Kent County Land Bank Circumvents Market To Fund Operations
The Kent County Land Bank is acquiring tax delinquent and abandoned property before it is made available to the public and in doing so, the quasi-governmental entity is casting a big shadow on what had been an open and successful real estate market.
Under Michigan statute, land banks aren't supposed to buy tax delinquent and abandoned property until after buyers get their chance at tax auctions. This prohibition seems to indicate that the Legislature intended to limit land bank purchases to the less desirable parcels and buildings that the market rejects.
However, the law allows local governments to purchase delinquent and abandoned properties before tax auctions. Kent County and the city of Grand Rapids have been buying properties for the land bank. They make the purchases and then sell the properties to the land bank at cost.
Rep. Ken Yonker, R-Caledonia, said he has been working on legislation to prohibit the roundabout purchasing practice.
"We're working to put laws in place that would put a stop to this," Rep. Yonker said. "What is happening is that the [land bank] authority has taken the law and stretched it so that it can cherry pick the properties it wants. As a result, it is taking tax dollars that local government would otherwise be getting. Now they [the local governments] would go and tax us more because they have to support some cockamamie authority."
Arguing that the land bank's way of acquiring property is a violation of state law, a coalition of local real estate groups and Realtor agencies filed a lawsuit against Kent County and the land bank in the fall of 2012. The coalition is now in the process of filing a lawsuit against the city of Grand Rapids and the land bank.
In the only legal test so far, there was no ruling on the core issue at hand. Kent County Circuit Court Judge George S. Buth ruled that the coalition had no standing to bring the first lawsuit. But the case could now move on to higher courts.
"I really can't blame the judge for his decision," Rep. Yonker said. "I believe the [land bank] authority is violating the law, but parts of the law are really pretty vague. He probably didn't know what to do.
"We have legislation (House Bill 4626) that's undergoing some changes to address this situation and any similar ones that might happen anywhere else," Rep. Yonker added. "We're going to hold hearings on it this fall. One of the things we're doing is working on definitions, such as the definition of 'blight,' which was not made clear in the current law. In addition, we're looking at opening up tax laws. We want to make sure things are consistent across the board."
Rep. Yonker said he thought there was support for the legislation in the House.
"This is even getting some Detroit lawmakers excited because of some of the things they've seem happen down there," he said. "You know, all of this [land bank] stuff in Michigan started in Detroit. It might make a little more sense down there, but why would we even need something like this in Kent County? There's just no reason for this."
Widespread creation of land banks is a recent development. In fact, the Kent County Land Bank Authority (KCLBA) has existed for only two-and-a-half years. The first land bank was created in St. Louis, Mo., in 1971. Over the next three decades a handful of municipalities created land banks, but, until the mid-2000s, they were few and far between.
The program went into overdrive in 2009, when the Department of Housing and Urban Development issued a report embracing land banks as a "best practices model" for municipalities seeing plummeting real estate prices after the 2008 economic crisis.
Rusty Richter, a real estate broker for Keystone Realty Group in the Grand Rapids area, said the land bank concept is not a good fit for Kent County.
"We don't have a blight problem in Kent County," Richter said. "Our real estate market is doing fine. Over the past three years, of all the properties that were put up at auction, just 17 failed to sell.
"Some areas, like Wayne or Genesee counties, might have problems where a land bank could be useful," Richter continued. "This is like taking something meant to address a problem that exists in one area and trying to apply it in an area that doesn't have the problem to begin with."
Richter said the Kent County Land Bank a solution looking for a problem and an example of government creating a problem.
"I think the real problem is that there was legislation that allows the formation of a land bank with a county commission," Richter said. "This is something that's being done because it is sort of the trendy thing to do. So here we now have a government entity that gets to do things in the marketplace, but of course it also gets special advantages because of its connections to government."
Clay Powell, of the Rental Property Owners Association, said there might be legitimate purposes for land banks, but that's not the role the Kent County Land Bank is playing.
"Our biggest concern is that they [the land bank] are taking all of the properties they want," Powell said. "Then they're picking and choosing which Realtors get to sell the property. The whole thing seems to be about who gets to control the process.
"This is not what was sold to the community when they first talked about having a land bank," Powell continued. "Public funds just shouldn't be used for things that ought to be done by private investors. That's especially the case when it's all about addressing what seems to be an imaginary problem."
Jeff Steinport, spokesman for the Kent County Taxpayers Alliance, said the motivation for the property purchases the Kent County Land Bank has been making is easy to assess.
"In last year's documentation; under 'justification for purchase,' in almost every instance, the reason given was 'funding for land bank,' " Steinport said. "Last year, the land bank got 44 properties from the county before a tax auction could be held, some of which were among the best properties available. This year, in Grand Rapids, there were 163 properties. They [the land bank] had the city of Grand Rapids get all of these properties, for them — the good and the bad. What they're using this for is to fund themselves.
"This is not an open process," Steinport continued. "They get it without anyone else having a chance. But they [land bank officials], deny there is a legal problem."
Ken Parrish, the Kent County treasurer who also is the land bank's executive director, said the land bank's purpose is partially the elimination of blight "but equally important are the values of increasing property values, preserving neighborhood character and promoting economic development."
He denied that the land bank favors certain Realtors and contends that local Realtors benefit.
"Nearly every property offered for sale is represented by a licensed Realtor and listed on the Multiple Listing Service," he said. "That allows any Realtor, whether they are representing KCLBA or not, to be the selling agent and earn commission."
The full Capitol Confidential interview with Parrish can be read here.
(Editor's note: This story has been slightly edited since its original posting. The Circuit Court ruling was made by Judge George S. Buth.)
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.