News Story

Court Grills County Over Land Bank Activities

Using the word “sham,” a Michigan Appeals Court panel gave plaintiffs hope in their case against the Kent County treasurer and the Kent County Land Bank for bypassing the public auction process on tax foreclosed property.

The case is on appeal after Kent County Circuit Judge George Buth ruled in favor of the defendants, saying he doubted plaintiffs had legal standing. The plaintiffs involve a coalition of private investors and real estate groups who say they were denied access to the property when the county treasurer sold foreclosed property to the land bank for an amount no higher than the delinquent taxes owed on it.

If the property had been sold at auction, the minimum bid at the first round would have been what was owed on the property. An affidavit filed by plaintiffs in the case says the average return on property going to auction was 1.7 times higher than the price for which it was sold to the land bank. The proceeds would have gone back to the county’s general fund.

Michigan law prohibits land banks from purchasing tax-foreclosed property before it goes to auction. In Kent County, either the county or the City of Grand Rapids would exercise their option to buy the property and then sell it to the land bank at cost.

Investors complained that the land bank would cherry pick the best properties and leave the scraps to the auction. At the last auction, several bidders left because of the poor selection of properties.

Attorney Ronald VanderVeen, representing the plaintiffs, used an analogy to describe what the county, city and land bank were doing. He said it’s similar to a parent forbidding a teenager from driving to Kalamazoo. So the teenager drives to Holland first before driving to where he’s prohibited.

Judge William Wilcock asked attorney Matthew Nelson, representing the defendants, how the deal between the county and land bank was not a “sham transaction.”

The county treasurer has defended the practice of bypassing the auction by saying it is the best way of boosting state equalized values because the land bank can require buyers to improve the properties.

Judge Wilcock indicated that good intention is not a reason to violate the land bank statute.

He also grilled the defendants on the complaint that plaintiffs lack legal standing.

“Who would have standing in your opinion?” asked Wilcock.

Nelson said either another governmental entity or the attorney general.

VanderVeen was encouraged by the line of questioning. He anticipates a decision sometime after 30 days. The panel has the choice of publishing or not publishing the opinion. If it publishes, the opinion would set legal precedent and restrict land banks on what they can and cannot do.

VanderVeen says the land bank could be forced to return property it purchased from the county that it has yet to sell, or be forced to return the proceeds on the property it did sell above and beyond its cost to acquire.

A spokesperson for the county’s attorney says the county does not comment on pending lawsuits.

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.