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WV tax-lien loopholes cause vacant building woes

Charleston Gazette-Mail photo by Christian Tyler Randolph  Dawn Moss stands on the front porch of her home, which neighbors a vacant, blighted property on Huron Terrace in Charleston. The property next door formerly housed a meth lab, and has been sitting vacant and unsecured for the past two years.
Charleston Gazette-Mail photo by Christian Tyler Randolph
Dawn Moss stands on the front porch of her home, which neighbors a vacant, blighted property on Huron Terrace in Charleston. The property next door formerly housed a meth lab, and has been sitting vacant and unsecured for the past two years.

This is the second and final in a two-part series about the system of tax lien sales in West Virginia, how they’re connected to the growing problem of vacant and blighted properties in the capital city and what the local and state governments can do about it.

CHARLESTON, W.Va. — The house at 1520 Huron Terrace has been home to at least a half-dozen families since 2010. Neighbor Dawn Moss has seen them come and go.

They never last for long, she says.

The property has been cycled through the tax lien system at least twice in the past decade.

Since the new owner took title to the property in late 2014, the tenants moved out and the house has been crumbling ever since.

As one of few states with a declining population, some say West Virginia’s laws on delinquent real estate proceedings are problematic and exacerbate the rise in vacant housing.

While the two don’t always go hand in hand, it’s common for tax delinquent properties to also be vacant.

A Gazette-Mail investigation found that more than 40 percent — roughly 170 properties — listed on the Kanawha County Building Commission’s vacant structure registry have been cycled through a county tax lien sale at least once over the past 10 years.

Douglas Gale, who owns REO America out of Altamonte Springs, Florida, has been purchasing tax liens in West Virginia for the past two decades.

Now, he runs a firm that provides nearly all the necessary resources to lien buyers, including due diligence, collections, foreclosures, title clearing, liquidations and others.

He also sits on the board of directors for the National Tax Lien Association.

Gale said West Virginia is different from tax sales markets in other states.

“Nationally, many large firms don’t go to West Virginia. Their markets are very small and data is hard to come by — it’s easier in other places,” Gale said. “And I think they struggle to do due diligence and data research because of [those] problems.”

Gale said nationally, between 95 and 98 percent of liens sold at tax sales are redeemed by the owner.

But in Kanawha County, data from 2012 to 2014 show an average redemption rate of about 76 percent.

Of the roughly 1,620 liens sold at the 2012 Kanawha tax sale, nearly 450 — 27 percent — were never redeemed by their owners.

Unredeemed tax liens made up 21 percent of the total sold in 2013 and 22 percent in 2014, respectively.

Kanawha County tax deputy Allen Bleigh is responsible for registering bidders at each tax sale.

The county isn’t required to complete a full title search of delinquent properties, so Bleigh has no way of identifying previous owners, or whether a piece of real estate has been passed around among various owners to avoid fines and building code violations.

He’s also noticed a pattern among who bids at these sales.

“I’ve noticed over the years that there have been a larger number of institutional investors than when I started back in 1997,” he said. “It’s either a corporation or a group of investors that form a business with the intent of going around to sales throughout the state and the rest of the country.”

While tax lien investors have a legal right to take the deed to an unredeemed property, they’re not required to.

Gale said he doesn’t believe that’s problematic and argued that city and county governments “kind of need the process [to] get those revenue dollars in.”

“Remember, the county has a budget deficit of a couple million [dollars] that we help fill. From the property owner’s perspective, they got their taxes paid for a year,” Gale said. “It’s unfortunate that the property will sit there, but we’re not the title owners or anything.”

Years of decay

The scene at 1520 Huron Terrace tells a different story.

When a reporter stopped by to ask if anyone was living at the property, she found the front door wide open, showing several feet of drywall, plywood and rubble in the living room. The front porch was lined with filthy chairs, a stroller, a dishwasher, trash and children’s cups. A baby doll sat atop the rubble. A gutter laid forgotten in the front yard. Broken glass and pottery shards peppered the front steps.

Moss has lived next door to the property for the last six years.

During that time, she said she’s seen more than a half-dozen families move in and out.

After a Philadephia-based investment company bought the lien on the property for $2,700 at a 2007 tax sale, it transferred all interest in the property to another of Gale’s Florida-based companies, Rebuild America, near the end of the redemption period.

“As far as Rebuild America goes, that was strictly buying tax deeds where someone was selling a portfolio, and we decided to buy it,” Gale said.

Kanawha County records indicate that J.D. Watters Co. and Howard Menking, a local property owner well-known among Building Commission inspectors, both owned 1520 Huron Terrace prior to 2007.

The city’s Building Commission has taken Menking to municipal court dozens of times over numerous building code violations on his properties.

Building Commissioner Tony Harmon said Menking frequently rents properties to tenants before they’re habitable on the condition that the tenants will fix the issues.

“That never works. Tenants don’t usually have the means of fixing those problems, or the know-how,” Harmon said. “In a couple of cases, there’s been raw sewage dumping into basements.”

 It’s illegal for a landlord to lease a rental unit without an inspection from the Building Commission first.

“We’ve had to flat-out tell him, ‘Do not move anybody in here; it’s posted unfit for human habitation,’” Harmon said. “We’ve had it happen over and over again.”

After Rebuild America took title to the property in 2009, the company sold it back to Menking almost immediately, via a quitclaim deed for $15,000 — making almost a $12,000 profit.

In 2010, Menking stopped paying property taxes again.

Someone set up a meth lab in the house. Documents from the West Virginia Bureau of Public Health show that a remediation company treated the home in late 2013.

After the meth lab was cleaned up, Moss said a woman with seven children moved into the house.

By April 2014, after five years of unpaid taxes, a company known as M&T Properties bought 1520 Huron Terrace for $700 at a Delinquent and Non-entered Lands sale.

The owner, Mark Bolling, took title in October 2014.

Attempts to reach Bolling for comment were unsuccessful.

A search for M&T’s business registration couldn’t be found on the West Virginia Secretary of State website.

In the two years since Bolling took title to 1520 Huron Terrace, Moss said she’s never seen anyone visit the house.

“We just want the house torn down,” she said.

No easy fix

Amid conflicting interests between the private and public sectors in the context of abandoned, tax delinquent properties, the national Center for Community Progress is an organization that provides research and support to communities around the U.S. struggling to deal with the collateral damage that tax lien sales can leave behind.

The center’s co-founder and professor at Emory University Law School, Frank Alexander, notes that the costs of abandoned buildings go beyond public safety and budget issues for local and county governments. It also takes a toll on surrounding property values, he said.

“Every piece of delinquent property hurts the tax digest,” Alexander said. “Appraisals are lower and revenues are lower.”

A 2001 study by researchers at Temple University in Philadelphia found that homes within 150 feet of a vacant or abandoned property experienced a net loss of $7,627 in value, while properties within 150 to 300 feet experienced a loss of $6,819.

Because tax liens are sold in the form of a public auction, Bleigh, the Kanawha County tax deputy, said he’s not sure if the county could place restrictions on investors who are known to buy hundreds of liens at a single sale — and walk away from those that don’t turn a profit.

He pointed out a loophole, even if such a law existed: Those purchasers could just start another LLC under a new name and send someone else to do their bidding.

While there’s no clear silver bullet in sight, local groups such as Charleston’s Strong Neighborhoods Task Force are weighing the costs and benefits of potentially creating a land reuse agency in the city.

Also known as land banks, reuse agencies are public or nonprofit corporations that focus on converting vacant and tax delinquent properties back into productive use.

In 2009, Huntington established the first such entity in West Virginia. Land reuse agencies can bid on liens at tax sales, usually on the most blighted properties that are unlikely to be redeemed. The agency can board up, make repairs to or demolish those properties while holding the tax lien.

The agency’s role is to acquire the title to problem properties, eliminate the liabilities and transfer them to new, responsible owners. It is tax exempt and does not have power to exercise eminent domain.

Of the more than 1,000 tax liens Huntington’s reuse agency has bought since 2009, it has sold 137 properties back into productive use, generating an estimated $45,000 in annual property tax revenue.

The entity maintains another 132 properties and has demolished more than 40 structures to date.

First Century Bank granted the land bank a $1.5 million line of credit to buy tax liens when the agency was first created. It also receives $30,000 annually from Community Development Block Grants.

But various obstacles still prevent the agency from having a greater impact, says Christal Perry, its chief administrator.

When the agency tried to exercise right-of-first-refusal — which would allow it to purchase tax liens before the public auction is held — a group of attorneys filed a lawsuit against the city and the Cabell County Sheriff’s Office refused to accommodate the land bank.

State Sen. Robert Plymale, D-Wayne, introduced a bill during the regular 2016 legislative session that would have given land reuse agencies right of first refusal, but the bill died in the Senate’s Government Organization Committee.

The city of Charleston is also working with the state Municipal League in hopes of introducing legislation during next year’s session that would make it easier for cities to demolish dilapidated, unsafe buildings without going through a lengthy, expensive court process.

“It has been carefully crafted to make sure due process rights of property owners are protected, but once all that happens, [a structure] can be taken down without having to go to circuit court,” said City Attorney Paul Ellis, who helped write the proposed draft.

Ellis said it also provides clearer definitions and examples of what unsafe, unsanitary and dangerous means when it comes to property.

That, he said, will hopefully allay concerns that local government will start tearing down properties off the cuff.

“If the house is OK — and just happens to be vacant — and people are trespassing, then the activity needs to be dealt with,” Ellis said. “Just because there’s some activity around a structure doesn’t necessarily mean [it’s] unsafe or unfit.”

Reach Elaina Sauber at [email protected], 304-348-3051 or follow @ElainaSauber on Twitter.

See more from the Charleston Gazette-Mail.

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