Brian Eason

IndyStar

Lawmakers from two of the state's hardest-hit housing markets — Gary and Indianapolis — have introduced four bills this session targeting urban blight, but those hoping for a major overhaul of Indiana's distressed property laws will have to wait at least another year.

The overarching message from the Statehouse: Cities need to use the tools they've been given before pushing for further reforms. That puts the onus squarely on the shoulders of Indianapolis Mayor Joe Hogsett to make progress on an issue on which he campaigned heavily.

Still, backers say the bills should help to some degree, as cities across the state continue to grapple with a tangled web of property rights, competing government interests and perverse market forces that have stymied efforts to combat blight since the onset of the housing crisis.

One would revive a battle over whether banks should have to clean up so-called zombie homes amid a foreclosure. Another would create "opportunity areas" in which city redevelopment commissions could take control of tax-delinquent, abandoned properties more quickly. The overarching goal in each bill: trying to get dilapidated properties into good hands faster, while making sure they don't fall into further disrepair in the meantime.

The latest batch of reforms follows an IndyStar investigation that revealed how a convoluted government tax sale process has helped blight proliferate across the state in the wake of the housing crisis. IndyStar's analysis found that Marion County property auctions with loose restrictions have drawn investors from 31 states and multiple countries. Often, buyers don't rehab or even secure their houses, leaving neighbors with eyesores that invite crime.

Declining neighborhoods: Indy's auction block

Zombies, revisited

One bill from state Rep. Justin Moed, D-Indianapolis, seeks to loosen a provision added a year ago that prevents cities from regulating banks. That provision effectively pre-empted the city of Indianapolis from forcing banks to take care of vacant homes amid a foreclosure.

The provision was backed by the Indiana Mortgage Bankers Association, which argued that banks shouldn't have to navigate a patchwork of municipal foreclosure laws across the state.

That's fine, Moed says. But when an owner has vacated a home amid a foreclosure, he thinks the bank should have to take care of the property until it takes the deed. Stalled and slow-moving foreclosures make it difficult for Code Enforcement to abate nuisances, because the owners often can't be found.

"At the end of the day, (the bank is) going to be the one that has the property," Moed said. "But they can determine how long that process takes. It could be two years, four years" — and can sometimes stretch on indefinitely if the home isn't worth much to the bank.

After the law was passed, the Indianapolis City-County Council passed an ordinance requiring banks to secure, mow and clean up properties after they issue a foreclosure notice. But it won't be enforced unless the state law is changed to allow it.

Moed's bill, House Bill 1239, was assigned to the Financial Institutions Committee, and it remains unclear whether the bill will get a hearing. In other states, banks have fought similar requirements, often taking their case to court, with mixed results.

Land banking lite

Of the bills offered this session, Senate Bill 310, co-sponsored by state Sens. Earline Rogers, D-Gary, and Rick Niemeyer, R-Lowell, could be the biggest stepping stone to broader reform.

It would allow a redevelopment commission to create "opportunity areas" in neighborhoods with pervasive tax delinquency and where at least one-third of homes are abandoned. The bill is designed to make it easier for cities to take control of vacant homes in such areas and would allow the redevelopment commissions to auction them off to "responsible" bidders.

Kathleen Taylor, policy director for the Indiana Association for Community Economic Development, a nonprofit that supports local efforts to fight blight, says the idea arose from Gary, "where they have blocks and blocks of vacant properties with no market value."

The concept is similar to how land banking is used in other states, but on a more limited scale. By snatching up vacant properties in a specific area as they become tax delinquent, a redevelopment commission could stockpile enough to make a significant change in a neighborhood, perhaps by auctioning them off in bulk to a developer or demolishing them for public green space. Cities already can demolish condemned homes that are privately owned, but having them under city control makes it easier to leverage state and federal dollars for larger redevelopment projects.

A major barrier today is that cities and redevelopment groups have a hard time getting control of tax-delinquent properties in a timely manner, because homeowners need a fair chance to pay off their taxes and keep their homes.

"You want to act in good faith and make sure that residents' rights are protected, but a lot of these properties are sitting vacant," Taylor said. "The owner will never step forward. And there’s no solution."

Tax sale tweaks

Another bill, sponsored by Sen. Jim Merritt, R-Indianapolis, would further adjust the windfalls that tax lien investors can receive when they buy homes that the owner is going to redeem.

Today, homeowners are given a year after the tax sale to pay off the back taxes owed and keep their homes. Lien buyers are owed the back taxes, plus a penalty of up to 15 percent on the taxes owed. Investors who bid more than the value of the taxes also accrue 5 percent interest on the overbid. For instance, if the taxes are $5,000, and a bidder spends $6,000, the homeowner would owe an additional 5 percent interest penalty on the $1,000 difference.

Merritt's bill, Senate Bill 204, would change the overbid interest to the amount the state pays each year on income tax refunds, which is determined by market rates. For 2015, that was 3 percent, but it has been as high as 9 percent in the past decade.

In the past, counties have pushed back against reductions in the interest rate, because they worry that the market will dry up and local revenues will drop.

Merritt's bill would be a minor adjustment compared with a 2014 bill, which cut the overbid interest in half. “I don’t want anybody buying a home (at tax sale) thinking they’re going to make a windfall,” Merritt said.

His bill also would make it easier for police to evict squatters. Today, police efforts are often hampered because if they can't find the owner of a vacant home, they can't prove a squatter doesn't live there. The new language would consider it criminal trespassing if people don't leave a vacant home when they've been ordered to do so by police.

The initial draft of the bill also brings back a controversial provision from a year ago that would have eliminated mortgage settlement conferences. But that will be a fight for another year. Merritt said the provision on settlement conferences is coming out of the proposal because it lacked support in the Civil Law Committee, where the bill has been assigned.

Blight Inc.

House Bill 1124 from Rep. Cherrish Pryor, D-Indianapolis, would try to make it easier for tax sale buyers to take care of abandoned homes during a yearlong limbo period in which the homeowner has a chance to pay off the back taxes.

That limbo period has long been blamed by cities and community development groups for allowing abandoned homes to fall further into disrepair. In many cases, the prior owner is gone, but it's risky for the buyer to spend any money on upkeep, because the homeowner could come in, pay off the taxes and keep the home without reimbursing the costs of maintenance.

Pryor's bill would allow tax sale buyers to put liens on the home to recoup the costs of cutting the grass, boarding up the home or doing other exterior upkeep. Her bill would apply only to vacant and abandoned homes.

More needed?

State and local officials agree that more needs to be done on the issue, but there remains disagreement over how much further lawmakers should go. Some want a dedicated funding source for land banking. Others want a complete overhaul of the tax sale system.

But advocates for a blight fix at the Statehouse, such as Merritt and Moed, want to see how cities use tools that they already have, such as receivership, before more changes are discussed. And, with 2016 being a short session, comprehensive reforms may have been a nonstarter, anyway.

Said Moed, "it’s hard to keep coming back to the Statehouse and for us to keep coming up with ideas if the city’s not going to take advantage of them."

Jeff Bennett, Indy's new deputy mayor of community development, says the administration plans to do just that. The city is moving ahead with receivership and could approve a nonprofit to manage the program as early as this week. Meanwhile, he's working to put together a comprehensive strategy for how to use the rest of the tools the city has available.

Part of that, he hopes, will include a better working relationship with the Marion County Commissioners. He also wants to look at expanding the role of Renew Indianapolis and to evaluate whether the city needs to devote more resources to fighting blight.

Bennett expects to have a full strategic plan complete by the spring at the latest.

Call IndyStar reporter Brian Eason at (317) 444-6129. Follow him on Twitter: @brianeason.