Strategies for Reducing In Rem Foreclosures in the City of Milwaukee Prepared by: Bryan Mette Joe O’Connell Michelle Prost Erika Schoot Elizabeth Silverstein Budget and Management Division, Department of Administration, City of Milwaukee Prepared for: May 14, 2013
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Prepared by:Bryan Mette Joe OConnell Michelle Prost Erika Schoot Elizabeth Silverstein Budget and Management Division, Department of Administration, City.
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Budget and Management Division, Department of Administration,City of Milwaukee
Prepared for:
May 14, 2013
Definitions
In Rem› Judgment against property› Used synonymously with tax foreclosure
In Personam› Judgment against person
The Tax Foreclosure Problem
Increasing fiscal pressure and decreasing property values
Spikes in tax foreclosures and inventory of City-acquired properties
Increasing costs to the City
Our Goal
Reduce residential properties that end up in
tax foreclosure
Roadmap
Milwaukee taxes and assessments› Comparisons to other cities› Trends in tax delinquency› Pre-/Post- foreclosure processes› Policy constraints for the City
Factors and costs associated with in rem foreclosure
Early warning system model Policy options Future considerations
Detroit, MI 2012 Tax Foreclosure Sales 19,001 706,585 2.69%
*Tax foreclosures based on measurement identified in table.Sources: Hamilton, Ohio 2012 Annual Information Statement; Minneapolis Finance and Property Services Department (2011); Christoff, Chris (2013); Baltimore County Office of Budget and Finance (2013); City of Indianapolis and Marion County (2013); Ryan, Sean (2010); U.S. Census Bureau (2011, 2012)
Distribution of In Rem City Acquisitions for All Property Classes, 2008 – 2012
Source: Authors, using data from the Department of City Development
Residential
Commercial
Condominiums
Apartments
Exempt
Special Commercial
Tax Delinquency Summary for All Residential Property, Levy
Years 2008 – 2012February
Delinquencies
November Delinquencie
s*
Total/Average
Average Total 13,370 3,405 16,775
Average Owner-Occupied 6,987 1,990 8,977
Average Investor-Owned 6,383 1,415 7,798
Average February Delinquencies as a % of Average of All Delinquencies
79.8%
Average Amount Delinquent
$2,993 $942 $2,577
Source: Authors, using data from Office of the City Treasurer
*November Delinquencies numbers include Levy Years 2008-2011.
Changes in Tax Delinquency for All Taxable Real Estate During Three-Year
Tax Collection PeriodFe
bru
ary
Apri
l
June
August
Nove
mber
Marc
h
Apri
l
Nove
mber
Dece
mber
August
Filin
gs
Acq
uis
itio
ns
Year 1 Year 2 Year 3
0%
2%
4%
6%
8%
10%
12%
Levy Year 2004
Levy Year 2009
Average Levy Years 2002-2009
Three-Year Tax Collection Period
Perc
enta
ge o
f Tax D
elinquent
Pro
pert
ies
Source: Authors, using data from Office of the City Treasurer
Pre-Foreclosure Process
Step 1: In-house Collection› Delinquency notices sent to owners › 4 notices from City Treasurer› 2 notices from City Attorney› Remaining cases referred to Kohn Law Firm
Pre-Foreclosure Process
Step 2: Collection by Kohn Law Firm› Gauges ability to pay on case-by-case
basis› Collects back taxes, devises installment
plans, pursues in personam judgment when appropriate
› All delinquencies found to be uncollectible are referred to City Attorney
Pre-Foreclosure Process
Step 3: In Rem Foreclosure› City Attorney initiates suit against
delinquent owners in Milwaukee County Circuit Court
› 8-week redemption period, 30-day answer period
› In rem foreclosure (City takes ownership) 90 days to petition Common Council
Post-Foreclosure Process
Policy Constraints
Uniformity Clause (Article VIII, §1)› “The rule of taxation shall be uniform…”
Special charges added to tax bill
Moral Hazard› Leeway for delinquent property tax payers
could decrease incentive to pay and lead to increased delinquency
Factors Associated with Properties Acquired by the City through In Rem Foreclosure
Characteristics of Properties› Assessment Class› Aldermanic District› Assessed Property Values› Assessed Value Changes During Foreclosure Process› Housing Quality› Disposition of Properties› Owner Occupancy› Previous Mortgage Foreclosure› Property Complaints and Violations
Characteristics of Taxes and Tax Collection › Tax Delinquency› Special Charges
Source: City of Milwaukee Division of Budget and Management
* Cost estimated based on inspector pay and time required to inspect home and conduct relevant paperwork/data entry. Inspections are done monthly for each property in the City's inventory.
** This estimation uses vacant lots in the calculation of property maintenance.
Early Warning System Model
How can the City forecast properties that are at greater risk of tax foreclosure?
Factors:› Mortgage Foreclosure› Other Recent Tax Foreclosure› Owner-occupied/Wisconsin Resident› Year Property was Purchased› Property Type› Property Value› Aldermanic District
Regression Results
Increase likelihood of ending in tax foreclosure› Other Tax Foreclosures› Not Wisconsin Resident› Property Type (Residential Vs. Condo)› Aldermanic District
6, 7, 15 Decrease likelihood of ending in tax
foreclosure› Assessed Value Property › Aldermanic District
2, 5, 9, 11, 13, 14
Policy Options
Early Warning System› Based upon statistical analysis› Used to identify the likelihood of in rem
foreclosure for delinquent properties› Outreach to those affected e.g., housing
non-profits, other options
Policy Options (cont’d)
Separation of Special Charges› Reduces the amount on tax bills› Easier to manage delinquency› City has discretion in negotiating re-
payment if special charges are not added to tax bill
› Need effective collection of data to separate tax delinquencies from special charge delinquencies for each property
Policy Options (cont’d)
Credit Card Installments› Currently, property tax payments by credit
card must include the entire bill› Gives owners more options› Allow property owners to pay tax in
installments by credit card› Add 2.75% surcharge to cover costs
Policy Options (cont’d)
Hardship Loan Fund› Modeled, in part, on property tax
assistance programs implemented by other governments
› Fund managed by independent party, such as a private organization, community foundation, or housing non-profit
› Leverage funds from the private sector to give loans for property taxes
› Strict eligibility criteria
Future Considerations
Data set quantifying property taxes and special charges separately
Incorporate Department of Neighborhood Services data into analysis
Trend analysis
Acknowledgments
Aaron Szopinski, who served as our contact with the City of Milwaukee
Jim Klajbor, Robert Potrzebowski, and Sam Leichtling for meeting with us