When a property goes into foreclosure for unpaid property taxes, it can be a pain for county government, burdening it with liabilities and maintenance costs.
But to some nonprofits and other developers, the foreclosures are like real estate aspirin, alleviating some of the headaches can that come with acquiring properties burdened with liens, title issues or multiple heirs.
Among nonprofits that buy properties the county forecloses on for unpaid taxes: the Charlotte Habitat for Humanity.
“One of our biggest buyers is Habitat for Humanity,” said Charlotte attorney J.D. DuPuy, whose office handles tax foreclosures for the county. “They do a great shop sweeping up old abandoned lots.”
Without the tax foreclosures, Habitat would not have the resources to clear the “many clouds over the title” that a tax foreclosure can overcome, said Merritt Card, land-acquisition manager for Charlotte Habitat.
Multiple heirs can hold a claim to a property, and tracking all those people down can be tough, he said.
“Or the property owner wasn’t aware they owned it,” he said. “It gets mixed up in estates, and the heir doesn’t know they actually inherited the property. This cuts through that. Otherwise the property sits there forever unless somebody gets through it.”
Drawbacks of foreclosure
Foreclosing on properties for unpaid back taxes often isn’t the best scenario for the county, Mecklenburg County Tax Collector Neil Dixon said.
If the county takes ownership of a property, not only is it responsible for liability, maintenance and brownfield-related concerns — brownfields are sites where development is hindered because of worries about contamination — but it also loses tax revenue from the property, he said.
Many times, the tax collector’s office avoids foreclosure on such properties, some of which are abandoned, until a bidder is found.
“We think our process is very cost-conscious,” Dixon said. “We don’t treat it as a punitive type of enforcement. We could foreclose on it and the county owns it. But is that really a cost-effective way to do it?”
Once a bidder comes around, the county will foreclose on the property, and the buyer will pay attorneys fees and back taxes.
“It’s a cost-conscious way of doing it,” he said. “It’s also an effective collection process.”
‘It has to be vacant’
The Charlotte Habitat is not new to bidding on such properties.
“We’ve been very successful at tax foreclosure sales,” Card said. “We pay the tax foreclosure sales price and develop it for the clients.”
But Card is quick to point out that Habitat only buys properties that are vacant.
“Our ministry is to keep people in their homes, not force them out,” he said. “It has to be vacant. We bought one that had a house on it, but it was clearly going to be bulldozed.”
About six years ago, Card was searching for lots to develop when he noticed there were several properties with overdue tax issues. He had an opportunity to ask DuPuy about tax foreclosures during a closing on a property.
Since then, Charlotte’s Habitat has purchased and developed about 10 abandoned properties a year through the county’s tax foreclosure process, Card said.
The number of delinquent properties for fiscal 2010 in Mecklenburg County likely will be close to the same as fiscal year 2009, although it’s too early to say for sure, Dixon said.
Taxes became delinquent Jan. 6, but since payments only have to be postmarked by the deadline — and not already in the hands of the county — some payments may still be coming in, Dixon said.
The slow economy has also slowed the number of foreclosure sales, DuPuy said.
The number of tax foreclosure sales drops during a recession, likely because many buyers are out of work and don’t have the funds to purchase properties, he said.
Also, in an effort to avoid foreclosure for unpaid taxes, some mortgage companies or lien holders will pay the back taxes and then work with the property owner to recoup the expense.
“Houses that have a mortgage rarely make it all the way to sale,” DuPuy said. “A mortgage company is not going to let the home go to tax foreclosure for a $6,000 to $7,000 lien.”
He estimated that 100 properties are foreclosed on each year in Mecklenburg County because of back taxes.
DuPuy said that by the time a property reaches his desk, there have been six to eight notices sent about past-due property taxes and usually someone from the tax office would have visited the property. DuPuy sends out a demand letter first and accepts “reasonable” payment plans.
“We’re not interesting in separating people from property,” he said, “we just want to get them paid.”
After the many remedies available to the tax collector’s office have been used, Mecklenburg County boasts more than a 98 percent collection rate, Dixon said.
Considering the collection rate for the 10-year statute of limitations, “we’re really as close to 100 percent as one can get,” he said.
“Usually what’s left is unclear heirs, or right of ways, strips of land that are 5-feet-by-10-feet that have to be assessed and no one wants it,” Dixon said. “You can’t build on it. It’s landlocked property. Sometimes, a foreclosure is a way somebody with an adjacent parcel might make their backyard a little bigger.”
Tara Ramsey can be reached at [email protected].