The market for liens on tax-delinquent Indiana properties could go dry under the latest in a series of bills addressing vacant and abandoned housing.
Republican Sen. Jim Merritt said he hopes to make tax-sale investing much less attractive with Senate Bill 415 by reducing the interest rate lien buyers can charge from 5 percent to whatever the state is charging for late income-tax payments, currently 3 percent.
Legislators have complained that Indiana’s tax-sale process contributes to high numbers of vacant and abandoned homes because county treasurers sell the liens, rather than the real estate. Under state law, property owners have as long as a year after the county conducts a tax sale to reclaim their property by paying the delinquent taxes, plus interest, to the lien-holders.
Meanwhile, the properties sit vacant with no one motivated to tend to them. Merritt said he hopes his bill cuts the number of properties caught in that period of limbo. “We don’t want homes vacant for very long,” Merritt said.
Tax-lien investors have been able to earn as much as 10 percent in Indiana. Legislation that Merritt authored last year cut that rate to 5 percent, but he said that was still enough to lure investors to county tax sales. County treasurers have resisted changes to the tax-sale law because it’s a low-cost way for them to take in delinquent revenue that otherwise would go uncollected.
Merritt said local officials and other key stakeholders, including bankers, are supportive of his bill. The Indiana Association of Cities and Towns also supports it.
Rep. Ed Clere, R-New Albany, who will sponsor the bill in the House, said he would like to completely overhaul the Indiana tax-sale process so that county treasurers are selling real estate outright. He acknowledges, though, that that would be much more costly because it would require county officials to conduct title searches before holding their annual auctions.
That could be a huge undertaking for some counties. Marion County Treasurer Claudia Fuentes’ current surplus property list is 65 pages long.
Merritt’s bill also requires the Indiana Attorney General to establish a registry of people and entities tied to property that’s been declared vacant or abandoned. Anyone on that registry would be barred from participating in tax sales.
“They shouldn’t be allowed to buy more properties until the issues causing blight are resolved,” Clere said.
Merritt and Clere each has worked on blight-elimination bills in past sessions. Some provisions of the current bill mirror Senate Enrolled Act 422 of 2014, which Merritt said was technically flawed and impractical for local officials to follow.
This year’s bill makes it clear that county, city and town executives have authority over vacant and abandoned housing, Merritt said. The bill allows the local authority to have property declared vacant or abandoned through a hearing process. Then the certified vacant and abandoned real estate can be removed from the tax-sale process and auctioned separately.
Clere said he doesn't expect any single piece of legislation to eliminate blight. "The problem of vacant and abandoned housing and blight in general is an ongoing problem," he said.