Lawmakers Move Away From Giving Land Banks Exclusive Privileges

Land banks that purchase tax reverted property before public buyers get a chance may soon see that perk disappear.

That has been a particular problem in Kent County, where the land bank has bought dozens of properties at cost before the property went up for auction. But long-promised changes to a Senate Bill have now been adopted and could end that practice. 

As originally drafted, Senate Bill 640 would have specified that land banks could purchase delinquent and abandoned property before free market buyers had their chance at public auction. That would have paved the way to making it even easier for land banks to dominate this portion of local real estate markets. 

When questioned about the bill last autumn, the office of Sen. Darwin Booher, R-Evart, who sponsored Senate Bill 640, said the language pertaining to land banks would be removed from the legislation. On Feb. 20 it was taken out.

On that date, the Senate Banking and Finance Committee, which is chaired by Sen. Booher, adopted a substitute version of Senate Bill 640 and approved it. The new version no longer has the language pertaining specifically to purchases by land banks. Instead it is focused on the auctions, which allow free market purchasers to buy tax reverted properties.

"This is certainly an improvement and appears to do a minimum of harm," said Audrey Spalding, director of education policy with Mackinac Center for Public Policy, who also is a national expert on land banks. "I hope the Legislature will continue by considering ways to stop land banks from the manipulative behavior we've seen in Kent County."

Technically, land banks are not allowed to buy property before the public gets a chance, but they sometimes do. In Kent County, for example, land bank officials have gotten around the law by having local governments buy the property before the auction and selling it to the land bank at cost. This has angered many investors and Realtors in the area who said they would have bought the properties if they had the option.

Currently, there are two types of auctions held on tax-reverted properties. Under the rules of the first auction, potential buyers cannot make bids that are lower than the amount of the delinquent tax bill owed on the property. Properties still available after the minimum bid auction are subject to a second auction, which does not include the minimum bid requirement. Bids made in the second auction would tend to be more reflective of the actual market value for the properties.

For a brief time, the committee considered allowing counties the option of holding just the minimum bid auction. Spalding said if that had happened the eventual impact of the bill could have been "catastrophic." Under the version of Senate Bill 640 that was passed by the committee, counties have the option of holding just one auction, but if they do so it must be the open-ended free market auction, not the minimum bid auction.

The reason given for allowing counties to opt out of holding both auctions was to save taxpayer dollars.

A measure that could potentially make it more difficult for land banks to be as aggressive as the one in Kent County remains parked in the House Local Government Committee. That legislation is House Bill 4626, sponsored by Rep. Ken Yonker, R-Caledonia.