Land Bank: A single entity that acquires, manages, and markets vacant properties
A land bank is a governmental entity that works solely to return vacant, abandoned, tax-delinquent, and foreclosed properties to productive use. Pennsylvania passed enabling legislation—PA Act 153, signed by Governor Corbett on January 17, 2013—that allows any municipality with a population of 10,000 or more to establish a public agency land bank. Smaller municipalities may join together to form a land bank. A full summary of the state law is here.
The most common goals of a land bank are to—
1. Eliminate the harm caused by vacant, abandoned, and tax-delinquent properties
2. Eliminate the barriers to returning properties to productive use
3. Convey properties to new owners for productive use
4. Hold properties for future use
Municipalities across Pennsylvania are creating land banks.
What does it do?
A land bank is a special-purpose entity whose sole purpose is to address blighted and vacant properties. It is not a redevelopment authority, zoning, or planning entity. A land bank may obtain properties by donation, transfer, foreclosure, or purchase, from municipalities, redevelopment authorities, private owners, or tax claim bureaus. A land bank has the authority to design, develop, construct, demolish, reconstruct, rehabilitate, renovate, relocate, and otherwise improve real property. A land bank must create a public inventory of its real property and maintain its real property to code standards. A land bank is able to extinguish property tax liens and claims subject to school district permission. In Pennsylvania, a land bank does not have the power of eminent domain.
How do we pay for it?
To support their operations, most land banks use a mix of funding streams. Because land banks deal with properties that no one else wants, it is rare that they are completely self-financing. Funding for a land bank can come from sales of higher-value properties, rents, and leasehold payments, grants and loans from public and private sources, general operating support, and income from investments. When necessary, a land bank may borrow money to cover its initial operating costs.
A land bank may also collect a portion of real estate taxes on the properties it conveys under an agreement with the relevant municipality(ies) and/or school district(s). The tax recapture mechanism, explicitly permitted by state law, redirects a portion of the property taxes generated by land bank–owned properties to finance land bank operations. The portion of taxes may not exceed 50% of aggregate tax revenues and may continue for up to five years. The reasoning behind tax recapture is that the properties reactivated by the land bank did not provide tax revenue to the municipality or the school district before acquisition; typically, they imposed costs. By funding its operations through targeted tax recapture, the land bank can return properties to the tax rolls and reduce public expenditures for code, fire, and police protection, while raising the values of surrounding properties and the tax revenues those properties produce.
What types of property are covered?
Unoccupied, foreclosed, vacant, and abandoned properties. Occupied properties may be transferred to a land bank under limited conditions. Land bank property is tax exempt but must be maintained in accordance with local law.(73) The disposition of properties may be subject to a locally determined set of priority uses.
What challenges will it solve?
The creation of a single entity to address vacant property is crucial to eliminating blight. A land bank is designed to make it faster, easier, and cheaper for interested and responsible new owners—whether they are developers, community groups, neighbors, farmers, or gardeners—to purchase blighted, abandoned properties and return them to productive uses that generate taxes for the city, county, state, and school district. Land banks can acquire foreclosed properties at tax sale through a negotiated intergovernmental transfer for minimal cost. They are also patient landholders when there is no market demand for a property, and they can provide clear, marketable title to interested buyers. A land bank allows Pennsylvania communities to ensure that blighted properties are sold or developed with the long-term interest of the community and surrounding property owners in mind.(74)
Where does it apply?
A land bank can be created by a single municipality or a group of municipalities with a population of more than 10,000. Municipalities that will most benefit from a land bank are those that have a large, fragmented inventory of long-term tax-delinquent substandard properties that have housing and building code violations.
How does it work?
To reduce liability and negative impacts on neighborhoods and local governments, a land bank acquires and maintains properties for which there is no current demand. A land bank clears title to a property and then transfers it to a new owner, sometimes attaching conditions on use to ensure that the property meets local priorities. The governance of the land bank is defined by statute. A land bank must be established as a public agency but does not need to have its own offices or staff, because a land bank can contract for the use of current municipal employees. The land bank staff can make decisions about the transfer of properties valued at less than $50,000. The sale or lease of any property valued at more than $50,000 is subject to approval by the land bank board.
What policies and practices will increase our chances of successfully using this tool?
By statute, a land bank must be transparent and accountable in its practices and policies. A land bank must have an accurate inventory of properties available for public review, must keep minutes of its proceedings, and must submit an annual audit of income, expenditures, and activities. A land bank is subject to the Right to Know Law.
Having the support of local elected officials, school boards, and the public will greatly increase a land bank’s effectiveness. To gain that support, it is important to make the costs of doing nothing evident so that everyone can understand that it is preferable to use money now spent addressing blighted properties to create well-maintained land reserves.
The land bank will benefit if the jurisdiction it covers understands the land bank’s goal, whether the goal is blight remediation and the priority is maintenance, the creation of affordable housing, or revenue generation through the sale of properties to the highest bidder. A land bank can sell properties for market value or transfer those properties for minimal consideration. The land bank may also establish priorities for buyers and refuse to sell to buyers who have serious code violations or taxes owed.
The land bank should coordinate the disposition of property with adopted land use plans so that reactivated properties help revitalize the area.
A land bank typically seeks to sell vacant properties with some guarantee that the owner will quickly improve the property. The land bank can do this through “clawback provisions,” which return ownership to the land bank if the buyer fails to fulfill contractual commitments. The land bank may require that title under all conveyances revert to the land bank if construction or rehabilitation does not begin within a predetermined number of years of the conveyance. A deed containing a condition allowing the original grantor the right to enter and regain the property is a “fee simple on a condition subsequent,” with the grantor having a “right of re-entry.” Note, however, that land banks are generally reluctant to terminate all of the transferee’s rights, and courts are not eager to enforce a property forfeiture. Clawback provisions may also create an obstacle to a buyer attempting to obtain financing to redevelop the property. Other methods to ensure that a buyer invests in the property as promised include development agreements between the land bank and the buyer that specify precise commitments about the nature of the expected investment or development and the time frame within which it must occur.
What legal documents will we need?
- Local ordinance that establishes the land bank and that includes the name of the land bank, members of the initial board of directors, methods of community input, and policies for owner-occupied properties
To ensure accountability and transparency, the state land bank law imposes many specific procedures and requirements on local land banks. Certain matters are subject to approval by the entire board. The board must have an odd number of members between 5 and 11. The board can include public officials but must include one member who is a resident—not a public official or employee—and a member of a civic organization.
When two or more jurisdictions jointly establish a land bank, they may also need an intergovernmental cooperation agreement (ICA) between them and an agreement with their school district to agree to waive taxes due. An intermunicipal agreement between the city and the county may also be needed.
Who is using the tool now?
Philadelphia, Dauphin County, and Westmoreland County have established land banks by local ordinance since the state enabling legislation was passed. Information about land banks continues to grow. Please go to the Housing Alliance of Pennsylvania Land Bank Headquarters at http://www.housingalliancepa.org/node/1360 for up-to-date information.
How can we combine this with other strategies?
To eliminate blight and bring properties back into productive reuse, a land bank should use as many of the tools described in this manual as possible.
73. A land bank must pay taxes on a property only after its fifth year of continuous lease to a for-profit third party.
74. For Allegheny County only, a land bank may obtain property for less than the upset price at upset sale only pursuant to agreement with municipalities whose claims comprise the upset price.