State Supremes Rebuff Claims Government Land Bank Shortchanged Taxpayers

This week the Michigan Supreme Court disappointed investors who look to put tax-forfeited properties back into service but find themselves in competition with government land bank authorities.

The plaintiffs who sought their day in court claimed that land banks, in cooperation with the local governments that create them, are overturning long-standing procedures for auctioning tax-forfeited property, to the disadvantage of taxpayers and real estate investors who are not public entities.

The justices denied a petition for appeal by a group of independent investors, after a state appeals court upheld a circuit court's ruling that they did not have legal standing. The target of the suit was the Kent County treasurer, Kent County and the Kent County Land Bank Authority, for allegedly allowing the land bank to cherry-pick tax-foreclosed property before it went to public auction.

The investors claimed the land bank paid far less than what the property could have sold for at auction, cheating taxpayers out of thousands of dollars. Not only did the county lose out on higher sales prices it could have fetched at auction, they say, it also lost future tax revenue. That's because the land bank is allowed to keep half the property tax revenue collected for five years on parcels it acquires and sells.

Dan Hibma, one of the plaintiffs, says he is not giving up. He's hoping Kent County commissioners will reconsider the land bank in a re-evaluation of the program that is due by the end of the year. Hibma says land banks in stable real estate markets such as Kent County are unnecessary and interfere with the free market.

State Rep. Tom Hooker, R-Byron Center, agrees. He told a group of city council members that blight reduction “does not seem to be the goal in Kent County.”

Rusty Richter, another plaintiff, told the same group that very few properties in Kent County don't get sold at the public auction. Land bank opponents say land banks are in essence, government-backed real estate development companies that unfairly compete with private developers. They purchase tax-foreclosed property far below state equalized value and then choose who gets to buy it.

Land banks may demand that buyers make particular investments in the property, regardless of market demand. Hibma and other investors have been trying to convince townships and cities not to relinquish their tax-foreclosed properties to the land bank.

They’ve succeeded in Wyoming, Grandville and Byron Center. Under the law, local units of government can buy tax-foreclosed property for the taxes owed on the property and then sell it to the land bank.

The city of Grand Rapids has chosen to sell all its tax-foreclosed property to the land bank, which has taken a big chunk out of the offerings at the public auctions.

Land bank supporters say they improve neighborhoods by forcing buyers to invest in the properties, which in turn, increases the tax base.

Hibma disputes that contention, saying it does not include the costs to the public.

Hibma did his own analysis of 44 properties the land bank purchased from the rolls in 2012. Based on historical records, Hibma claims the land bank purchased them for well below what they could have sold at auction. He said the deals cost taxpayers over $1 million.

Wyoming City Council members Joanne Voorhees and Dan Burrill agreed with Hibma and voted against a proposal to sell 14 properties to the land bank this year. The sale required five votes and it got four.

“I don’t think government should be competing with free enterprise,” said Voorhees.

Kent County Land Bank Executive Director David Allen was on vacation and could not be reached for comment.