Recent reporting in Florida discussed “aggressive code enforcement” by a 3rd party.
Revenue is always a major need and focus. However, similar to charging excessive fees and aggressive pursuit of penalties for vacant property registries (VPRO’s) non-compliance, aggressive pursuit of foreclosure for unpaid code violations clearly can have unexpected and unwanted consequences.
The original article, provided one eye-opening quote “I don’t know what we’re going to do with them, to be honest,” indicating that the full process was perhaps not thought through.
The most recent article provided several more.
An original goal was to target properties owned by real estate speculators. But here again it appears the process wasn’t thought through as “these foreclosures have often had the opposite effect, taking properties out of the hands of individual owners and delivering them to real estate speculators, and at a discount.”
“Perverse incentive” is what the article calls promises “to help them (municipalities) reap millions in untapped revenue — but with no money up front.”
These contingency fee agreements, may work better in the private sector, or as the article discusses in select instances in the public sector. However, they definitely don’t work in the public sector, if not fully thought through, the 3rd party is left unchecked and unilaterally makes decisions – unless all that one sees are dollar signs.
Not the approach public entities, such as cities and states, “which are expected to take into account the broader public interest when deciding whether to pursue legal action.”
Two (somewhat) positive thoughts to close with.
The article discusses one municipality where it appears the appropriate safeguards are in place “[He] only acts on matters the City directs him to act on. Nothing more,” La Venia said. “That’s how the City wants it. This City is very conservative in these matters.” This is an appropriate checks and balances to ensure that only the proper cases are aggressively pursued.
When set up correctly it would invalidate the statement “There isn’t a substantial reason why these can’t be done in-house,” he said. Using the right 3rd party has many benefits.
Finally, at least this issue pertains to the “end” and not the “means”.
The goal in the blight fight is a well maintained property in productive use. A vacant property registry (VPR) is a “means” to that “end”.
Aggressiveness pertaining to the “means” has resulted in dangerous ordinance language, perhaps in violation of federal privacy laws, excessive registration fees that will be difficult to justify, along with negative headlines/optics.
Non-compliance with a VPR is no different than any other non-compliance. However, untethered aggressive pursuit of non-compliance penalties for “just” the “means” can have unwanted consequences.
The promise of “reaping millions in untapped revenue with no money up front,” should not be the driving force in creating a VPR or using a 3rd party to administer it. Unless of course, once again, all that one sees are dollar signs.
Update
New article goes into more details on this issue including various approaches by several municipalities.
To view the article, please click on following link:
Families lose homes after Florida cities turbocharge code enforcement foreclosures
To view MuniReg founder Michael Halpern’s take on this article, please click here.
March 23rd
Recent article in the Miami Herald discusses “foreclosure because of aggressive enforcement of code violations”.
The article presents an some of the benefits and challenges of this approach.
For more information, please click on following link:
Families lose homes after Florida cities turbocharge code enforcement foreclosures
For original reporting (Feb 2022) on this issue, please click here.
Kansas Senate is deliberating on HB 2083 after it passed the House. The bill seeks to create “the Kansas vacant property act to prohibit municipalities from imposing any fees or registration requirements on the basis that property is unoccupied.”
Current bill language would allow registrations but with no fee and also address property maintenance requirements for banks and mortgage companies.
On March 21st, MuniReg was honored to submit the following testimony in opposition of HB 2083
Senate Committee on Local Government
Tuesday, March 21, 2023, 9:30 AM
House Bill No. 2083
Michael Halpern, President MuniReg LLC
Testimony in Opposition
Chair McGinn and members of the Committee:
Thank you for allowing me the opportunity to offer testimony in opposition of HB 2083, which would prohibit municipalities from imposing certain fees and other requirements on vacant property.
Registry/Fees
Though the requirement prohibiting registration of vacant properties was stricken, a municipal registry without a registration fee and a penalty for non-compliance lacks the necessary “teeth” to provide value.
Municipal vacant (and foreclosure) property registration ordinances (VPRO) are utilized across the countries with proven success. Additionally, VPROs are a recommended strategy by the National League of Cities and the Center for Community Progress.
Theoretically, VPROs convert a reactive process into a proactive process. Across the country, municipal code enforcement is underfunded. Significant time and effort are expended in identifying owners and interested parties. These limited municipal resources should not be restricted from utilizing a productive tool, utilized in a significant number of communities. In fact, the opposite is true; code enforcement should be armed with all available tools to protect their respective communities.
“If an owner of a vacant property finds $300 too burdensome to pay, it’s unlikely they will invest the $30,000 required to redo their roof and mechanical systems.”
I am a firm proponent on reasonable fees. Caps have been implemented in Georgia and New York State. I respectfully suggest that option should be considered.
Property Maintenance
The “Supplemental Note on House Bill No2083” states:
“The proponents generally stated that imposing fees on vacant properties infringes on the rights of a property owner to make decisions for their property. The proponents also stated that banks and other financial institutions are being considered as the owners of vacant properties and being assessed fees by cities before the financial institution can legally care for or sell the property.”
The first statement is misleading and the second is factually inaccurate.
The effect of inadequate property maintenance on surrounding properties and their owners is well documented. Recent studies have shown correlation between blight and gun violence and in contrast, the positive impact maintenance actions can have on the reduction in said violence. A simple Google search will demonstrate the frequency of fires and squatters at vacant properties. Hence, the need for strong maintenance codes.
Striking the proper balance is always difficult. The rights of the owners of vacant properties need to be
protected, however they are no more equal than the rights of the owners of surrounding properties. Once
again, hence the need for strong maintenance codes.
Regarding the second point, as I have not seen anything in the contrary specific to Kansas, the following general rules apply.
A typical mortgage instrument will contain what is often referred to as the “waste clause” or in the default mortgage servicing industry, “the mortgagee’s right to protect its collateral (interest)”
In the February 2012 case of Farinacci v. City of Garfield Heights, the US Court of Appeals for the Sixth Circuit considered the constitutional and tort claims that a borrower who had defaulted on her mortgage loan and was not living in her property brought against the City for entering the property and removing several cats from the premises.
The Sixth Circuit endorsed the district court’s conclusion that “‘[w]hen [the borrower] signed her mortgage, which included the property preservation provisions, she expressly assumed the risk that, if it became necessary to preserve the property, the bank might permit its agents and others to enter the house to effectuate that purpose.’”
Typical municipal maintenance requirements address the health, safety, and security of a property. These are aligned with HUD/VA/Freddie Mac/Fannie Mae Guidelinesfor properties where they serve as an investor or insurer of the mortgage. Their respective guidelines all mandate the mortgage servicer (i.e. bank or non-bank servicer) conduct inspections and appropriate maintenance actions prior to acquiring full ownership.
These actions are also conducted on thousands of non-government backed loans (privately held mortgages) who realize the value as discussed below.
It is my sincere belief that the prior testimony that I have shown to be inaccurate was not intentional in any manner. Prior to founding MuniReg LLC, I spent 20 years at the nation’s largest mortgage field services company that conducts inspections, maintenance, and repair actions in accordance with the aforementioned guidelines for its banking/mortgage servicing clients.
I have come across several instances where similar statements were made to elected bodies. I attribute it wholly to the disconnect between a) regional banks and national banks and b) mortgage originators and default servicing operations that often are not the same corporate entity.
Additionally, it has been relayed to me that smaller (non-national) banks even when allowed the right to protect its collateral often decline to take action (and risk municipal violations) in order to mitigate risk (i.e. trespass or conversion lawsuit).
In contrast to what was stated in prior testimony, proactive maintenance actions are occurring daily in Kansas and across the country, conducted by banks and their representatives. This is exactly what you, and all representatives of a local municipality would want. Every dollar spent by these entities is one less
expended by local government.
The vacant home is the collateral on a mortgage, it would serve all banks well to promote reasonable municipal property maintenance requirements. It protects their collateral and protects the communities they serve.
There are exceptional circumstances that can and do impact banks’ ability to take action, some clear cut (i.e. legal homeowner declares bankruptcy, files litigation, still reside in the property), some not so much (i.e. squatters). In contrast, there have been instances of local government having overly onerous
requirements for banks and other owners, which occasionally extend to illegal.
Prohibiting local governments from requiring any maintenance is not the appropriate response.
Greater understanding of this niche arena along with reasonable common sense approaches and open dialogue is the key to efficiently address these issues.
Open and direct dialogue is the underlying purpose, and one need, for a strong VPRO.
I have spent over a decade of my professional career directly working to build these “bridges” while empowering local government, specifically the often-overlooked code enforcement official.
MuniReg opposes House Bill No. 2083 and asks that the committee provide an unfavorable recommendation for this bill.
Thank you for your time and consideration,
Michael S Halpern
MuniReg LLC
[email protected]
216-402-7464
On March 20th, MuniReg was honored to submit the following testimony in support of SB 356
Senate Bill No 356
Michael Halpern, President MuniReg LLC
Testimony in Support
Chair Wiener and members of the Committee:
Thank you for allowing me the opportunity to offer testimony in support of SB 356, pertaining to the Code Enforcement Incentive Program: Community Code Enforcement Pilot Program.
Prior to founding MuniReg LLC in 2019, I spent 20 years at the nation’s largest mortgage field services company that conducts inspections, maintenance, and repair actions on behalf of its’ banking/mortgage servicing clients.
For the final 8 years of my tenure, I served as their Director of Community Initiatives, tasked with educating and providing real time assistance to local governments, and specifically code enforcement officials (CEO) in addressing “zombie foreclosures”.
In addition to presentations to national organizations like the US Conference of Mayors, National League of Cities and American Association of Code Enforcement etc. I have had the honor to address numerous statewide and regional code enforcement associations including the California Association of Code Enforcement Officers (CACEO).
I continue these similar activities in my current role and will be presenting to Michigan Association of Code Enforcement Officers (MACEO) at the end of March 2023.
I share this brief history as I believe it has afforded me a unique and broad perspective as an “outsider”, yet an “insider” into the role, responsibilities, and most critically, the challenges of code enforcement.
Across the country, municipal code enforcement is underfunded, and is rarely given prominence at the local government level, nor at the Statehouse, except for New York State and now California.
With this, CEOs are often burdened with both a local governing body and a citizen base that does not adequately understand the purpose and value of code enforcement.
I am a firm advocate for equal rights for the owner of abandoned properties and the rights of the owners of neighboring properties that are adversely affected by the abandoned properties. CEOs are tasked with what is very much “walking that fine line” – every day.
The physical risk they are exposed to daily can be clearly demonstrated by the recent occurrence in Columbus, OH, “Columbus police arrested a man for allegedly dragging a City of Columbus cod enforcement officer while holding an ax”.
Independent of the value of funding for actual CEOs, there is a continuous need for funding education, training, and safety equipment.
Therefore, I am heartened to see this proposed legislation validating the value of code enforcement and associated training and certification.
Furthermore, I am heartened to see the inclusion of community-based organizations. I am a strong believer in transparency and open dialogue. Engaging these parties proactively will ensure greater understanding, greater collaboration, and hopefully greater positive outcomes.
CACEO has always stood at the forefront of advocacy for their profession. I am honored to do my small part by standing with them in support of SB 356.
Every dollar invested in code enforcement is an additional dollar towards improving the neighborhoods and the quality of life of your constituents.
Thank you for your time and consideration,
Michael S Halpern
MuniReg LLC
[email protected]
Louisville KY is piloting a new program titled, “Property Reunification” at reunifying heirs with privately owned properties currently being maintained by Louisville Metro Government.
“By uniting heirs with these lots, the program will encourage neighborhood revitalization through new ownership of vacant land and grow generational wealth through landownership.”
To view the City’s Press Release, please click here.
To view media coverage, please click on the following links:
WDRB: Pilot program aims to return hundreds of Louisville’s vacant properties to rightful owners
WLKY: Pilot program in Louisville aims to reunify heirs to their family’s property
The recent headline “Cato Township blight complaint reveals problems with the process” had us believing that perhaps they were seeking a solution to long standing issues, such as where are notices being sent (https://munireg.com/still-on-the-hamster-wheel) or perhaps why code officials are still chasing after banks and other responsible parties (when MuniReg can do it for them), however this article went in another direction.
According to the article, local residents had to pay $1,000 in court fines after being reported for blight on their property. Seeking clarity on the fine, the conversation let to a discussion regarding a “paper trail” regarding the complaint itself.
As there are communities that require a formal complaint, while others allow anonymous reporting, this conversation seems to be deflecting from the main issue. Regardless who filed the complaint there appeared to be a “blight” violation and that is the primary issue.
Granted, there is no universal definition of “blight” (see WSJ video). However, there are efforts underway in this particular county to bring some level of uniformity.
The article does bring up some valid questions.
Does it matter “who” reported a blight violation? Code officers are well aware that not all complaints are legitimate (i.e. neighbor squabbles lead to a fictitious complaint). A violation, fine etc. wont be issued without a physical inspection to see if the complaint is authentic and a violation of local code.
What is the best approach to the complaint process. Does anonymous complaints provide some level of protection against retribution? Is a “paper trail” needed from the initial complaint, or when (if) a violation is observed by the code official?
What can be done to further ensure equal enforcement (concern raised at the previous meeting, click here). Uniform guidance would be a good start.
To view the article, please click here.
A recent video report from the Wall Street Journal focuses on the utilization of eminent domain for economic development.
Though it does touch on important sub-topics that should be addressed (assuring transparency, lack of uniform definition of “blight”, or for that matter “vacant” or “abandoned”), however a truly comprehensive report would discuss the negative impact these properties have on neighboring properties and their owners.
To view the video, please click here.
A recent Op-Ed discusses the progression of Kansas HB 2083 that has now passed the House.
VPRO’s are widely utilized across the country. As the author states, the legislators are on the wrong side of blight and if it is enacted, Kansas will join (only) Oklahoma on the wrong side too.
There is a wealth of information on the value of these registries.
There is a wealth of information on the challenges code enforcement face including lack of resources etc. they need to be armed with as many tools as possible.
In 2022 SB 510 died in committee , hopefully, the ship can still be righted and HB 2083 has a similar fate.
To view the Op-Ed, please click here.
To view HB2083, please click here.
A new report has been released by Nowak Metro Finance Lab in collaboration with Accelerator for America titled, “We Buy Houses”: You Lose Out.
This study follow a September 2022 study titled, “Investor Home Purchases and the Rising Threat to Owners and Renters.” This latter report was presented as part of a Housing and Urban Development event on Institutional Investors on Housing.
To view the March 2, 2023 Press Release and full “We Buy Houses”: You Lose Out report, please click here.
To view a Governing magazine article on the new study, along with an interview with the lead author, please click here.
To view the September 23 2022 Press Release and full “Investor Home Purchases and the Rising Threat to Owners and Renters.” report, please click here.
For more information on the December 22 HUD event, please on the following link;
PD&R Quarterly Update: Institutional Investors in Housing
To access the webcast recording please click here.
Two recent developments in this arena from Georgia and Michigan.
Georgia
The LaGrange City Council is considering limiting the interest that accrues on liens placed on properties to pay for the demolition of unsafe houses. Though the city would potentially be giving up the opportunity to get the full interest, the objective is to allow for more lots to be recycled and put into development.
Council discusses limiting interest on nuisance abatement liens
Michigan
Recent Michigan Court of Appeals ruling upheld a ruling where the plaintiff city was awarded damages and costs to abate and remove a nuisance, despite the defendants’ contention that the city did not have standing and was not the real party in interest.
Municipal — Nuisance abatement — Standing