EVANSVILLE - Each state has its own way of collecting overdue property taxes.
Some states, like Indiana, sell liens to recoup lost property taxes. On Tuesday, Vanderburgh County will offer buyers about 520 properties, minus those where owners make last-minute tax payments. Buyers, per Indiana law, get the right to collect from the owners. It’s a process that often drags on for years, contributing to vacancy and blight.
Some states, like Michigan, collect the back taxes by selling the properties themselves.
Michigan uses a three-year process that can result in a tax-delinquent homeowner losing his property to a local government in the third year at public auctions to recover lost taxes, fees and interest owed.
In the first two years, property can be redeemed, but at high cost — high enough to help make Michigan’s approach work. By state law, the counties require tax-delinquent homeowners to pony up 1 percent interest per month in the first year and 1.5 percent in the second year, or 18 percent for the second year; $175 to reimburse counties for title work; and the costs of sending certified notices at $5 a pop to all parties with an interest in the property. There’s a one-time 4 percent administration fee, too.
With government taking title to tax-delinquent properties instead of selling the tax debt, how does Michigan ensure that taxing units — libraries, schools — have enough money to operate?
Berrien County, Michigan borrows money competitively from banks to provide operating funds to the local taxing units. To pay back the loans in the meantime, Berrien continues to collect overdue taxes with the high late fees and other payments made by tax-delinquent homeowners upon redemption.
Proceeds from selling tax-delinquent properties at auctions aren’t a big factor, said Berrien County Treasurer Bret Witkowski, because most tax-delinquent homeowners have paid up by the third year.
Witkowski paused when asked how many tax-delinquent properties the local government forecloses upon.
“We foreclose on about three-hundredths of one percent,” he said.
Located in southwestern Michigan with a population just short of 160,000, Berrien County borders Indiana. It includes Benton Harbor and St. Joseph, Michigan. Witkowski said Berrien makes enough from its tax collections with late payment fees and auctions to quickly pay off what typically amounts to $10 to $13 million in bank loans.
Berrien County’s auctions do attract speculators — but without any way for them to charge property owners for the right to redeem properties, the “investors” don’t swarm Michigan’s tax-delinquent property auctions.
“We did a study, and about 90 percent of the properties are bought by somebody within 10 miles of the property,” Witkowski said. “Most of the time it’s neighbors. It’s somebody that lives in the community. It’s someone looking to come back to the community. Young people trying to buy their first homes. That has grown quite a bit. But we do not have corporations coming in making tons of money trying to manipulate the system like they used to in the tax lien system.”
But there are critics.
“I don’t believe that government should be in the real estate business, and these counties up there take title to these properties, and then they just sit there,” said Brad Engler, chief operating officer of Indianapolis-based SRI Incorporated. Engler said his company, which conducts tax sales for local governments, had a contract in Michigan.
“They can try and sell them, they can do whatever. You’ve got to have a buyer,” he said.
Witkowski countered by pointing out Berrien County has used proceeds from its program to demolish about 500 blighted tax-delinquent properties, at no cost to taxpayers. The cost is absorbed by a foreclosure fund fed by “overbid” profits at Berrien’s auctions.
It works, Witkowski said, even with Berrien foreclosing on a fraction of its tax-delinquent properties.
“Let’s say there’s $15,000 owed on one piece of property, and we sell it for $40,000. Those excess proceeds do go into the foreclosure fund to pay for the demolitions. That’s how we do it,” he said.
“For every 10 properties, three of them make us enough money to bulldoze the one or two in that 10 and then, the other ones, have enough to come in and cover the bill. So we count on about three out of 10 to make money.”
Because the county owns the blighted structures, there are no condemnation or court procedures to go through. Witkowski said Berrien can now demolish properties within its three-year process, where it once took more than twice that long.
“The way we’re doing it really helps put properties back into productive use much quicker,” he said. “This has worked phenomenally well for us.”