Maintaining community stability and preserving revenue are ongoing challenges posed by Covid 19. Another hurdle on the horizon is property tax delinquency and foreclosure, as moratoriums conclude. By Summer of 2022, all NJ homeowners will exit moratorium forbearance. Red flags exist as NJ has roughly double the number of units in foreclosure, as compared to the nation. Vacant, abandoned and deteriorated (VAD) properties, which can become Zombies, may increase, if not addressed by local government.
Our State faces the following headwinds, adding to VAD and Zombie vulnerabilities:
High Income Required for Home Ownership
Lagging Wages
High Median Sale Price
Weak Job Creation
Accelerating Outmigration
Natural disaster frequency and intensity has compounded the headwinds. Hurricanes, tornadoes, floods, fires and mudslides have added to pandemic related distress. The ongoing e-commerce shift, and remote work preference, complicate the situation.
These factors create an increase in VAD’s and Zombies. These negative influences reduce property values, increase tax delinquency and exacerbate vacancy. This ignites a downward spiral which is difficult to correct, and can permanently damage communities.
To address this threat, municipalities should assess the degree of VAD and Zombie vulnerability in the community by generating quarterly data on vacancy and tax delinquency. Other useful indicators are police and fire calls, utility shut offs, nuisance complaints, neighborhood feedback, mortgage foreclosure filings and lis pendens notices by lenders. Collecting and analyzing this data focuses attention on the VAD and Zombie pipeline. This pipeline forms a shadow inventory, leading to a loss of revenue and neighborhood decline.
VAD’s become Zombies when abandoned by the lien holder or owner. The reasons a Zombie is created range from death, divorce, medical issues and other personal or financial difficulties. Lenders may choose not to pursue a foreclosure if the property requires extensive repairs, has high back property tax, there’s an inventory surplus or high liability. Zombies are even more difficult to eradicate than VAD’s.
Municipalities should inventory distressed properties to identify VAD’s and Zombies. Abandoned properties, as defined by HUD, meet any of these conditions:
1. Either the mortgage or taxes are at least 90 days delinquent, or
2. A code enforcement inspection shows the property is not inhabitable, and no corrective action has been taken 90 days after notification, or
3. The property is subject to court ordered receivership, or nuisance abatement, relating to abandonment.
Funding can be obtained for municipal efforts supporting national planning objectives, such as foreclosure prevention and neighborhood stabilization. By creating and using an information system with ongoing data collection, municipal government can prevent abandonment, gain control of problem sites, collaborate to advance community goals and maintain revenue. This averts the destructive downward spiral created by VAD’s and Zombies.
Elected officials should coordinate various divisions including revenue, finance, planning, economic development, building and public safety to collect relevant data to head off VAD’s and Zombies. The coordination should also incorporate community groups and the local Chamber of Commerce for “boots on the ground” input. Lining up reliable and trusted partners (nonprofits, local developers and private entities) can speed the intervention process.
The synergy of this integrated effort cultivates a process for foreclosure prevention, vacant land management and current data analytics. Local objectives can include prioritizing sites and neighborhoods for revitalization, updating the master plan and zoning, conducting feasibility studies for adoptive reuse, optimizing job creation strategies and boosting housing affordability programs. These proactive steps will avert the loss of confidence in a neighborhood due to rising crime, vacancy and instability triggered by VAD’s and Zombies.
Other interventions to consider are as follows:
Vacant Property Inventory & Ordinance. A Vacant Property Inventory can be a starting point to assess the magnitude of the VAD and Zombie problem. A Vacant Property Registration Ordinance is a method to keep current records on property contacts, liability insurance and conditions. This avoids local costs for safety, maintenance and code enforcement. It also alerts the municipality to notice of default or intent to foreclose. The municipality can implement requirements to deter board ups by requiring working windows and doors, or artistic treatments. The goal is to halt negative spillover to the neighborhood.
Rehab Existing Units. Most rental housing exists in one to four family units, and is typically 50 years of age or older. A distressed property can be bought, updated and sold faster than new construction and presents an opportunity to rebuild the urban core. Eliminating substandard housing and unsafe conditions promotes social equity, builds wealth and attracts investment to the neighborhood.
Repurpose Commercial Property. Hotel, retail and office repurposing should be evaluated. Creativity and vision can yield revitalization plans for community facilities, municipal offices, recreation, urban agriculture and live/work units. It can also provide the opportunity to improve stormwater infrastructure and renewable energy.
If the municipality does not intervene to identify VAD’s before they become Zombies, a distressed property may accrue increased debt from penalties and interest, making it even less financially attractive to investors.
Tax lien sales, the traditional method of purging tax delinquent properties, can generate revenue immediately, but the investor may spend the bare minimum to maintain the property, rather than investing to strengthen the neighborhood. This can result in years of decline if the investor does not upgrade the property.
Two additional methods of intervention, that promote community goals and generate long term public benefits, are listed below:
Land Bank. The tax liens can be conveyed to the municipality or land bank. There may be no public lien auction, or the land bank can obtain liens unsold after the auction. Land banks rely on clear municipal plans, promoting community goals, and are supported by reliable nonprofit and private sector partners.
Community Development Corporation (CDC). The CDC can be a nonprofit dedicated to community support and revitalization. It can access grants, philanthropic funding and assistance from Community Development Financial Institutions.
Municipal intervention fortifies the community by identifying the shadow inventory and accelerating market potential. Promoting community goals and preventing the downward spiral created by a proliferation of VAD’s and Zombies maintains revenue and affirms community identity.