementation. First, a pressing need exists to clarify the meaning of “clear title,” possibly by updating title insurance company standards to reflect new practices.

Second, case studies of successful and failed tools and mechanisms in weak and strong urban markets could provide valuable lessons. Possible criteria to evaluate a remedy’s success or failure include the frequency and extent of their use; their applicability to all property uses (residential, commercial, industrial); their effectiveness in fully clearing the title; unexpected consequences; and, if possible, the property’s ultimate reuse and its sustainability.

Third, a study of states where statutory reform has occurred, such as Michigan or New Jersey, would offer an analysis of how such reform has impacted property transfer and reuse. Finally, since local entities play a key role in tool implementation, improving local capacity through education about these tools and their importance in revitalizing urban areas would be another crucial next step in ultimately reducing the numbers of vacant and abandoned properties.

Lavea Brachman, a visiting fellow at the Lincoln Institute of Land Policy in 2004–2005, continues to research public policy remedies and the roles of local nonprofits and government entities in fostering brownfield and abandoned property reuse. She also directs the Delta Institute’s Ohio office, a nonprofit working on sustainable development solutions to environmental quality and community and economic development challenges.

References

Alexander, Frank. 2005. Land bank authorities: A guide for the creation and operation of local land banks. New York, NY: Local Initiatives Support Corporation.

Black, Karen. 2003. Reclaiming abandoned Pennsylvania. Philadelphia, PA: Pennsylvania Low Income Housing Coalition Report, March.

Greenstein, Rosalind, and Yesim Sungu-Eryilmaz. 2005. Community land trusts: Leasing land for affordable housing. Land Lines 17(2): 8–10.

Kelly, Jr., James J. 2004. Refreshing the heart of the city: Vacant building receivership as a tool for neighborhood revitalization and community empowerment. 13-WTR J. Affordable Housing & Community Dev. Law 210.

Kildee, Dan. 2004. The Genesee County land bank initiative. Flint, MI: Genesee County Land Bank.

Mallach, Alan. 2002. Abandoned properties, redevelopment and the future of America’s shrinking cities. Working paper. Montclair, NJ: National Housing Institute.

———. 2004. Addressing the problem of urban property abandonment: A guide for policy makers and practitioners. Montclair, NJ: National Housing Institute, April.

Meyer, Wayne T. 2005. High-impact development for long-term sustainable neighborhood change: Acquiring, rehabilitating, and selling problem properties. Orange, NJ: HANDS, Inc.

National Vacant Properties Campaign. 2005. www.vacantproperties.org.

Regan, Charleen. 2000. Back on the roll in Massachusetts: A report on strategies to return tax title properties to productive use. Boston: Citizens’ Housing and Planning Association (CHAPA).

Temple University Center for Public Policy and Eastern Pennsylvania Organizing Project. 2001. Blight-free Philadelphia: A public-private strategy to create and enhance neighborhood value. Philadelphia, PA, October.