Five years after the housing bubble disastrously burst, federal and local government has tried, with limited success, to address each new wave of the foreclosure crisis. In Chicago and Cook County, the focus is increasingly on the surging number of properties vacated because of foreclosure.
Cook County Commissioner Bridget Gainer (D-Chicago) proposed in May an ambitious way to deal with the problem, a county “land bank” for which a quasi-governmental organization will seize and then manage properties until they can be put into productive use.
Gainer thinks that the land bank can address the fact “that we are in a very dysfunctional place right now in the real estate market,” where many mortgage holders appear indifferent to rehabilitating vacant properties.
The North Side Chicago commissioner has approached Cook County Board President Toni Preckwinkle (D-Chicago) with the idea and expects that the board will vote on a land bank ordinance in the next three months.
Area housing experts strongly support the idea. They say the land bank could accomplish what many foreclosure crisis-related policies cannot, despite questions of how this quasi-governmental entity will work and how it will be financed.
The fate of vacant properties will now be “responsive to community needs,” contends Tom Feltner, vice president of the Chicago Woodstock Institute, a research and advocacy group, instead of “being sold off one-by-one.”
“Land banks are hobbled in part because they have this crummy name,” says Adam Gross, director of the regional affordable housing initiative at Business and Professional People for the Public Interest in Chicago. “But they have done amazing stuff.”
The county first addressed vacant properties with a law last December that forces the vacant property holder to register their land with the county and pay a $250 registration fee.
The Chicago City Council passed similar legislation in October that included a $500 registration fee. That law is in dispute. The Obama administration sued the city stating that the federal government alone can regulate Fannie Mae and Freddie Mac, the government-controlled mortgage financiers.
Regardless, the city ordinance has provided initial information on the scope of the vacant property problem. As of last month, more than 6,000 vacant properties were registered with the city. The county – which has a population of 5.2 million, compared to 2.8 million Chicago residents – has not released its own registration figures.
The land bank would allow banks, real estate companies and other holders of the vacant sites to unload the properties to the quasi-government land bank agency. A land bank board of directors, which could include city and county officials, non-governmental housing experts, and developers, then picks properties it wants to invest in.
“Sometimes it is hard to pick winners and losers,” Gainer says. “The land bank is able to make those decisions.”
The bank would then hold the properties, but also manage them toward various ends. For example, Gainer says she would like to see some vacant properties be converted into affordable rental housing.
The land bank concept sounds almost like the housing version of the Infrastructure Trust that the Chicago City Council passed in April to deal with a lack of cash for infrastructure projects.
It could be a breakthrough way for local government to deal with a big problem. But it could also be a secretive quasi-government organization with a sweeping mandate: So far Gainer’s office broadly estimates that the land bank would affect “hundreds” of properties.
But unlike the Trust, there are two fairly clear precedents for the land bank. In Cuyahoga County, Ohio, which includes Cleveland, and Genesee County, Michigan – which includes Flint -- Big banks as well as Fannie Mae and Freddie Mac have been eager to unload thousands of properties to a land bank instead of paying for the cost of upkeep and demolition.
In Cleveland, for example, properties were sold to churches and hospitals, redeveloped into rental sites, or simply rehabbed by the city to eliminate blight. In many instances, financial institutions actually paid the county land bank to get rid of the property. “There is evidence that not only are financial institutions willing to transfer responsibilities, but they are interested because these have become a liability for the bank,” Gross says.
The active participation of banks and Fannie and Freddie is crucial. Often, financial institutions have been uncooperative in other proposed solutions to the foreclosure crisis, such as the modification of loans.
As for how these land banks operate, Gross trumpets that they have a “single entity” board instead of the alphabet soup of local government agencies and housing authorities addressing vacant properties. “When you have just one agency that does it, they do it better,” Gross argues.
There are other land banks in Michigan and Ohio, as both states passed laws enumerating the powers of the land banks to use certain local taxes, like the real estate transfer tax.
Illinois has not passed such a law. Attempts at a state law have failed partly thanks to opposition by the Illinois Association of Realtors. The realtor group fears that land banks will have real estate powers the private sector does not and without sufficient taxpayer oversight.
Under home rule authority, Cook County can still set up a land bank. But the county will need to work with state and federal government, and perhaps the private sector, to come up with the initial financing money.
Gainer has proposed using some of the $1.5 billion the state got from the national “robo-signing” settlement that several state attorneys general made with mortgage financiers. Michigan and Ohio land banks have also partly relied on U.S. Housing and Urban Development for money.