The fact that a property may be vacant; that is, not currently occupied or in use, does not in itself make it a problem property. Not only are many vacant properties harmless, but indeed, the existence of vacancies is a necessary condition of a functioning housing market. Without them, the market would grind to a painful halt.1 Clearly, there is an important distinction between a property that is simply temporarily unoccupied, but otherwise sound and not a problem to anyone, and those properties that are vacant for longer periods, likely to be falling into disrepair, and a potential magnet for health and safety problems. Such properties are sometimes referred to as blighted or blighting properties, a term I will avoid since it is both overly broad and laden with potentially problematic associations.2
Problem vacant properties are sometimes referred to as ‘abandoned’ properties, implying that the owners have walked away from them and allowed them to fall into disrepair. Here, too, the definition can raise questions. If an owner has ceased to maintain her property but continues to pay the taxes on it, is it truly abandoned? Such a property may indeed be considered abandoned under the laws of many states, as will be discussed later. I would suggest that there are two forms of abandonment: (1) abandonment in the literal sense, where the owner has indeed for all practical purposes disappeared, and (2) what could be called constructive abandonment, where the owner may be nominally present and paying taxes but has ceased to maintain the property and has allowed it to deteriorate or become a nuisance. Depending on the laws of each state, these conditions may be treated similarly or very differently for purposes of regulation or enforcement.
This chapter will provide the reader of this guide with a short background on the critical issues associated with vacant properties and the principal legal remedies available to deal with the problems they cause. The first part of the chapter will offer a background on the issue, including the evidence on the problems they cause and the principal economic and other factors that lead to properties being abandoned. The second part of the chapter will look at the principal legal tools that are available, including vacant property registration, receivership, and the complex issue of dealing with vacant properties in foreclosure.3
A closing section will offer some thoughts on how these factors may affect the work of lawyers seeking to address the issues created by problem properties.
II. Understanding Vacant Properties
A. Why Are Vacant Properties a Problem?
Vacant properties that are visibly neglected or that are being used inappropriately can have a devastating effect on their surroundings, undermining their neighbors’ quality of life, diminishing the value of nearby properties, and imposing inordinate fiscal burdens on the city. This conclusion is supported not only by common sense but by a growing body of solid research.
For well over a decade, numerous studies have shown that vacant buildings and vacant lots can significantly reduce the value of the occupied properties around them. Studies in Philadelphia and in Columbus, Ohio found that having an abandoned building on a block can reduce the value of nearby properties by 20% or more.4 The Philadelphia study estimated that vacant properties led to an aggregate $3.6 billion in reduced household wealth because of the blighting effect they have on nearby occupied properties.5 In a finding with strong policy implications, a Temple University study in Philadelphia discovered that the devaluing effect of a single vacant property on a block was almost as great as that of two or more vacant properties, strongly suggesting that removing some but not all of the vacant properties from a block is much less likely to have a positive impact on the block than if all of the vacant properties are removed.6
Other studies have found that the impact of vacant lots is similar to that of vacant buildings. One study found significant impacts on property values,7 while in another, researchers interviewed residents of a neighborhood, finding that nearby vacant lots negatively affected their quality of life and well-being; as one resident commented, “[Vacant lots are] a big downer too, just because of all the trash and rotten smells. It just makes you question where you call home.”8
Vacant properties are also associated with crime and violence. One study found that crime rates on blocks with abandoned properties were double the rates of those blocks with no abandoned properties, while another found a strong relationship between the presence and number of vacant properties and reported aggravated assaults on the same block, reporting that the risk of violence increased as the number of vacant properties went up.9
The people who were interviewed in the vacant lot study spoke passionately about their effects, as the researchers wrote, “Participants felt vacant land attracted illegal activity because decaying structures and overgrown lots provided cover for people engaging in illicit behaviors. Participants reported drug dealers using vacant land to conduct sales and addicts using abandoned homes as ‘chill spots,’ or for prostitution and gambling.”10 These factors undermine residents’ confidence in their neighborhoods and encourage those who can leave to do so. Their presence can deter property investment by adjacent homeowners, as well as discourage prospective homebuyers from buying in the vicinity.
Over and above their impact on neighborhood social and economic conditions, vacant and abandoned properties have a debilitating effect on the fiscal condition of the cities, towns, and counties where they are present. Not only do they pay little or nothing in property taxes, and generate little revenue for the city or county when sold at tax sales or tax auctions, but they further reduce property tax collections by millions of dollars by devaluing neighboring properties. In many jurisdictions, many properties are eligible for tax foreclosure and remain in that state for many years or even decades, as they continue to deteriorate, without anyone acting to take title.
For a city to be able to pay its employees and provide services to its residents, it needs property owners willing to pay their taxes and—when they do not—investors willing to step up and buy liens on the properties and pay the city the taxes it is owed.11 Vacant properties, particularly when present in large numbers, sharply reduce a municipality’s ability to raise those revenues. The fact that there are few negative consequences to tax delinquency in many of the more distressed communities around the United States in itself reduces municipal revenues, by offering a de facto license to property owners to not pay property taxes.12
In addition to the loss of revenues, governmental bodies at all levels incur substantial costs to deal with vacant properties. A study of vacant properties in Toledo, Ohio found that vacant properties cost the city $3.8 million per year in direct costs and $2.7 million per year in lost tax revenues from the vacant properties themselves, as well as $98.7 million in lost property values and $2.68 million in lost tax revenues from adjacent properties whose value was diminished by the presence of vacant properties.13 As more cities turn to demolition to reduce their surplus of vacant properties, those costs are mounting. Detroit is spending nearly $130 million of federal funds already committed to demolish vacant properties,14 while at the beginning of 2016, the city of Baltimore and the state of Maryland announced Project C.O.R.E., a $94 million program to demolish vacant properties in that city.15 Vacant properties are a massive drain on resources, hitting hardest those cities already struggling to meet payrolls and invest in their future.
This information is not only important from a policy standpoint but can be useful for a lawyer framing an ordinance, contemplating action against a problem property, or defending a lawsuit brought by a property owner against such an action. Having well-documented evidence that can be placed in evidence through qualified experts at trial to show the extent to which vacant properties create nuisance conditions and diminish not only property values but the quality of life for nearby residents, can significantly help build the legal case for local government action to deal with them. This is particularly important when the local government is relying on the police power rather than an explicit state enabling statute as the legal basis for its action.
B. What Factors Trigger Problem Vacancies?
In order to successfully address vacant property problems, it is important to understand what factors are responsible for triggering them. Vacancy and abandonment do not occur at random. They are, with rare exceptions, the product of underlying economic conditions, which are, however, often made worse by dysfunctional or poorly managed legal systems or administrative practices.
1. Problem Vacancies Are Fundamentally a Problem of Economics
In most cases, properties are abandoned when an owner for whatever reason no longer finds it worth her while to maintain the property or where no buyer can be found for a property the owner has left. The latter is often the outcome when elderly homeowners in distressed areas pass away, and no buyer can be found for the property.16 Both conditions are common in severely distressed urban and rural areas.
Thus, for legal action to lead to productive reuse of a particular vacant property, it must take into account the economic conditions affecting that property. Overly zealous code enforcement in an area with low or declining property values may well lead to a property owner deciding to abandon her property rather than incur substantial costs associated with compliance. While some properties are abandoned for reasons unrelated to underlying economic condition, such as legal disputes, bankruptcy proceedings, or other similar situations, those are exceptions that need to be addressed on a case-by-case basis. Where economic conditions are strong, moreover, public sector intervention is rarely needed to resolve those issues, as interested private parties are more likely to devote the time and effort to do so.
Although expensive areas like San Francisco or Washington DC tend to dominate the real estate pages, property values remain low in many other parts of the United States, in some cases very low. Although house prices in most of the country nosedived after the collapse of the housing bubble and the foreclosure crisis of 2006-2009, prices were already low to begin with in many areas and in others never recovered from the collapse.
This often reflects uneven property demand. While many United States cities and regions are growing, many older cities, many neighborhoods in other cities, and many parts of rural America are losing population. In other areas, including many suburban areas, former middle-class residents are being replaced by poorer people who are less able to buy, maintain, or rehabilitate the area’s aging housing stock, and homeowners are being replaced by absentee owners less eager to do so.17 All of these conditions lead to weak and declining demand for those areas’ homes and apartments.
Where demand for property in any area is less than the supply of available properties, prices decline. Steady decline in demand and prices can trigger a vicious cycle. Property owners reduce maintenance, stop improving their properties, and often stop paying property taxes as well. As those practices increase, the area deteriorates. As the area deteriorates, families with the means to move out do so, further reducing demand. Fewer people buy properties, and most of them are absentee buyers rather than homebuyers, as prospective owner-occupants are reluctant to make a personal commitment to an area now in visible decline. Ultimately, demand may decline to the point where many houses simply do not sell at all and are abandoned by their owners.
Many older houses that do not sell are initially in habitable condition, although they may need repairs or upgrading. They can often be occupied as-is or with modest repairs. Once a house has been abandoned, however, it often deteriorates. That may take place quickly if the house is in a distressed neighborhood, where it may be stripped for the value of the fixtures and the copper in the pipes, used for illegal purposes, vandalized, or occupied by squatters. If water invades the interior of the house, either through holes in the roof or open windows, the structure itself begins to deteriorate. Once any of those things has happened, the cost to make the property habitable increases significantly and often comes to exceed its post-rehab market value. There are many urban neighborhoods where houses in good condition may find buyers, albeit at low prices, but vacant, abandoned houses remain vacant until some action is taken by the public or non-profit sector to rehabilitate or demolish them.
The effects of this cycle are visible in many urban neighborhoods, some of which have been in decline since the 1960s or 1970s. While some older cities like Baltimore and Philadelphia have begun to reverse their long-term decline, revival is typically taking place only in small parts of those cities, while large areas in both cities still suffer from widespread vacancy and abandonment. The problem, however, is not solely an urban one. Abandoned properties are found in many rural areas, particularly in the deep South, Appalachia, and the Plains states, and increasingly in many inner suburbs of big cities, such as the southern suburbs of Chicago or the northern suburbs of St. Louis.18
2. Vacant Property Problems Are Often Exacerbated by Legal Systems and Public Policies
While the underlying forces leading to vacancy reflect the way different people respond to market conditions, they are not simply a product of weak market conditions or market failure. Public policies and practices can exacerbate the problem, particularly in the many marginal situations where properties may still have some but modest market value. The two most important areas where public action most often interacts with and contributes to the problem are, first, code enforcement or the public practices through which vacant properties are regulated and, second, enforcement of delinquent property taxes. During the height of the foreclosure crisis, enforcement of delinquent mortgage payments became a third area of comparable or greater magnitude, as the process itself was triggering large numbers of vacancies with serious consequences for neighborhoods, which I discuss in Section 4 of this chapter. While that issue has receded from wider public awareness as the number of foreclosures has declined nationally, it remains a serious concern in many states, particularly in the northeast and Midwest.
The common themes linking these three areas are, first, that all three are governed by state law and, second, that they materially affect both the extent of vacant property conditions and the ability of localities and other interested parties to address them. Outside of Dillon’s Rule states like Virginia and North Carolina, most states allow local governments broad latitude in designing code enforcement practices. State law, however, defines the procedures by which local governments conduct delinquent property tax enforcement, while delinquent mortgage enforcement is generally entirely out of the hands of local government.19
States that do not allow local governments to license rental properties, as discussed in Chapter 4, deprive those governments of perhaps the most powerful tool available to drive responsible stewardship of rental properties. Similarly, states that require local authorities to sell tax liens on delinquent properties, particularly where those authorities have little or no discretion over to whom they sell the liens, can easily lead to properties falling into a legal limbo that can go on for years, increasing the risk that already vacant properties will further deteriorate and currently occupied properties, including many owned by lower-income and elderly individuals, will become abandoned.20
The overarching role of state law does not exculpate local government. Many counties and municipalities do not use, either through ignorance or by design, the powers state law gives them to address problem properties. While Ohio law gives county land banks the ability to take title to properties that have been tax delinquent for two years through an expedited procedure,21 a recent analysis in Youngstown, Ohio found that approximately 30 percent of all of the properties in the city met the statutory criteria for expedited taking but that no more than a handful were actually being taken by the Mahoning County Land Bank Authority, the entity with the legal authority to do so. It is easy to understand the plight of the Authority, which was understandably reluctant to take title to some 10,000 properties, few of which had even minimal market value and which would cost the Authority millions (that it did not have) to maintain and secure. Just the same, their reluctance to act has meant that property owners have learned that payment of property taxes is effectively discretionary rather than mandatory, inasmuch as no material consequences were associated with non-payment. That, in turn, is likely to have significantly reduced the county’s property tax collections and the revenues available to the city of Youngstown.
Endnotes
1. To which one should add the large number of properties, both in high-demand cities like New York and in resort areas, that are held for seasonal or intermittent use and are vacant most of the time. The proliferation of such properties in high-demand cities, in the United States and other countries, may be a problem in that it distorts the housing market, but is not a problem in the sense discussed here.
2. Referring generically to the properties that are seen as causing problems for their neighbors as “blighted” properties is plausible but raises two questions. First, the term “blight” has a specific legal meaning under the urban redevelopment laws of many states, which may include conditions other than building conditions and which is often associated with the exercise of eminent domain. Second, many people also find the term objectionable because of its strong association with eminent domain, in particular the urban renewal programs of the 1950s and 1960s and the damage they inflicted on many communities.
3. Although this chapter may touch on the question from time to time, issues specifically related to local governments or others gaining legal title to vacant and abandoned properties are addressed in Chapter 6.
4. Wonseok Seo & Burkhard von Rabenau, Spatial Impacts of Micro-neighborhood Physical Disorder on Property Resale Values in Columbus, Ohio, 137 J. of Urb. Plan. and Dev. 3 (2011); Penn Inst. for Urban Research & Econsult Corp., Vacant Land Management in Philadelphia: The Costs of the Current System and the Benefits of Reform (2010) iv, 8 [hereinafter Penn Inst. for Urban Research].
5. Penn Inst. for Urban Research, supra note 4, at 5.
6. Eastern Penn. Org. Project, Temple Univ. Ctr. For Pub. Policy & Diamond & Assocs., Blight Free Philadelphia: A Public-Private Strategy to Create and Enhance Neighborhood Value (2003).
7. Susan M. Wachter, Kevin C. Gillen & Carolyn R. Brown, Green Investment Strategies: How They Matter for Urban Neighborhoods, in Growing Greener Cities: Urban Sustainability in the 21st Century (Univ. of Pa. Press 2011).
8. Eugenia Garvin et al., More Than Just an Eyesore: Local Insights and Solutions on Vacant Land and Urban Health, 90 J. of Urb. Health: Bull. of the N.Y. Acad. of Med. 412, 419 (2012) [hereinafter Garvin].
9. William Spelman, Abandoned Buildings: Magnets for Crime? 21 J. of Crim. Just. 481 (1993); Charles C. Branas et al., Vacant Properties and Violence in Neighborhoods (2012), https://www.hindawi.com/journals/isrn/2012/246142/.
10. Garvin et al., supra note 8, at 418.
11. While, as Kelly discusses in Chapter 6, the common system of lien purchases by investors raises many troubling substantive and policy issues, they are nonetheless a major source of municipal revenues, particularly for many older cities.
12. Contrary to what many readers may believe, in most states that sell tax liens, in the event the owner fails to redeem the property, neither the investor nor the local government holding the lien are under any legal obligation to foreclose and take title to the property. Indeed, many cities and counties, as well as land bank entities, are reluctant to do so because of the maintenance obligations and potential legal liabilities associated with ownership. Of the well over 100 land bank entities in the United States, the author is aware of only two (in Flint and Detroit) that routinely take title to all the properties to which they are legally entitled.
13. Dan Immergluck, Ctr. for Community Progress, A Conservative Analysis of Costs Imposed by Vacant and Blighted Properties (2016), http://www.communityprogress.net/filebin/160630_TASP_LCLRC_Toledo_Cost_of_Blight_Study_Final.pdf.
14. Todd Spangler & Paul Egan, Detroit to get $21Million More for Blight Demolition, Detroit Free Press, Oct. 28, 2015.
15. Press Release, Office of the Governor Larry Hogan, Governor Hogan, Mayor Rawlings-Blake Partner to Address Blight in Baltimore City, Announce State Project (Jan. 5, 2016), http://governor.maryland.gov/2016/01/05/governor-hogan-mayor-rawlings-blake-partner-to-address-blight-in-baltimore-city-announce-state-project/.
16. This situation is often exacerbated by the frequency with which low-income homeowners die intestate, creating title problems that often increase the likelihood that the house will be abandoned.
17. For a discussion of the role of homeownership in neighborhood stability, see Alan Mallach, Homeownership and the Stability of Middle Neighborhoods, in On the Edge: America’s Middle Neighborhoods (2016).
18.For a comprehensive discussion of the extent and characteristics of housing vacancy in the United States in general, and in older cities, see Alan Mallach, The Empty House Next Door: Understanding and Reducing Vacancy and Hypervacancy in the United States (2018).
19. Although county sheriffs play a significant role in the process, their role is ministerial as officers of the court, and they have no discretion over whether or not to enforce the law.
20. For a discussion of how this process works in Baltimore, Maryland, see Kim Graziani & Frank Alexander, Ctr. for Community Progress, Assessment of Baltimore City’s Tax Sale System: Impacts on City Finances, Vacant Properties, and Vulnerable Owner Occupants (2016), https://community-wealth.org/sites/clone.community-wealth.org/files/downloads/ASSESSMENT%20OF%20BALTIMORE%20CITY’S%20TAX%20SALE%20SYSTEM-.pdf.
21. Ohio Rev. Code Ann. § 5722.04 (West 2018).