Tax deed sales and land banking to reuse vacant and abandoned properties

• Date: 11 September 2020
• Pages: 596-612
• DOI: https://doi.org/10.1108/IJHMA-05-2020-0054
• Published date: 11 September 2020
• Subject Matter: Property management & built environment,Real estate & property,Housing markets
• Author: Yasuyuki Fujii

Tax deed sales and land banking

to reuse vacant and

abandoned properties

Yasuyuki Fujii

Shizuoka University of Art and Culture, Hamamatsu, Japan

Abstract

Purpose –Tax sales intersect with the market, housingpolicy and socioeconomic matters, but the topic in

this context is understudied. The purpose of this paper is to investigate whether andhow land banking is

more effective in fostering positive property outcomes than taxlien sales and what market-based measures

can be combinedwith land banking to reuse tax delinquent,vacant and abandoned properties.

Design/methodology/approach –This paper analyzes the consequences of tax lien sales and land

banking in Indianapolis,Indiana, the USA. Various local data sources are used.

Findings –This paper f‌inds that land banking, when compared to tax lien sales, results in less tax

delinquency, less vacancyand abandonment, more increase in assessed value and fewer ownershipchanges

after sales. Also, this paper shows the contributions of non-prof‌it and for-prof‌it developers as business

partnersto land banks.

Practical implications –This paper demonstrates the utility of the land banks that have become

prevalent in some statesin the USA over the past 20 years. The resultsof this paper recommend the realistic

approachof combining government intervention and market forces.

Social implications –This paper shedslight on the US practice of tax lien sales. It goes largely unnoticed,

but malpracticerisks harming the vulnerable members of community.

Originality/value –Housing policy needs to f‌ind common groundwith the market. It is a dilemma, more

or less, for everycountry. The results of this paper suggest a harmonized publicpolicy approach that includes

land bankingand the market can be effective in combattingwith troubled properties.

Keywords Foreclosure, Investor, Land banking, Tax delinquency, Tax sale,

Vacant and abandoned property

Paper type Research paper

Introduction

Today, many cities, particularly depopulated cities in developed countries, face issues

arising from tax delinquency and vacant and abandoned properties. Tax delinquency is in

the domain of public f‌inance, while property vacancyand abandonment is in the domain of

The author is grateful to the Department of Metropolitan Development, the City of Indianapolis and

Renew Indianapolis to take care of the author’s research questions. Also, the author thanks Alan

Mallach, Senior Fellow, Center for Community Progress, Steven J. Bass, Partner, Orion Partners

Japan, and Jack Ryan, Professor, Shizuoka University of Art and Culture for their comments on

previous drafts.

Declaration of conf‌licting interests: The author declares no potential conf‌licts of interest with

respect to the research, authorship, and/or publication of this article.

Funding: This research was conducted with a grant from the Foundation of Global Life Learning

Center, Tokyo, Japan and Grant-in-Aid for Scientif‌ic Research, the Japan Society for the Promotion of

Science (19K04790).

IJHMA

14,3

596

Received10 May 2020

Revised9 July 2020

Accepted16 July 2020

InternationalJournal of Housing

Marketsand Analysis

Vol.14 No. 3, 2021

pp. 596-612

© Emerald Publishing Limited

1753-8270

DOI 10.1108/IJHMA-05-2020-0054

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1753-8270.htm

the built environment, but the rates of tax delinquency are related to vacancy and the

abandonment of properties (Dewar, 2015;Dewar et al., 2015;Ford, 2015;Whitaker and

Fitzpatrick, 2013). Local governments implement a variety of measures to cope with

troubled properties. Some measures are universally available, while others are unique to

certain countries. Universal measures include notices of tax delinquency, code enforcement

and, for vacant homes, registration in vacant property lists as well as payment plans. Tax

delinquency notices usually impose penalties before legal action is taken. Term code

enforcement is widely used from the violations of building safety to nuisances to the area.

Registration on a vacant property list is typically done with an aim to f‌ind a responsible

party for the property. A payment plan, as a relief to socially vulnerable homeowners,

allows for the payment of back taxes in installments.

Measures to cope with troubled properties diverge from country to country and even

from jurisdiction to jurisdiction in a country. The peculiarity of the US law is that local

governments in the USA take a legal process to foreclose on a tax delinquent property

and use private parties to revert it to a taxable property. The term “tax sales”refers to

both tax lien sales and tax deed sales, but these two measures differ considerably. A tax

lien is a legal claim against the assets of a person or business who fails to pay taxes owed.

If the debt is not repaid, then the assets may be seized, and in the USA, tax lien sales may

be conducted [1]. “Tax lien sales”are usually a public auction of tax lien certif‌icates.

Investors in tax lien sales earn high interest from tax delinquent owners when they solve

tax delinquency and redeem their properties. On the other hand, in “tax deed sales,”

governments sell publicly foreclosed properties themselves. When the deeds of properties

are sold, property ownership always changes. Tax sales are controversial because the

measures often harm vulnerable homeowners and communities (Akers and Seymour,

2019;Botein and Heidkamp, 2013;Enright, 2020;Ford, 2015;Kahrl, 2015;Kahrl, 2018;

Kirtner, 2016;Rao, 2012).

On the other hand, land banks are either a governmentauthority or an organization with

a public mission. Today’sdef‌inition of land banking in the USA differs considerably from

the 1970s, when the same term primarily referred to governmentinitiatives to control urban

growth and regulate land use and price as well as capture capital gains from urban

development (Flechner, 1974). Many countries, particularly developing countries, still use

the term in that way (Aryeetey and Udry, 2010;Hartvigsen, 2014;Mmbengwa et al., 2010;

Nalepa et al.,2017).Land banks for shrinking cities have evolved in the USA duringthe past

two decades. Land banks acquiretroubled properties –tax delinquent as well as vacant and

abandoned –and transfer them to individuals and responsible real estate businesses

(Alexander, 2015;Heins and Abdelazim, 2014). Land banks relinquish the back taxes and

penalties at the time of property acquisition and can f‌ile quiet title actions more eff‌iciently

than private parties. The actions cause local governments to lose potential revenues, but

local governments may recover the loss in the long term, as the clean title provides

purchasers with conf‌idence in their ownership.However, land banking is a hands-on, labor-

intensive process of evaluatingproperties and applicants one by one. It cannot handle many

properties at one time.

Tax sales intersect with the market, housing policy and socioeconomic matters. If tax

sales alone do not enhance public welfare, then local governments are often forced to

intervene in the market with additional measures, including land banking. However, the

topic in this context is understudied. The research questions in this paper are twofold –

whether and how land banking is more effective in fostering positive property outcomes

than tax lien sales and what market-basedmeasures can be combined with land banking to

reuse tax delinquent,vacant and abandoned properties.

Tax deed sales

and land

banking

597