Last week, I sent this email (with a few subtle variations, depending on the recipient) to every Saint Paul City Councilperson (and each of their Legislative Assistants, just for good measure).
I’m Mitch Berg. I’m a twenty-year Saint Paul resident. I live in the Fourth Ward.
I also write a blog (Shot In The Dark) and host a radio talk show (“The Northern Alliance Radio Network”).
I have a few questions about a recent City Council decision.
At the June 25 meeting, the City Council passed Ordinance 07-1194 4 (”Green Sheet” number 3046791). This ordinance amends Legislative Code 33.03, and states that vacant homes (in Category I and II – the most saleable homes) can only be sold if all vacant building fees are paid, and if the owner posts a performance bond or escrow equal to the estimated amount needed to bring the structure up to code.
I have several questions about this ordinance, and I’d appreciate your answers.
1) It seems, on its face, that this ordinance is intended to compel banks and other lenders owning foreclosed property in Saint Paul to bring foreclosed property up to current building codes before they can be re-sold. Is this accurate?
2) Has the City Council gotten an estimate as to the likelihood of institutional mortgage-holders (banks) complying with this ordinance? Has there been any “market research” done on the percentage of compliance expected?
3) If a mortgage holder does *not* comply – fails to post the performance bond or escrow, or bring the building up to code – then as I read it, this ordinance means the property remains in limbo, a deteriorating vacant structure. Is this accurate?
4) Given that the reason most of these homes were foreclosed in the first place was that the amounts owing were greater than their market values, and that it can *easily* cost between $30,000 and $50,000 (or more) to bring an older home up to current code standards, on properties that are already “upside down” (worth less than the bank has lent for them), what percentage of institutional owners (banks) do you expect to comply with the terms of this ordinance?
5) Did the City Council seriously discuss this scenario? If so, why did they decide to take the action they did in approving the ordinance?
6) In the event that a large percentage of institutional mortgage holders that own foreclosed, vacant properties in Saint Paul *do not* comply with the ordinance, what is the city’s “fallback plan” for dealing with the large number of vacant, deteriorating properties that would result? And for the additional drag on the values of *neighboring* properties that will result from having huge numbers of vacant, distressed buildings as neighbors?
Finally, a few questions that deal with the consequences of the ordinance:
7) Hypothetically, let’s assume the worst: that most of the banks involved decline to comply with the ordinance. They also stop paying property taxes, allowing the properties to go tax-forfeit. The land forfeits to the State, obviously – but the State then assigns it to the city/county to dispose of. Assuming the hypothetical “worst case” scenario, what does the city intend to do with all of this new property?
8) Again assuming the “worst case” above – is it the city’s intention to use the epidemic of tax-forfeit property to…:
a) drag down property values in these distressed neighborhoods
to make eminent domain settlements against the remaining
homeowners cheaper, to enable the city to…
b) redevelop the land according to its own plans, on the relative
cheap?9) Finally – what do you, and the Council, *believe* the consequences of making properties much more expensive than they are worth to their owners will be?
Again, when you get a moment, I’d be very interested in your answers to the above. If email is less convenient for you, feel free to call my cell phone: [redacted].
Respectfully,
Mitch Berg
The Midway
Wednesday, the responses.
(Read the whole series: Part I, Part II, Part III, Part IV, Part V)
Just a FYI:
“They also stop paying property taxes, allowing the properties to go tax-forfeit. The land forfeits to the State, obviously..”
Actually Ramsey County takes possession of the property as that is the governmental unit that levies the property taxes. It is then the County’s decision of how to dispose of the properties.
“..drag down property values in these distressed neighborhoods to make eminent domain settlements against the remaining..”
After the Kelo decision, the State severely restricted the eminent domain laws where this scenario, from what I recall, is no longer possible.
“State severely restricted the eminent domain laws”
Please thank Jeff Johnson for this, and vote for him for Hennepin County Commissioner.
My question is: if the properties go tax-forfeit, will the County then have to pay to bring them up to code before they can be sold?
Anecdotal information for this issue: I’ve very recently purchased a foreclosed property In St Paul, Greater East Side , Ward 6 . It was a Cat 1 property (i.e. No improvements needed just acknowledgement that we had recieved a Truth in Housing Statement as to problems with the house) However The selling bank made it very clear up front and repeatedly required that the house was being sold As IS and that they would in no way be responsible for any repairs or improvements. They went so far as to change the normal ‘flow’ of the purchase process. Normally one of the last steps in the process is after your offer has been accepted, you have the home inspected and then have 72 hours to exercise the ‘inspection contigency’. Anything that is a deal breaker at that time ( furnace is 50 years old and non-functional, plumbing has leaks the size of the new jersey etc) or just any old reason, and you can walk away from the deal.
In this case they explicitly did not allow us to have that contingency in place. So we had a week of fear and trepidation while we waited to gind out if the home we had just slapped down earnest money on was actually “liveable” (thankfully it was)
I can’t help but wonder how much of the change in procedure is attributable to normal foreclosure bank procedure and how much is attributable to a very understandable desire to not be on the hook for a huge repair/ compliance to code bill
Perhaps the response will be to ban real estate speculation, since it bid up the price on houses, and led to people taking out larger mortgages than they could afford. That’ll do it. Also, release 50,000 feet of copper tubing from the Strategic Pipe Reserve.
release 50,000 feet of copper tubing from the Strategic Pipe Reserve.
ROFL! 🙂
That is funny.
Just a quibble, Fulcrum, but I think real estate on which property taxes are not paid is forfeited to the State of Minnesota. The local county acts as agent for the state in disposing of the property.
See: Minn. Stat. Chapter 279 (delinquent taxes) through 282 (tax forfeited land sales), also the website of the Ramsey County tax forfeited lands office http://www.co.ramsey.mn.us/prr/tfl/
Tax forfeited lands are sold at auction only after they’ve been offered to cities and counties, which can snap up the properties if they are located in conservation areas, target zones, etc.
I think Mitch’s Questions 7 and 8 to the Councilmembers are well founded.
.
Actually Ramsey County takes possession of the property as that is the governmental unit that levies the property taxes. It is then the County’s decision of how to dispose of the properties.
Nate is correct. I specifically asked this of Council members Lantry and Bostrom, and they confirmed my take on this is correct.