Overcoming Obstacles to Blighted Property Reclamation

Legislative reform needed to speed up delinquent-tax sales

As mayor, Madeline Rogero can certainly be expected to respect property owner rights. But she's also a strong believer in property owner responsibilities. And redressing the blighted conditions and other delinquencies that result when these responsibilities are neglected is right at the top of her mayoral priority list.

Indeed, in recent interviews she has stressed that "what happens when somebody doesn't care about their property, they don't pay their property taxes and they leave it abandoned, and that impacts the property rights of everybody around them."

Drawing upon her four years of prior experience as director of the city's Department of Community Development, she's said that, "The first thing you do is work with the property owners, and a lot of times by working with them, then progress can be made. But the reality is that vacant and blighted properties are a big scourge on neighborhoods, and that's one thing I really want to focus on."

At a City Council workshop about a year ago, the director of the city's Office of Neighborhoods, David Massey, estimated that on the order of 1,000 parcels in the city meet the definition of blight contained in the city code. Most of these had been subject of codes enforcement actions including dirty lot clean-ups and the boarding up or demolition of buildings deemed unsafe or a public nuisance. But of $353,584 in fees billed to owners for codes enforcement actions in 2010, only $35,298 had been collected.

At the same workshop, Rogero reported that some 2,600 owners were three years or more delinquent in their payment of city property taxes. While the weak economy and high unemployment no doubt contributed to this total, Massey believes a high proportion of delinquencies of this duration are harbingers if not indicators of blight.

The city's ultimate recourse in both cases is acquisition either via exercise of eminent domain upon approval by City Council or via delinquent property tax sale. But both routes have their limitations.

The city has accumulated an inventory of 48 properties acquired through eminent domain (or negotiations in lieu thereof), including 15 added in 2011 to the listings of its Homemaker Program. But only five Homemaker listings were sold last year. Prospective purchasers must commit to build or rehabilitate a dwelling on the property within one year following delivery of the deed, or else title to the property reverts to the city. For deteriorated structures that remain in the city's inventory, it uses "artistic board-up" such as simulated windows to improve their appearance.

Delinquent property tax sales pose significant obstacles just to getting the property back on the tax rolls, let alone restored to productive use and neighborhood benefit. Such sales are initiated in Chancery Court by either the city or Knox County only after a property has become delinquent for three years or more. The city and county, which now collaborate, are required to submit an upset bid in the amount of the delinquency for all but the most recent year; only if a third party bids higher is the delinquency recovered and the property placed back on the tax rolls. Although only properties that are deemed to have a good chance of resulting in such a sale are typically auctioned, the city's delinquent-tax attorney, Doug Gordon, guesses that fewer than half of the auctions actually do so.

State law puts a damper on prospective bidders by providing that delinquent owners have one year following a tax sale during which they can redeem the property by paying the purchase price plus 10 percent. Moreover, Tennessee has a three-year statute of limitations during which anyone who may have an ownership interest in the property, such as an heir, and claims he wasn't properly notified of the sale, can contest it. And beyond that, the U.S. Supreme Court has held that valid claimants are entitled to "personal service" of such notice as opposed to notice via publication.

All of the above are hindrances to a buyer getting sufficiently clear title to the property in order to obtain title insurance. And without title insurance, lots of luck getting a lender to accept the property as collateral for a loan to finance whatever may be built on it. So the obstacles to redressing blight on properties that are the subject of delinquent-tax sales are formidable.

Rogero has made changing state law to reduce if not remove these obstacles a top priority. "We're working with the Knox County Trustee's office on some legislative reforms... so that the end result will be clear title so that we can actually get that property back on the tax rolls, renovated, and of value to the neighborhood and the surrounding property owners," she has said.

The trustee's delinquent property tax attorney, Chad Tindell, has taken the lead in forming a statewide legislative committee and boasts that, "I don't think you could assemble a better panel of experts to deal with this tax sale process." He says the committee is still several months away from making any recommendations and is loath to make any predictions as to what they will be beyond "making sure we have a comprehensive bill that takes into consideration a wide range of issues."

The city's Doug Gordon, who serves on the committee, is less constrained in his predictions. Stressing that he's speaking purely for himself, he foresees reductions in the redemption period and statute of limitations to three months and one year respectively. Beyond that, he believes that a more thorough record needs to be made and preserved in the Register of Deeds office of how notice was served on all parties with an interest in a sale.

"We need to change the law in order to get these properties back into productive use as fast as possible. Right now we have statutes that intentionally slow it down," Gordon asserts.