Strategies for Reducing In Rem Foreclosures in the City of Milwaukee

1. Strategies for ReducingIn Rem Foreclosures in theCity of Milwaukee May 14, 2013 Prepared for: Budget and Management Division, Department of Administration, City of Milwaukee Prepared by: Bryan Mette Joe O’Connell Michelle Prost Erika Schoot Elizabeth Silverstein

2. Definitions • In Rem • Judgment against property • Used synonymously with tax foreclosure • In Personam • Judgment against person

3. 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

4. Our Goal Reduce residential properties that end up in tax foreclosure

5. 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 remforeclosure • Early warning system model • Policy options • Future considerations

6. Comparison of Peer City/County Tax Foreclosures *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)

7. Distribution of In Rem City Acquisitions for All Property Classes, 2008 – 2012 Source: Authors, using data from the Department of City Development

8. Tax Delinquency Summary for All Residential Property, Levy Years 2008 – 2012 *November Delinquencies numbers include Levy Years 2008-2011. Source: Authors, using data from Office of the City Treasurer

9. Changes in Tax Delinquency for All Taxable Real Estate During Three-Year Tax Collection Period Source: Authors, using data from Office of the City Treasurer

10. 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

11. 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

12. 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

13. Post-Foreclosure Process

14. 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

15. 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

16. Properties • Property Classes: Residential, Condominium (Improved Lots Only) • Property Types: • Duplex (40.0%) • Single-Family (53.3%) • Other (6.6%) • Total Residential/Condominium Properties: 1,599 (65.1% of total)

17. Percentage of Total Tax Foreclosures of Residential Properties by Aldermanic District, 2008 – 2012 Source: Authors, using data from the Department of City Development and the Office of the City Assessor

18. In Rem and Private Mortgage Foreclosures as a Percentage of Residential Parcels by Aldermanic District, 2008 – 2012 Source: Authors, using data from the Department of City Development and the Office of the City Assessor

19. Residential Properties Proportion of All In Rem City Acquisitions, 2008 - 2012 Source: Authors, using data from the Department of City Development

20. Percentage of In Rem City Acquisitions of Selected Properties by Aldermanic District, 2008 - 2012 Source: Authors, using data from the Department of City Development

21. Owner Occupancy of City-Acquired Properties, 2008 – 2012 Source: Authors, using data from the Department of City Development

22. City-Acquired Properties with Previous Private Foreclosure, 2008 – 2012 Source: Authors, using data from the Department of City Development

23. February and Post-February Tax Delinquencies in Conjunction with Tax Foreclosures, Levy Year 2009 Source: Authors, using data from Office of the City Treasurer

24. Amount of Property Tax Delinquent at the Point of Delinquency, Levy Year 2009 Source: Authors, using data from Office of the City Treasurer

25. City Costs Associated with Tax Foreclosure * 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. Source: City of Milwaukee Division of Budget and Management

26. 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

27. 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

28. Policy Options • Early Warning System • Based upon statistical analysis • Used to identify the likelihood of in remforeclosure for delinquent properties • Outreach to those affected e.g., housing non-profits, other options

29. 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

30. 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

31. 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

32. Future Considerations • Data set quantifying property taxes and special charges separately • Incorporate Department of Neighborhood Services data into analysis • Trend analysis

33. Acknowledgments • Aaron Szopinski, who served as our contact with the City of Milwaukee • Jim Klajbor, Robert Potrzebowski, and Sam Leichtlingfor meeting with us • Professor Andrew Reschovskyand Karen Faster

34. Questions?