Land Banks: A Ruse for Abolishing Private Property (Updated 8/1/2011)

“Private property and freedom are inseparable.” - George Washington

For years, the government has had the doctrine of eminent domain through which they can condemn your property for a freeway or other public road. Now they have extended this eminent domain to include the confiscation of your property if your city wants to build a hotel or other building on your property to increase their tax revenue. They can also abolish private property just by raising your taxes higher than you can pay; they then confiscate your property for non-payment of property tax. - Lorraine Day, M.D., The Coming “New World Order”

Sustainable Development is the current buzz term that represents the efforts to eliminate private property in America and to control and limit human action.The international focus for Sustainable Development is the United States because America is the only country in the world based on the ideals of private property. Private property is incompatible with the collectivist premise of Sustainable Development. - Freedom Advocates, Transforming America: Sustainable Development

On September 26, 2008, the U.S. Department of Housing and Urban Development (HUD) announced allocation of $3.92 billion to all states and particularly hard-hit areas trying to respond to the effects of high foreclosures. HUD’s new Neighborhood Stabilization Program (NSP) provides targeted emergency assistance to state and local governments to acquire and redevelop foreclosed properties that might otherwise become sources of abandonment and blight within their communities. - Prince William County, Virigina, Neighborhood Stabilization Program Application Handbook

BofA Donates Then Demolishes Houses to Cut Glut of Foreclosures

The oversupply of homes once prompted Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. (BRK/A), to quip in February 2010 that one solution was to “blow up a lot of houses -- a tactic similar to the destruction of autos that occurred with the ‘cash-for-clunkers’ program.’”

Bloomberg
July 27, 2011

Bank of America Corp. (BAC), faced with a glut of foreclosed and abandoned houses it can’t sell, has a new tool to get rid of the most decrepit ones: a bulldozer.

The biggest U.S. mortgage servicer will donate 100 foreclosed houses in the Cleveland area and in some cases contribute to their demolition in partnership with a local agency that manages blighted property. The bank has similar plans in Detroit and Chicago, with more cities to come, and Wells Fargo & Co. (WFC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Fannie Mae are conducting or considering their own programs.

Disposing of repossessed homes is one of the biggest headaches for lenders in the U.S., where 1,679,125 houses, or one in every 77, were in some stage of foreclosure as of June, according to research firm RealtyTrac Inc. of Irvine, California. The prospect of those properties flooding the market has depressed prices and driven off buyers concerned that housing values will keep dropping.

“There is way too much supply,” said Gus Frangos, president of the Cleveland-based Cuyahoga County Land Reutilization Corp., which works with lenders, government officials and homeowners to salvage vacant homes. “The best thing we can do to stabilize the market is to get the garbage off.”

BofA’s 40,000

Bank of America had 40,000 foreclosures in the first quarter, saddling the Charlotte, North Carolina-based lender with taxes and maintenance costs. The bank announced the Cleveland program last month, has committed as many as 100 properties in Detroit and 150 in Chicago, and may add as many as nine cities by the end of the year, said Rick Simon, a company spokesman.

The lender will pay as much as $7,500 for demolition or $3,500 in areas eligible to receive funds through the federal Neighborhood Stabilization Program. Uses for the land include development, open space and urban farming, according to the statement. Simon declined to say how many foreclosed properties Bank of America holds.

Ohio ranked among the top 10 states with the most foreclosure filings in June, according to RealtyTrac. The state has 71,617 foreclosed homes, Cuyahoga County 9,797 and Cleveland 6,778, RealtyTrac said.

The tear-downs are in varying states of disrepair, from uninhabitable to badly damaged. Simon said some are worth less than $10,000, and it would cost too much to make them livable.

Unwanted Homes

“No one needs these homes, no one is going to buy them,” said Christopher Thornberg, founding partner at the Los Angeles office of Beacon Economics LLC, a forecasting firm. “Bank of America is not going to be able to cover its losses, so it might as well give them away and get a little write-off and some nice public relations.”

Donating a house may create an income-tax deduction, said Robert Willens, an independent accounting analyst based in New York. A bank might deduct as much as the fair market value if a home wasn’t acquired with the explicit intent of knocking it down, he said.

Wells Fargo and Fannie Mae already started donating houses and demolition funds in Ohio. San Francisco-based Wells Fargo, the biggest U.S. home lender, gave 26 properties and $127,000 to the Cuyahoga land bank, said Russ Cross, Midwest regional servicing director for Wells Fargo Home Mortgage. Since 2009, Wells Fargo made more than 800 donations, the bank said.

Fannie Mae

Fannie Mae, the mortgage-finance company operating under U.S. conservatorship, made its first deal with the Cuyahoga land bank in 2009, and sells houses to the organization at a “very nominal value,” or about $1 and an additional $200 in closing costs, said P.J. McCarthy, who heads alternative disposition programs.

Fannie Mae sold 200 foreclosures to the Cuyahoga organization in 2010 and has similar programs in Detroit and Chicago. Cleveland is the only city where Washington-based Fannie Mae contributes $3,500 toward demolition, McCarthy said.

“It’s an economically justifiable transaction,” McCarthy said. “Holding on to a property that might sell for $1,000 or $2,000 or $5,000 for several hundred days is not in anybody’s best interest.”

JPMorgan, the second-biggest U.S. bank, has donated or sold at a discount almost 1,900 properties valued at more than $100 million in more than 37 states since late 2008, including 22 in Cleveland, said Jim O’Donnell, manager of community revitalization. The majority aren’t demolished, he said.

Nonprofit Role

Citigroup has been donating foreclosures since 2008 through the National Community Stabilization Trust, according to an e- mailed statement from Natalie Abatemarco, managing director for the bank’s office of homeownership preservation. The New York- based company, ranked third among U.S. lenders, is part of the Washington-based nonprofit trust’s pilot program that starts in late August to provide funds for purchases in distressed neighborhoods, and the money can be used toward demolition, Abatemarco said.

Demolishing all of Cleveland’s foreclosed and abandoned properties might cost $250 million, Frangos said. There are as many as 13,000, according to Case Western Reserve University in Cleveland and Neighborhood Progress Inc., a nonprofit organization working to counter the effects of foreclosures in six Cleveland areas, according to its website. The Cuyahoga County land bank owns about 899 properties and will demolish about 700 in the next six to seven months, Frangos said.

Blow Them Up

The oversupply of homes once prompted Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. (BRK/A), to quip in February 2010 that one solution was to “blow up a lot of houses -- a tactic similar to the destruction of autos that occurred with the ‘cash-for-clunkers’ program.’”

Still, the knockdowns aren’t likely to outpace foreclosures, said Rick Sharga, RealtyTrac’s senior vice president. Foreclosures may accelerate as banks clear a backlog caused by soft real estate markets and legal disputes over tactics used to seize homes.

“These sorts of programs will basically only be nibbling on the edges,” Sharga said.

Land Banks Could Relieve Pressure of Mounting Foreclosures

Washington Independent
March 16, 2009

...The biggest financial help for cities and states dealing with foreclosed properties to date has been nearly $4 billion included in the mortgage rescue bill passed by Congress last summer, and some $2 billion added in the recent stimulus package [to help cities and states buy up foreclosed homes]. To many, it’s not enough to even begin addressing the scope of the problem.

“It’s like putting out a million acre forest fire with a pick and shovel,” said Mallach, a fellow at the Brookings Institution and the National Housing Institute. “I realize the Obama administration has got a lot on its plate, and Treasury is understaffed. But the administration doesn’t seem to be grappling with this issue at all. A lot more people are going to be losing a lot more houses. We’re going to be seeing millions more vacant properties.”

There are some encouraging signs. Shilling, of the National Vacant Properties Campaign, pointed to the National Community Stabilization Trust, a new, national nonprofit trying for the first time to connect servicers and lenders that hold foreclosed properties with local officials and community groups trying to save neighborhoods.

Land banking, in which communities try to acquire and reuse properties, also is growing in popularity, Schilling said. Pennsylvania, Illinois, and New York are among the states moving toward creating land banks. Schilling’s group aims to help communities create more land banks and to build up the capacity of the ones already in existence.

“We keep hearing stories that banks will offer to give cities 5,000 or so foreclosed properties, and the cities will say, “We can’t accept them,’ or “We don’t know what we can do with them,’” Schilling said. “The longer term vision is to have a system that’s more efficient in recycling and reusing vacant properties.”

Kildee, whose land bank has attracted national attention and was profiled by TWI last year, said he’s being deluged with calls – even from local officials in markets where housing boomed and prices remain high.

“Five or six years ago, basically the only people who used to call us were academics,” he said. “Now suddenly everybody has decided a land bank is the next best thing.”

Kildee added that he is in talks with HUD for a possible new position at the agency that would serve as a platform to encourage land banks and land banking.

Money for land banking was included at the federal level for the first time as part of the mortgage rescue bill package, and in the additional stimulus funds. But putting a bank in place is a lengthy process that often requires obtaining legislative approval and other hurdles.

Just five to seven percent of the applications from communities for the first round of federal foreclosure money involved land banking, Schilling said. That’s probably because communities are so overwhelmed with boarding up foreclosures and tearing them down they have little opportunity to plan any further ahead, he added.

In Mallach’s view, the federal government needs to step in quickly and forcefully – with a national land bank of some kind. Only a federal land bank could provide enough capital to communities to buy up properties in significant numbers, and to offer tax incentives to encourage banks and servicers to turn over foreclosed homes.

“We’ve got to deal with this at the federal level,” Mallach said. “Cities and states simply do not have the resources to handle all this.”

Others are more optimistic than Mallach that federal help and support for local and regional land banks will be forthcoming, saying the Obama administration is much more in tune with the effects of foreclosures in neighborhoods than the previous Bush administration had been.

In the meantime, local governments are looking for any tools they can use. In Cleveland, which finally got state approval for a land bank after a lengthy battle, officials are thinking of also creating a local “bad bank” to buy up toxic mortgage assets, said Cuyahoga County Treasurer Jim Rokakis.

“We’re trying to be as creative as we can,” Rokakis said. “But we’re running out of time.”

That’s true in Washington as well, where it soon may be impossible to keep ignoring the continuing surge of vacant and foreclosed homes.

City 'Land Bank' to Buy Foreclosures

KSHB-TV, Overland Park, Kansas
June 9, 2009

Using federal stimulus dollars, Overland Park city council formed their own bank – a land bank. It’s supposed to manage real estate and help stabilize neighborhoods.

Jenny Thompson lives across the street from a house that has been vacant for three years. She worries if it’s hurting home values. “If we can get this house with somebody living in it, that would help the neighborhood,” Thompson said.

Help is coming from city hall. Monday night, Council accepted nearly $700,000 in federal stimulus money through the Neighborhood Stabilization Program. The city plans to buy, demolish, and redevelop foreclosed and blighted properties.

“I think it’s a great idea because like it’s going to help us out,” said Marcela Aguirre, a homeowner who believes the program will help protect home values.

“You know, I’m just whatever about it.”

Some people are not.

“If the government gets involved in the housing market it will be like any other market riddled with inefficiencies,” said Nick Brummel, an Overland Park resident.

The Housing and Economic Recovery Act of 2008 requires participants in Neighborhood Stabilization Program to create a land bank authorized to acquire, maintain and sell (or demolish and redevelop) abandoned property.

Its power stretches beyond this program. However, with a fast-approaching deadline to accept the money, city officials had to make a quick decision.

“Because the issue is being driven, essentially by the stimulus package, they needed to have a full council discussion,” said Ed Ebel, director of planning for the City of Overland Park.

Some people believe a land bank will only waste city time and resources.

“It think that it requires more time and consideration than they’re willing to give to it,” Brummel said.

Having invested 52 years into her home, Thompson said she is willing to give the program a chance.

“That would probably be better than having that empty house sit there,” Thompson said.

City officials say they’ve identified two properties for purchase. Each meets federal guidelines.

Ingham County, Michigan, Land Bank
Land banks used to fight blight in Flint, elsewhere
How the Cuyahoga County, Ohio, land bank will work
Land banks gain popularity as way to fight urban blight - USATODAY
South Lake Tahoe NSP Guidelines
Dixon: Land bank mission 'to strengthen neighborhoods'
Disposition of Publicly Owned Land in Cities: Learning from Cleveland and Detroit
Land Banks as Revitalization Tools: The example of the City of Flint, Michigan
Land bank to help city remove foreclosed homes beyond repair
Revitalizing Foreclosed Properties with Land Banks

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