Experts explain how land banks work

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Matching up buyers looking for affordable housing with vacant homes in North St. Louis County seems like an easy job. But if the current owners haven’t paid their property taxes, it leads to a pile of problems that make a purchase almost impossible.

During a panel discussion on Sept. 16, dozens of local residents and leaders gained valuable insights on this complex topic from attorney Rachel Waterman with the Neighborhood Vacancy Initiative at Legal Services of Eastern Missouri and Shonte’ Jamison of the St. Louis County Department of Public Works, where she is a Problem Properties Specialist. Waterman gave an example of why vacant properties aren’t a good option for homebuyers:

  1. When someone doesn’t pay their property taxes, the taxes accumulate year after year.
  2. A buyer would need to pay the purchase price PLUS the back taxes.
  3. Whatever action the county takes to try to recover the taxes, property ownership still stays with the original owner (or their heirs), so the county can’t facilitate a purchase.
  4. A final challenge is title defects. When a title has a defect, there’s a risk that the old owner could show up and knock on the buyer’s door after a property has been auctioned to claim ownership.
  5. This risk keeps title insurance companies from giving purchasers title insurance. As a result, buyers are limited. For example, they can’t get a loan to rehab the property—and, importantly, they can’t sell it.

“We have thousands of vacant properties across St. Louis County, all owned by different owners, all encumbered by tax debt, and a good number with this title defect problem. So where does that leave us? A problem way too many of us are familiar with: vacant problem properties that sit and get worse and worse. People who live in the community feel powerless to do anything about them,” Waterman said.

A land bank is a public entity that can take title to tax delinquent properties that don’t sell at auction.

If the land bank becomes the owner, Waterman explained, it’s easier to track, maintain, and address those properties because the land bank is a single entity.

Another major advantage of handling properties through a land bank: The back taxes go away. “If you as a buyer want to buy from the land bank, you do not have to pay those taxes,” Waterman said.

Here’s why judicial action is needed too.

Land banks can’t address the title defect problem—but there is a solution for that dilemma. Counties can use different tax collection systems to prevent title defects—and there are multiple options for this within the state of Missouri.

Currently, St. Louis County uses a system where it’s no one’s job to track these titles before, during, or after auction. It could switch to another system where it’s the court’s job to supervise tax collection. Under this system, the county sues the property owner. Once the suit is filed, it’s the court’s job to make sure those notices go out.

“Both owners and buyers are better protected under this system,” Waterman explained. “It makes sure owners get a warning before their property is sold at auction and they can take their property off the list by paying the back taxes or getting on a payment plan. It also protects buyers because they’ll know that the warnings went out before the auction ever happened.”

Waterman said that land banking can be paired with judicial tax foreclosure to create “shovel-ready” properties. The current system in St. Louis County is failing to move properties from tax delinquency back into productive use. In the past, redevelopment often removed property and removed power from the communities who needed it the most. “Land banking is an alternative that gives more control to the community over the problem of vacant properties,” Waterman said. “It is more transparent and more accountable.”