This except of an analysis of the entire Tax Certificate process deserves attention and consideration by Cuyahoga County leadership. People other than the distressed citizens have the wherewithall to say what needs said in an objective format. Read the complete analysis by clicking the hyperlinked sections.
II. BACKGROUND [1]
A. Legislative History of House Bill 371 [1]
On April 8, 1997, Representative Richard Hodges introduced the tax [1] certificate bill, House Bill 371, to the Ohio House of Representatives. [1] bill enabled the county treasurers of the twelve counties having populations [1] of at least two hundred thousand to collect delinquent real property taxes by [1] selling tax certificates to private investors. [1] negotiate the sale of any number of tax certificates, and the tax certificates [1] could be sold to private investors at tax certificate sales. [1] certificates entitled the tax certificate holder to the first lien of the state, and [1] the tax certificate holder could initiate foreclosure one year after the [1] 6 [1]
The [1]7 [1]County treasurers could [1]8 [1]These tax [1] purchase of the tax certificate. [1]9 [1] The purpose of House Bill 371 was, as Summit County Treasurer [1] John Donofrio said, “‘not to take away people’s homes and businesses,’” but [1] “to ensure schools get the property tax revenues they are due.” [1] purpose of the bill was clarified in subsequent hearings in both the House [1] Financial Institutions Subcommittee and the Senate Finance & Financial [1] Institutions Committee. [1] that “the bill would spare county governments with limited resources from [1] having to track and collect unpaid property taxes.” [1] utilize the bill to sell tax liens on a number of properties with unpaid taxes in [1] excess of the property value in an attempt to “eat away at this hard core tax [1] delinquency.” [1]
the purpose of the bill was to remedy this hard core tax delinquency. [1] advocating for the sale of tax certificates in the twelve largest counties in [1] Ohio, Senator Drake added that “it is often the case in urban areas that the [1] amount of delinquent taxes exceeds the value of the property itself.” [1] 10 [1]
The [1]11 [1]Montgomery County Treasurer Hugh Quill said [1]12 [1]Mr. Quill wanted to [1]13 [1]Senator Grace Drake, one of the bill’s sponsors, agreed that [1]14 [1]In [1]15 [1] Before the bill was signed into law on November 26, 1997, a Fiscal [1] Note & Local Impact Statement [hereinafter Statement] was issued. [1]
“Detailed Fiscal Analysis,” the Statement noted that “[t]he threat of the sale [1] of property tax liens may reduce the number of delinquent properties,” [1] providing increased tax revenues. [1] would receive delinquent payments earlier through the sale of tax [1] certificates, “[t]hey may receive less revenue than if the lien was redeemed, [1] with interest, by the property holder at a later date.” [1]
Statement concluded that the effect on revenue was indeterminate.” [1]
The [1] Statement turned out to be optimistic. As counties would only later find out, [1] the effect of selling thousands of tax certificates to private investors would [1] in fact have a negative impact on long-term revenue. [1]
16 [1]In the [1]17 [1]However, because taxing districts [1]18 [1]Therefore, the [1]19 [1]
III. ISSUES
2. Focus on Individual Tax Payers
When House Bill 371 was first proposed in 1997, many county
treasurers saw this as a way to remedy the hard core tax delinquency
plaguing many counties in Ohio.
delinquent property taxes owed to it than the next five largest counties
combined, with some of the delinquencies exceeding twenty years.
87 Cuyahoga County (Cleveland) had more88
Counties argued that taxpayers on redemption payment plans were abusing
the program and “slow[ing] the process of returning those delinquent dollars
to the taxing districts that need the money for operations.”
tax delinquency remedies suited for economic climate of the 1990s are
exacerbating the foreclosure crisis of today.
The economic climate has changed significantly since 1997.
Counties in Ohio are still trying to adapt to that reality. Cuyahoga County
(Cleveland), the first county in Ohio to sell tax certificates, has canceled its
tax certificate sales, and is now trying to pursue a land-bank program.
land bank allows the county to purchase and take ownership of unredeemed
tax foreclosed properties, make repairs, and put the properties back on the
private market.
moratorium on mortgage foreclosures.
However, even as Lucas County
(Toledo) commissioners are considering backing the moratorium, Plymouth
89 However, the90 The91 Meanwhile, the Ohio General Assembly is debating a92 is worth looking at . . . .” they are not merely foreclosing on delinquent properties but on someone’s home.148 County treasurers should also remember that149 In undertaking a reevaluation of the tax certificate sales, with a focus on both the long-term effects and the wider implications of using of the tax certificate sales in the current economic climate, counties should look at both the long-term benefits and the long-term costs of the tax certificate sales. It must be noted that the tax certificate sales are not devoid of benefits. Counties must obtain cash to continue funding public schools,police and fire departments,responsibility of any citizen of the country.” provide cash and prevent those who pay their taxes from paying out higher taxes “to pick up the slack from scofflaw landlords or tax evaders.”150 and the payment of real estate taxes “is a151 These tax certificate sales152 Moreover, there are private investors, like Plymouth Park, that are more than willing to take on this “risky but potentially high-yielding investment.”153
However, the benefits are quickly outweighed by the long-term costs when counties develop a heavy dependence on the tax certificate statutes for collecting delinquent taxes. As community advocates have stated, “the short-term gains from turning liens into cash are defeated by the social costs of homeless families and abandoned foreclosed properties.”
154
Counties should take note of the arguments that private investors, like Plymouth Park, are exacerbating the foreclosure crisis, and counties should be concerned about the long-term effects that these aggressive, privateinvestors are having on local neighborhoods. to arguments that private investors are overwhelming homeowners with fees and interest and providing homeowners with unattainable redemption payment plans, as entire neighborhoods become wastelands of abandoned properties.
certificate sale at its inception was “to eat away at this hard core tax delinquency,” meaning those properties with unpaid taxes in excess of the property value. meant to be utilized as a remedy for all of the tax delinquencies within a 158
Putting a halt to the tax certificate sales in order to undertake a proper reevaluation will not be without its costs. Lucas County Deputy Treasurer Mark Austin has stated that without “‘the prospect of potential tax foreclosure, or a tax-lien sale, . . . schools and parks and all of the different county agencies which collect property taxes would have no way of anticipating revenues and their budget.’” of cash coming into the county, which could be high based on the potential to earn as much as $472,000 in a single tax certificate sale.
putting a temporary halt to the tax certificate sales, counties will gain two benefits: (1) a healthier community that is more capable of bearing the stresses of economic shifts, and (2) an ability to pursue remedies to the foreclosure crisis—a crisis that has been exacerbated by the tax certificate sales.
159 There will be an immediate loss160 However, by
B. Land Bank Remedy
One remedy to the harmful effects caused by the tax certificate sales is the land bank, which comes from Cuyahoga County—one of the counties in Ohio worst hit by the foreclosure crisis.
funded through interest and penalties paid on delinquent property taxes.
161 Cuyahoga’s land bank is162
The land bank allows the county to purchase and take ownership of
unredeemed tax foreclosed properties, which will help counteract the
“growing, destructive practice of speculators buying up foreclosed
properties -- often sight unseen -- and flipping them to a new buyer, without making improvements.”Reutilization Corporation had acquired more than 170 vacant properties.
163 As of April 8, 2010, the Cuyahoga County Land164
The Federal National Mortgage Association, Fannie Mae,
participating in the program, selling its foreclosed homes to the land bank
for one dollar each, and paying up to $3,500 to demolish homes “too far
gone to be fixed.”
165 is also166
Cuyahoga’s land bank is gaining acceptance in many counties, and
in 2009, the Ohio General Assembly began debating a bill that would create 167 The original proposal for House Bill 313 enabled168 This new mechanism would169 Dawn Larzelere, the170 171 Then, counties can put these properties172 State Representative Peter Ujvagi (Toledo),173 Montgomery County Treasurer Carolyn Rice, a proponent of the174 However,175
There are several problems with House Bill 313. First, as stated by
State Representative Matt Dolan, from Novelty, “‘It’s not a solution to the
economic crisis or the foreclosure crisis,’” but “‘[i]t’s a tool that will
help.’”
Lucas, Hamilton, and Montgomery have been closely watching the
Cuyahoga land bank, and are hoping “to gain another tool in the fight
against foreclosures.”
land bank proposal would increase government power, “essentially turning
counties into landlords with control over private property.”
following an aggressive and successful lobbying campaign by Cuyahoga
County Treasurer Jim Rokakis, this skepticism subsided.
176 While the land bank proposal is not a solution, large counties like177 Second, there was some initial skepticism that the178 However,179
Third, the land bank proposal is not a viable option for all counties
because the funds for the land banks must be raised locally.
estimates show that Lucas County could raise about $1.5 million through 181 182 These counties must explore other ways to183 However, even larger counties may have trouble184 Franklin County and Columbus already have185
On December 17, 2009, the Ohio House voted 88-6 to approve the
bill, sending it to the Senate,
Strickland signed the bill into law.
will allow “any county with a population of more than 60,000 to create a
land bank.”
law to utilize this “new tool to help deal with the pileup of foreclosed,
vacant properties that are driving down property values in a number of Ohio
cities.”
Representative and bill sponsor Peter Ujvagi (Toledo) said that the “success
of the program will be judged by how quickly properties are turned around
and property values are stabilized.”
186 and on April 7, 2010, Governor Ted187 Effective July 7, 2010, House Bill 313188 Currently, more than forty counties will qualify under the189 While the results may take years to develop, former State190
C. Limits Placed on Tax Certificate Foreclosure Sales by the General
Assembly
Alternatively, if the counties do not act, the General Assembly
should amend the new tax certificate statutes to include a series of
limitations on the tax certificate sales. First, the General Assembly should
examine the parameters in the fee structure of private investors like
Plymouth Park.
creating tax certificate redemptions that are “‘out of reach’” for many
homeowners.
fees for tax certificate foreclosures, and the General Assembly should
require that these fees be paid by the private investors and not included in 193 Third, the General Assembly should amend194 This method would provide homeowners with195 196
Attorney fees alone can range as high as $2,500 without court approval.
197
Two possible amendments to the statute would alleviate the burden imposed
by the attorney fees charged by these private investors. One way to remedy
the high costs of attorney fees is to bring the tax certificate statutes in
conformance with Ohio mortgage law. Under Ohio law, a mortgage-holder
seeking to foreclose must pay its own legal costs.
certificate statutes in conformance with Ohio mortgage law would require
the General Assembly to amend the statutes and delete the provision
awarding attorney fees to bidders at the tax certificate sales. The immediate
effect would be two-fold: (1) it would reduce the costs imposed on
homeowners, and (2) it would offer homeowners a better opportunity to
enter into the redemption payment plans that are provided by private
investors. In the long-run, this amendment to the tax certificate statutes will
give private investors an incentive to negotiate rather than litigate. A private
investor faced with paying its own attorney fees will be more willing to
negotiate a redemption payment plan with homeowners than to file a tax
certificate foreclosure and incur the increased costs.
Another way to keep attorney fees down is to require bidders at the
tax certificate sales to use the county prosecutor’s office when filing
foreclosures.
prosecutor’s office or to utilize private attorneys.
charged by county prosecutors, compared to those charged by private
attorneys, will help to reduce the total dollar amount of the bill that is
presented to homeowners, and it may give homeowners a better opportunity
to make the upfront payments required to enter into a redemption payment
plan with the private investors.
office will also bring in more business to the prosecutor’s office, and the
increased revenues generated from the attorney fees may allow the
prosecutor’s office to hire more attorneys and staff.
198 Bringing the tax199 Currently, the statute allows bidders either to utilize the 200 Lower attorney fees201 The increased reliance on the prosecutor’s202
Second, the General Assembly should increase the filing fees for tax
certificate foreclosures. Lucas County (Toledo) has explored this option “to
help residents who face being forced from their homes . . . .”
fees have also gone to pay for more court staff in courts that have been
inundated with these tax certificate foreclosures, amidst budget and staff
cuts.
immense burden placed upon homeowners. However, the General
Assembly should require the increased fees to be an externality for private
investors, thereby preventing private investors from passing these increased
filing fees on to delinquent taxpayers in the form of a higher total bill.
203 These filing204 By increasing filing fees, the General Assembly can help to ease the205
The increased filing fees will cut into the profit margin of private investors
holding these tax certificates, which will make negotiations with
homeowners more attractive than the aggressive foreclosure filings that have
dominated in the past.
206
Third, the General Assembly should amend the tax certificate
statutes to require mediation as a prerequisite to filing a tax certificate
foreclosure.
a foreclosure magistrate to help mediate cases.
this method is that it provides a homeowner with an opportunity to state his
or her case to a neutral third party. This is especially important with the
current economy leaving homeowners feeling that they are in a “‘no-win
situation.’”
more reasonable redemption payment plan with homeowners. Private
investors may be amenable to this new process, as Ed Marks, litigation
director for Legal Aid of Western Ohio, has indicated that “Plymouth [Park]
has shown in the past a willingness to negotiate with homeowners.”
207 Lucas County (Toledo) has also explored this option, hiring208 One positive attribute of209 Also, this method encourages private investors to enter into a 210
Fourth, the General Assembly should amend the tax certificate
statutes to include a limitation on the amount of tax certificates that can be
sold in any given year. When House Bill 371 was first introduced in 1997,
its proponents stated that the purpose of the tax certificate sales would be to
“eat away at this hard core tax delinquency.”
was defined as “properties with unpaid taxes in excess of the property value
. . . .”
Assembly should restrict the sale of tax certificates to only those properties
with unpaid taxes in excess of the property value. This limitation will bring
the tax certificate statutes more in line with the intended purpose of House
Bill 371,
within Ohio’s largest counties.
211 Hard core tax delinquency212 To place an adequate limitation on tax certificate sales, the General213 and this limitation will promote long-term health and growth
D. Six-Month Moratorium
As pressure grows for a state response, the General Assembly seems
relatively receptive to the changes described above. As State Senator Teresa
Fedor, a Democrat from Toledo, has described, “‘There is some movement
in Ohio to address this issue and get the attention of elected leaders to do
something to protect people from losing their homes. The system isn’t
working . . . .’”
House of Representatives has passed a bill that “calls for major changes
including the establishment of a comprehensive licensing regime of
mortgage servicers, a six-month moratorium on foreclosures, and increased
filing fees for foreclosure filings.”
report identifying the issues that House Bill 3 was created to address:
These actions are in response to several problematic issues
noted by community groups and the media. First, servicers
may not need to comply with federal workout regulations
because many are not federally regulated banks. Second,
keeping families in their homes until workouts are possible
is a community benefit and allows the homeowner a chance 216 217
Lucas County (Toledo) has expressed its support for House Bill 3.
As Lucas County Commissioner Tina Wozniak has stated, “‘Our
community can’t afford to do nothing. We’ve got some of the highest
foreclosures here in Lucas County compared to the entire nation. All we’re
asking is for people to have time to do workouts with their lenders . . . .’”
218
Even Lucas County Treasurer Wade Kapszukiewicz, a major supporter of
the tax certificate sales, said that if the state legislature enacts a moratorium,
“‘we would have to stop our foreclosures also and I would support that.’”
219
The measure passed in the House in May 2009, and was assigned to
the Senate Finance and Financial Institutions Committee on May 21,
2009.
hurdles to cross. Many people are concerned that the resolution will not do
enough to remedy the foreclosure crisis. Lucas County Commissioner Ben
Konop expressed his feeling on the matter, stating “‘[i]t’s not going to
immediately bring any relief. It’s more of a symbolic gesture . . . .’”
Konop is not alone in his concerns. While the first hearing of House Bill 3
was held in the Senate on January 12, 2010, it is skeptical whether the
measure will pass.
by the General Assembly to revisit the issue of tax certificate sales amidst
the foreclosure crisis, it is not the long-term strategy that should be
advocated. Once again, it is a temporary bandage being placed on a gaping
wound. Serious reevaluation and reform should take place to remedy the
wastelands of abandoned properties growing across Ohio.
V. CONCLUSION
Immediate action should be taken to remedy the unintended
consequences of the tax certificate sales. Treasurers should begin by 224 Moreover, the aggressive model used by Plymouth225 The current system is broken, and treasurers should only offer to226 (4) amend the tax certificate statutes to require mediation as227 and (5) amend the tax House HIO REAL PROPERTY LAW AND PRACTICE (6th ed.
reevaluating their heavy reliance on these tax certificate statutes during this
economic downturn. Remembering that the original purpose of House Bill
371 was to eat away at hard core tax delinquency, treasurers should utilize
the tax certificate sales only for those properties with unpaid taxes in excess
of the property value.
Park is well-suited to a strong economy, but is not viable in this economic
climate.
sell tax certificates with reasonable interest rates, minimal costs, and
minimal fees.
If treasurers continue to depend on the tax certificate sales with
excessive costs and interest despite the obvious impact on their
communities, then the General Assembly should take action. The General
Assembly has five options to counter the harmful effects of the tax
certificate sales: (1) bring the tax certificate statutes in conformance with
Ohio mortgage law, amending the tax certificate statutes and deleting the
provision awarding attorney fees to bidders at the tax certificate sales; (2)
increase the filing fees for foreclosures, but require that these fees be paid
by the private investors and not included in the fees charged to delinquent
taxpayers; (3) amend the statute to require bidders at the tax certificate sales
to use the county prosecutor’s office when filing tax certificate
foreclosures;
a prerequisite to filing a tax certificate foreclosure;
certificate statutes to restrict the sale of tax certificates to only those
properties with unpaid taxes in excess of the property value.
The true costs of not paying your property taxes in Ohio are rapidly
rising, and serious reevaluation and reform must take place to remedy the
wastelands of abandoned properties growing across Ohio.
224
Editor-in-Chief 2010-2011, Staff Writer 2009-2010, University of Dayton Law Review; J.D.
expected May 2011, University of Dayton School of Law; B.A. in Economics, 2008, University of
Dayton. I discovered this topic while working as a research assistant for Robert M. Curry and James
Geoffrey Durham, updating their real estate treatise O
2009). I would like to thank Bob Curry for the inspiration and initial discussions on the topic of tax
certificate sales. Also, I would like to give special thanks to James Geoffrey Durham, who served as an
advisor, an editor, and an invaluable resource for this Comment. Finally, I would like to thank my
mother, Theresa, my father, Thomas, and my brother, Christopher, for their unconditional love, support,
and encouragement over the past twenty-four years.
220 Although House Bill 3 is constitutional,221 the bill still has some222 Mr.223 While House Bill 3 is certainly a positive step taken
at a workout. Finally, there are financial incentives in the
current foreclosure process for servicers to foreclose on a
home.
The six-month moratorium would affect all foreclosures on occupied
homes.
214 Acknowledging that the system is not working, the Ohio215 In 2009, Policy Matters Ohio issued a
the fees charged to delinquent taxpayers. Through the increase in filing
fees, the General Assembly can increase a private investor’s incentive to
negotiate more reasonable terms with homeowners, and the filing fee
increase will compensate local courts that have been inundated with these
tax certificate foreclosures.
the tax certificate statutes to require mediation as a prerequisite to filing a
tax certificate foreclosure.
an opportunity to speak to a neutral third party, and it would encourage
private investors to enter into a more reasonable redemption payment plan
with homeowners. Fourth, the General Assembly should amend the tax
certificate statutes to include a limitation on the amount of tax certificates
that can be sold in any given year. This limitation would ensure that the
original purpose of the bill, to remedy hard core tax delinquency, would be
carried out, even amidst the current economic downturn.
First, interest rates and fees are overwhelming homeowners.
191 Interest charges and fees are overwhelming and are192 Second, the General Assembly should increase the filing
local sources, and Cuyahoga County expects to raise around $9 million.
Smaller counties cannot fund their land banks in the same manner as
Cuyahoga’s land bank—which is funded by interest and penalties paid on
delinquent property taxes—because they obtain less revenue from
delinquent property taxes.
fund the land banks.
funding the land banks.
land banks, but as Franklin County Treasurer Ed Leonard has stated, “the
county isn’t actively going after properties because it doesn’t have the
money . . . .”
180 Preliminary
land banks across Ohio.
“any county with more than 100,000 people or with between 78,000 and
81,000 people to establish a land bank.”
allow counties “to take control of vacant and abandoned properties plaguing
neighborhoods by issuing bonds to acquire homes.”
policy director of Greater Ohio, stated that “[t]he bonds would be paid off
with money from penalties and interest collected on delinquent property
taxes . . . .”
Once the foreclosed properties have been acquired, non-profit
groups could repair the homes.
back on the private market.
one of the House bill’s two main sponsors, offered the land bank as a way to
deal with “vacant homes dragging down the value of [neighboring] houses .
. . .”
bill, has stated that “‘[w]ithout [the land bank] we don’t have many options
to deal with the problem of abandoned and vacant properties.’”
the bill is not perfect, and Rice gave the caveat that “‘[w]e have a whole lot
more homework to do . . . .’”
county.
155 Credence should be given156 It is also important to remember that the purpose of the tax157 Even at its inception, the tax certificate sale was not
THE TRUE COSTS OF NOT PAYING YOUR [1]
Links:
[1] http://www.udayton.edu/law/_resources/documents/law_review/the_true_costs_of_not_paying_your_property_taxes_in_ohio.pdf