Go back to The Man Who Owns Flint

A Q&A with Genesee County, Michigan, treasurer Dan Kildee

Dan Kildee is the treasurer of Genesee County, Michigan, and the chairman of the Genesee County Landbank. He has aggressively used Michigan's tax foreclosure law to take title to thousands of blighted properties in the city of Flint. His work has become a national model for how to handle the problems of vacant and abandoned properties in declining cities. I met with Kildee in the Landbank's newly renovated headquarters in downtown Flint to talk about what lessons Flint has for other cities.

Kildee

Tell me about the building we're in and how the landbank came to make it home.

I'm glad you asked, because I think of this as a metaphor for what we do. It was built in 1955, so it's not that old of a building by downtown standards. It was a clothing store-a family-owned business and a family-owned building. Downtown retail just completely melted down with strip mall development. And in 1980 the store closed and the building sat empty for all those years. It had been abandoned so long, I'd walked past it for 20 years and didn't even think of it as a building anymore. It was just part of this permanent landscape of abandonment.

The main problem with this particular building is that the owners didn't really want it anymore, and there were 22 separate title interests attached to the building-because it was family-owned, the heirs to the family all had a title interest. Michigan's former process of tax foreclosure made doing anything with this building a bad investment, because of the clouded title. So what happened was the property just recycled through that old tax system, year in and year out. Sometimes investors would buy the tax liens, sometimes they wouldn't, but it was stuck in the old law.

Then Michigan's new foreclosure law came along, and in 2003 we foreclosed on it and took title. We thought this was a chance for us to prove our theory. So we developed the building. We took the second floor for the landbank's offices. There are seven apartments, six of which are leased now. There's three office units, all of which are occupied. And there's a first-floor condo unit, which we sold for $475,000 to a local health-and-fitness foundation. We used a number of financing sources-it was a typical leveraged financing deal. The total development cost was $3.8 million.

The reason I say it's a depiction of what landbank can do is this is a building that would've continued to recycle. Even under the current tax foreclosure law, had we just sold it at public auction, those 22 separate title interests guarantee that any buyer would only be making a speculative purchase. Having a landbank gives the community a way to get the thing sold in a way that's going to stick.

A lot of local governments view tax lien sales as a good way to raise revenue. But you come down pretty hard on them. Why?

Under the old law, every year we would sell the right to foreclose on properties through the sale of the tax liens. There's a handful of bulk purchasers of tax liens, and they do provide governments a service-a service based on what the current statutory scheme is in a particular state. I don't mean to demean them. They're in business to make money, that's what capitalism is all about. My thought is, if they're in business to make money, we should take a look at how they make their money and figure out a way to make that work better.

Most delinquent taxpayers do pay up. So the question for communities is, why are we giving these bulk lien purchasers this high rate of return on our right to collect the tax? We pay for most of our work with the fees that used to go to these guys. We end up with between $1.3 million and $1.7 million a year in fees that under the old system would have gone to tax lien purchasers. That's why they invest-that's their return. And that's the return that we've recaptured and redirected into management of the properties we end up getting stuck with.

The other problem with tax lien sales has to do with land use. It essentially forces the properties they can't collect on into a speculator market. Whether it's through a public auction or sales forced by a tax lien holder, low-end speculators--basically scavengers--can get the property for almost nothing. It's the lowest-end use: liquidating the property to get whatever they can from it. I'm sure there examples of tax lien purchasers or tax auction purchasers who have done good things with the properties they've bought through tax foreclosure. I've no doubt there are good case studies we could find. But when we're dealing with thousands and thousands of properties, the exceptions don't create the rules.

Tax lien sales make everyone happy in the short term. Governments get their cash, so they can operate. The problem is they sacrifice the long term condition of the property for the short term gain of getting that cash. I compare it to junk food. It fills you up, gets a little something in you, a little burst of energy. But in the meantime it's really not very healthy. Because it undermines the value of the land upon which we depend for taxable value.

How does the new tax-foreclosure system work?

For the first year of delinquency we collect the same penalties and rates of return the tax-lien purchasers did. Then after one year we get aggressive. I assess a $175 title search fee, increase the rate of return, and get really aggressive with notice. We do personal visits to properties that are still delinquent. And we have a foreclosure prevention program, so if we have an owner who is really facing a financial hardship, we'll work with them. After two years we've gone through all the legal steps of a judicial foreclosure, so the title actually transfers to the county treasurer-to me. Our responsibility is to hold property out of the speculator market. We're functioning as the emergency room for property.

The old system we had in place was designed, unintentionally, for the lowest use of the property left behind. By the time it got wrung all the way through the system, any value it had at the beginning of the process most likely was gone. The reason I point that out is that the way we conceptualize our solution is as a process. Not as a white knight who rides in and fixes all the property. Because we can't do that. There isn't enough money in any system to do that overnight. But we can look at our work as a new pathway for these properties.

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