Foreclosures Press Communities to Partner With Institutional Investors

Implications: Will the abandonment of mortgage defaulted properties create opportunites for tax debt investors? What innovations may be on the horizon to address the anticipated loss of property tax revenue to the nation's cities & counties?  Will tax certificate sales become the method of choice for recovering tax revenue on mortgage foreclosed parcels? Will local governments take the tremendous negatives associated with the foreclosure mess and turn it around by making institutional investors a part of the recovery process?

Analysis: The neighborhood upheaval described in the CNNMoney.com story is being replicated across the nation. Foreclosed homes, empty structures, vandalism, and the loss of tax revenue can quickly make a city appear third world which creates an entirely new set of problems such as teacher flight to better funded suburban schools, the loss of potential urban investors, and the inescapable stigma of a community in decay. As Cuyahoga County Treasurer, Jim Rokakis, correctly points out, foreclosure properties push surrounding property values downward which, in turn, produces a smaller property tax yield for the City of Cleveland and surrounding levying agencies dependent upon the real estate tax for the provision of important services.  The declining property values place demand upon Rokakis and his colleagues across Ohio to reassess tax producing parcels at lower assessed values.  The State of Florida faces the same problem.

Unpaid property taxes in Miami-Dade and Broward counties reached new highs this year, as thousands of homeowners tumbled into foreclosure, shrugged off bills on investment properties they couldn't unload, or found it impossible to make lump sum tax payments that their hybrid ARM mortgages didn't require them to put in escrow. Unpaid taxes mushroomed to $365 million.  So where is the hope? It rests with governments not afraid to streamline the tax recovery process by partnering with well leveraged investors who are willing to purchase the tax delinquencies facing a city or county.  Forget the cumbersome auction process and follow the lead of Ohio which allows, by statute, the state's largest counties to sell all delinquent tax liens to one pre-qualified investor. Simple, transparent, and very cost effective for the taxpayers. 

The time is now for organizations like NACo (National Association of Counties) and the NLC (National League of Cities) to push their members to seek legislation at their respective state capitols that would allow the sale of tax debt as a bulk purchase with all of the property owner protections necessary.  The private sector will participate with some leadership by local and state governments.