LAND BANKS AND LAND BANKING REVISITED

BY GEORGE LUMLEY

What is a “Land Bank”?  A Land Bank is a public, governmental, or non-profit entity to hold title to and care for abandoned properties, (houses, buildings and vacant lots) where a profit motive does not exist.  Where a profit motive does exist, in the free enterprise system the counterpart is the “Real-estate Investor”.

What is “land banking”? Land banking is the holding of a property or properties in a state of limbo until it is put to a beneficial use consistent with its location.

Do we have any “Land Banks” in our area?  Yes, Evansville has its very own “Land Bank” called the Evansville Brownfields Corp.  A quick search on the internet shows it’s claim as a Land Bank since 2001.  Not in the news as much as  Indianapolis’ Land Bank with its recent problems of fraud, corruption, and bribery; however, Evansville Brownfields Corp has been active and at times is controversial.  I find it interesting that they seem to play both sides of the fence as to whether they are private or public.  They seem to be public and part of the City of Evansville when they need funding but private and operating behind closed doors when it comes to spending those resources.

Do you have to be a “Land Bank” to be involved in land banking? No. So who is “land banking” properties in the Evansville area?  Private and public land banking operations are common in Evansville. Private land banking is conducted by real-estate investors, financial institutions, individuals/landlords, tax lien sale investors, tax sale speculators, and naive tax sale buyers to name a few.  Public land banking operations are being conducted by the County Commissioners, Evansville’s Brownfields Corp, and not-for-profits such as Echo Housing.

A good example of a property that had been land banked by private real-estate investors would be the tract located at the corner of First Avenue and Diamond formally known as the First Avenue Shopping Plaza.  No need for a tax payer financed “Land Bank” to hold title to this property.  Even though the previous buildings deteriorated and were subsequently razed, private investors saw opportunity in holding this property and were more than willing to pay the $15,000 per year property tax assessment.  Their investment will pay off with Wal-Mart becoming the new tenant of the property currently under construction.

Financial institutions are land banking properties by holding them from public sale.  Often a foreclosure is stopped after the owner vacates and then the institution continues to hold the property in limbo by paying the taxes and not moving forward with the foreclosure. Sometimes the owners do not even realize they still have an ownership interest.  The financial institutions have a profit motive such as government insurance on the loan or simply wish to push losses into future years.

Individuals are land banking mainly because of lack of demand and the price point of their properties.  Who wants to buy a home in a neighborhood with decreasing home values?  When a home owner moves and can’t sell at what he considers a fair price the home will often become a rental out of necessity and the owner an unintended landlord. Unfortunately more absentee owners usually leads to more blight which further fuels the neighborhood’s decline. Some individuals just like to hoard or can’t make the decision to part with an old home when it could be used for storage.  Maybe not livable and almost worthless in cash value the taxes in many cases are cheaper than renting the smallest of storage units.  They sometimes think they might fix it up someday for a rental.  Of course that day never arrives and the property continues to decline until eventually someone intervenes.

Tax sale investors are usually focused on buying only the financial instrument, the lien, and not the property.  Their objective is not to own the property but to earn a high rate of interest or return on investment until the property owner pays the delinquent taxes. The tax lien investor wants to buy liens on property that they feel will be redeemed. Sometimes the owner does not redeem the property and it falls into a land banking limbo with the owner, lien holders, and county all having an interest until the county commissioner’s tax sale.

If taxes remain unpaid a property will enter the public land banking operation of Vanderburgh County.  The property is simply owned by the county. Vacant and blighted structures could be razed. The property could be held for future development. It can be auctioned off, given away, or disposed of in almost any way they see fit.  The county, although not a formal “Land Bank”, has been in the land banking business since its formation in 1818.

Vanderburgh County, a public land banker, usually sells properties basically free and clear with blighted buildings and all back to the private land banker at auction.  Two types of land bankers show up at this sale: the speculator and the naive home buyer. The speculator can buy up lots for as little as $ 1.00 and own them for 4 years without any additional cost.  Or the speculator might buy a house for $ 1200 that he can sell on contract as a “fixer upper” for $350 a month.  If the buyer makes payments for a year the speculator has a nice profit.  The naive home buyer might buy a property with a house for as little as $ 25.00 or more than $ 10,000 only to find the cost of repair to be overwhelming.  Yes, many properties do find that beneficial use after the Commissioners sale; but, in Vanderburgh County, the majority simply begins another 4 year term of private land banking.

Evansville Brownfields Corp. is an official “Land Bank” according to their articles of incorporation and statements made by their officers that are easily found on the web.  Now whether they are public or private is a good question.

They appear to derive most of their funding from public sources. They have received some rather large grants from HUD.  And some recent news articles have city officials saying they have to divest of properties the Brownfields Corp. bought with Community Development Block Grant Funds because they can not land bank with those funds.  HUD says land banking is bad for neighborhoods and their programs are supposed to put properties to beneficial use – not land bank them.  Hm imagine that.

A look at the 120 properties the Brownfields Corp owns and it would appear they are trying to corner the market on vacant lots in the Arts District.  They have a few lots with the blighted, vacant and abandoned looking houses still standing like the one at 309 Madison Ave.  That porch looks like a lawsuit about to happen.  They do have a few properties in other areas.  Their holdings around 1300 North Fulton include the lots with the dead hangman’s tree, brush, Iron fence remnants of a long gone residence and three feet tall weeds growing out onto the sidewalk. Could be an attractive lot if cleaned up and put to use.

I attended a DMD planning meeting concerning the blight on March 30 of this year.  There seemed to be an emphasis on making the Brownfields Corp. into a Land Bank.  I thought it was a Land Bank? Most of the DMD sponsored meeting, that was supposed to be about blight, seemed to be a dog and pony show about the need for a Land Bank. I thought we had a Land Bank?  I was surprised the discussion was not about funding and controlling the blight with efficient use of existing tools and resources.

Local not-for-profits are another form of land banker in Evansville.  Organizations like ECHO Housing and Habitat acquire and hold properties to build affordable housing.  The Vanderburgh assessor shows Echo owning about 65 properties.  Half are vacant lots, a few have nice structures and many have zombie houses.  Houses that are not livable, will never be livable, and are just a blight on the neighboring homes.  They are the bad apples spoiling the rest of the neighborhood.  Structures on properties like 415, 417, and 419 Garfield with: the brush, garbage, and old mattresses piled around back (cover photo); doors nailed over windows; and roofs caving in are just garbage that needs to be hauled off.  Why has ECHO land banked these properties for five years and how long will this continue?

Now the city plans to unveil their new program this summer.  It’s main component is rumored to be making the Evansville Brownfields Corp into a “Full-Fledged Land Bank”.  I have not been able to find a definition of a “Full-Fledged Land Bank”.  The closest thing I could come up with is a “Fully Funded” Land Bank.

Evansville does not need another form of land banking to hold zombie properties in the neighborhoods.  Evansville does need: a full-fledged commitment to hauling off the garbage zombie houses that are promoting further decline;  fully funded code enforcement to separate the structures that can be saved and assist private enterprise in timely code compliance; and a stronger program of promoting the private ownership of vacant parcels by people of the neighborhood.