The Second Chance Market: How A Once Start-Up Receivership Program is Helping Rebuild the City of Baltimore

By Fadi Assaf 

In a crowded room at a Radisson Inn in North Baltimore, an auctioneer stands in front of a podium and waits for the eager crowd to settle in and quiet down. In front of him are a list of 40 vacant and abandoned properties and a court order to sell these properties through a vacant building receivership sale. Individuals willing and able to purchase these properties agree to renovate and repair the badly dilapidated houses. 

A vacant Baltimore home recently for sale at auction

Structures sold at a vacant building receivership sale often share a few common characteristics. For starters, these buildings are empty and severely neglected, leaving the burden and responsibility of looking after these properties to cash-strapped municipalities and the neighbors that stayed behind. These properties have all been issued a Vacant Building Notice by the City of Baltimore. They are poorly secured, attractive to criminal activity, and pose a significant environmental risk. And, perhaps most importantly, abandoned and neglected buildings are common in that they hold neighborhoods back.

The city of Baltimore has lately found itself a target of verbal attacks. This article from StoryBoard’s NPI partners gives us a peek into what one program is doing to help revitalize the city. Read more about Baltimore’s efforts in this article from ProPublica.

Neighbors of abandonment find themselves interacting with these buildings in a number of ways. There’s the child who walks by an abandoned property on their way to school and the elderly couple in the row home that worry about the patchy roof next door and the leak that follows the rain. And although they are uniquely affected by abandonment, all understand that something is not right. 

Weeks in advance of the sale, the auction house is busy at work visiting eligible vacant buildings and preparing them for auction. Some properties – those that are in stable enough condition to allow for on-site inspections – are equipped with security lock boxes. Pre-approved bidders at receivership auctions can visit the property per request. Other properties are in such disrepair that they remain off-limits to purchasers. These properties are purchased sight unseen. 

Purchasers at auction must agree to rehabilitate the property in a timely manner. Individuals purchasing properties at receivership sale are thoroughly vetted and are prevented from adding to the cycle of vacancy by waiting for better value. Work on the house is often completed within 200 days of the sale. Out of the 40 properties that were offered in Baltimore’s last receivership auction, 80 percent of the properties sold to pre-approved purchasers. These properties are well on their way to being rehabbed and occupied.

North Bond Street in the Oliver neighborhood of North Baltimore. According to Live Baltimore, the Oliver neighborhood is currently being revitalized, and Baltimore City Housing’s Vacants to Value program has seen much success in the neighborhood.
Google images.

What About Memphis?

So, what prevents the model from being implemented in Tennessee? The good news is that state law already authorizes a health and safety receivership, albeit seldom utilized. And while there are slight inconsistencies in the Tennessee health and safety receivership law compared to the Maryland authorizing statute, the Tennessee model has potential to support the transfer of neglected and badly deteriorated properties into the hands of new owners.

However, different market characteristics present a unique set of problems and the need to begin developing a pool of qualified and interested purchasers at receiver’s sale will determine the viability of such a program.

Notwithstanding these practical issues, the need is great in Memphis. With nearly 15,000 vacant and abandoned structures, we confront vacancy and abandonment on a daily basis. Some among us are especially vulnerable. And while the challenges posed by each property are unique, a good portion of these properties are underwater in taxes and liens, or in such bad shape that they require the help of a receiver to help the transfer into the hands of a qualified buyer. 

Health and safety receivers are provided explicit instructions by the Court to take a fixed course of action and may not deviate from the Court’s instructions. Throughout the process, the receiver never acquires title to the property. In Tennessee, a Court may authorize the receiver to prepare a property for sale by either: (a) fully rehabbing the property; (b) stabilizing the property; (c) demolishing the property; or (d) preparing it for an as-is sale. 

After the auction sale, the receiver deducts taxes and receiver’s costs and fees from the sale price and distributes the remaining proceeds to the previous owner or estate of the once nuisance property. Properties that go through the receivership sale process are free and clear of all liens and encumbrances. Some properties require the assistance of a receivership in order to receive a second-chance at life.

15,000 Structures In Limbo

Take the story of Hector who passed away without a legally binding will two years ago, leaving a house in limbo. Hector suffered from a significant hoarding problem. Trash and canned goods line the floor. Mold has covered the walls, floors, ceilings and furniture. Insects crawl to-and-from animal feces between the badly deteriorated stairs. Meat rots in the industrial size freezer. Grass has grown beyond regulation. The back door sits open, as does the front. A squatter has taken shelter in the garage, which ironically is the only clean and uncluttered room in the house. 

The deceased’s heirs have been consistent in expressing no desire to rehab the property. Lienholders have also been presented with multiple opportunities to present a plan for rehabilitation. Notice is given, but come court date, nobody arrives. The property is nearly $7,000 behind in city and county taxes. It will take significant investment to rehab the property, and while the market and neighborhood characteristics suggest a favorable investment opportunity, the property’s fate remains in limbo.

As the next continuance date approaches, a For Sale sign went up recently. The neighbors next door are trying to sell their home. They lived there for 18 years.

Meanwhile, the house next door continues to visibly deteriorate. Utilizing Tennessee’s health and safety receivership law to its fullest potential can stop the deterioration, of Hector’s vacant house as well as throughout Memphis.

Fadi Assaf is a program manager for Neighborhood Preservation, Inc. For more information, visit npimemphis.org

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