Reimagine Delinquent Property Tax Enforcement

Author(s): Kim Graziani. Contributors: Tarik Abdelazim, Matthew Kreis, Danielle Lewinski

There are vacant properties—referred to by many as “blighted properties“—in virtually every community. However, when vacancy becomes systemic, it changes the character of a neighborhood, deepens racial inequities, and threatens future opportunities.

Property tax delinquency is an early warning sign of a property’s decline. Vacant properties, whose owners have walked away from responsibilities like basic upkeep of the property and paying property taxes, must be swiftly transitioned to new, responsible owners. However, too many communities’ delinquent property tax enforcement laws and practices allow vacant properties to languish for years—all the while, no one is maintaining the property and it is not contributing to the local tax base. This hurts the economic conditions, safety, and health of individuals and communities.

The property tax system can prevent future vacant properties. By proactively working with residents who are experiencing hardship, governments can provide support that prevents future tax delinquency and neighborhood decline while protecting the owner’s equity and ability to build intergenerational wealth.

This publication lays a foundation for understanding the property tax system, but focuses on ways to reform the delinquent property tax enforcement process for vacant properties—those properties that pose the greatest harm to a community. There are hundreds of different, complex variations of tax systems across the country, therefore it is important to consult your local legal counsel to understand your state and local government’s laws and practices.

What Are the Stages of the Property Tax System?

1. Determine the value of the property
2. Establish the rate of taxation
3. Determine if property is subject to tax
4. Apply applicable tax relief and determine the tax bill
5. Collect the tax
6. Enforce delinquent taxes

To find solutions to delinquent property taxes, communities should focus on the first five stages to prevent property loss, harm, and support financially insecure occupants. While this publication does not focus on occupied properties, here are some examples of ways to help keep properties out of foreclosure:

• Ensuring property value assessments are accurate
• Providing homestead exemptions to owner occupants, and rebates or credits for financially insecure households to reduce property tax burden
• Ensuring application processes for relief programs are not burdensome, providing application assistance, and driving multi-faceted public awareness campaigns
• Offering many payment options such as monthly payments, cash payment, and payment at community locations

What Are the Decision Points in Property Tax Foreclosure?

Should a Local Government Sell the Property or the Debt?

Selling the property, rather than the debt (or “tax lien“) is a more efficient and effective way of getting a vacant, tax-delinquent property back to productive use.

However, in light of municipal staffing cuts and increased need for revenue, jurisdictions across the country have reduced in-house property tax collection and enforcement efforts and instead transfer and sell the delinquent taxes, municipal liens, and the power of collection and enforcement to private buyers. This process can result in a quick infusion of revenue to cash-strapped jurisdictions, but can also have harmful, unintended consequences and render local governments passive observers as vacant properties and neighborhoods slide into decline.

Should a Local Government Pursue an In Personam or an In Rem Judgment to Recover Unpaid Taxes?

Some state laws allow local governments to pursue any amounts not recovered from the tax foreclosure sale against the individual owner (in personam) which takes considerable time and financial resources–particularly when the owner can’t be tracked down. Pursuing an in rem judgment means the liability extends only to the property; once the property is sold via the court-ordered public sale or transferred to the foreclosing governmental unit, the entire matter is resolved.

Community Progress generally advocates for local governments to focus on in rem liability, since it provides an efficient resolution of the foreclosure action. Notice must be given to all interested parties as well as published and posted physically on the property.

Judicial in rem tax foreclosure is the optimal mechanism to address vacant tax-delinquent properties, particularly those causing harm to a community.

What Incremental Property Tax Reforms Can Local Governments Make?

Recognizing that reform can take time, local governments can take steps to build momentum, such as:

• Expediting the time frame for vacant properties first. For example, shortening the time period from delinquency to foreclosure only for vacant properties.
• Ending tax lien sales for vacant properties and instead pursuing an in rem foreclosure action to bring the distressed property under local control.
• Adding abatement costs to the tax bill ensuring that the costs the government incurred from mowing grass, boarding a property, removing trash, and other services are recorded as a lien against the property and added to the minimum cost private buyers must pay at tax sale.
• Eliminating post-tax sale redemption periods will ensure the local government expends resources to move the property through foreclosure only if and after the owner fails to redeem. This also provides more certainty to private buyers at tax sale.
• Reforming noticing provisions to ensure insurable title by providing constitutionally adequate notice and reducing the need for costly quiet title actions after tax sales.

Communities should also look for additional reform opportunities related to vacant properties, such as housing and building code enforcement and land banking, which can help prevent decline and responsibly return vacant and blighted properties to productive use according to community goals.

If you’re looking to reform the property tax enforcement system in your community, we provide customized, expert guidance to state and local governments to assess the state of vacancy in your community and recommend policy and practice solutions for equitable neighborhood revitalization.