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GOPC Undergraduate Writing Intern Reflects on Vacant Properties Policies

Ryan Conlon recently graduated from the John Glenn School of Public Affairs at the Ohio State University.  Ryan spent his spring 2013 semester as an intern at GOPC to fulfill his "Writing for Nonprofits" course.  Possible Policies for Mitigating Vacant and Abandoned Properties in Ohio

By Ryan Conlon

As a part of my requirement to graduate from The John Glenn School of Public Affairs, I was assigned to write a policy recommendation on some sort of market failure.   During my time at Greater Ohio I have been learning about the vacant property issue in Ohio’s urban cores and became interested in understanding who should assume responsibility for a property when it becomes vacant.  Many homes that are going through the foreclosure process are neglected because neither the creditor nor the borrower have the necessary incentives to pay for maintenance.   My policy analysis proposes fixes for this market failure. 

I used three criteria to analyze three policy alternatives and make recommendations: effectiveness, efficiency, and political feasibility.

Creditor Responsibility Law.  Based on the New Jersey law, a similar law in Ohio would make the creditor initiating foreclosure responsible for maintenance during the foreclosure process.   In order for this policy to be successful, the cost of maintenance needs to be cheaper than the cost of paying for code violation fines.

  • As an example, in the Columbus neighborhood of North Linden it costs an average of $2,517 a year to maintain property up to Ohio housing code standards
  • Properties that have any code violations may be fined up to $3,000 and each day a code is violated, a separate penalty can be incurred, under Ohio Housing Code 4509.99 (A),

This policy would be effective because it will be cheaper for the financial institutions to pay $2,517 a year than to pay $3,000 or more for every code violation.  Despite these cost savings, crediting institutions would still incur high costs under this law, making it unlike that such a statute would be passed.  

Required Mediation.  The Franklin County Mediation Project (FCMP) is an optional program that gives creditor and borrower the opportunity to meet with an impartial mediator and try to renegotiate a deal to keep the owner from being foreclosed upon.  I investigated the potential costs of making mediation mandatory and found that

  • the cost per mediation for FCMP is $154
  • FCMP had a 50.5% “success” rate
  • If every foreclosure filing were mediated it would cost the state $19.5 million for 2013

21st Century Homesteader Program.  With this proposed program, a local government or land bank will acquire foreclosed property and allow a “homesteader” to live in the property for 18 months. During that 18-month period, the homesteader will only have to pay for maintenance and rehabbing projects.  After 18 months, the homesteader may choose to purchase the property from the government or land bank for two thirds the price of what the government purchased it for. 

  • Homeowner saves $7,624.84 by participating in Homesteader Program instead of buying home at sheriff’s sale
  • Net Present Value calculation shows government’s break-even point of buying a property and homesteading it comes at year 12.

 Recommendations

After analyzing all three alternatives and measuring their effectiveness, efficiency, and political feasibility; I recommend the state of Ohio begin a homesteading program.  The Cuyahoga Land Bank’s Owner Occupier Advantage Program is very similar to the homesteading program.  Governments and other land banks should strongly consider adopting a program similar to the homesteader program or Cuyahoga’s Owner Occupier Advantage Program.  These programs get responsible homeowners living in previously foreclosed or vacant property, which will reduce neighborhood blight in communities in need of revitalization.