Depending on the area you reside or invest in, you may come across real estate that is owned by a land bank. If you aren't sure what a land bank is or what a land bank does, continue reading to find out how land banking works in real estate and how it can be an opportunity to buy a property for less.
What is a land bank?
A land bank is an entity created by the government or a nonprofit group to help manage and dispose of vacant properties, vacant land, or tax-delinquent properties so the vacant lots or abandoned property can be redeveloped for a better, more productive use.
Land banks operate in specific geographic areas, such as a city or county, where there are high housing vacancies, foreclosures, or tax-foreclosed properties. Land banking originally started in 1971 in St. Louis, Missouri, an area notorious for high blight in housing. The practice has expanded tremendously since the foreclosure crisis of 2008, now with approximately 170 land banks across numerous counties and cities in 13 different states, including major metropolitan areas like Detroit, Atlanta, Philadelphia, Genesee County (Flint, Michigan), and Cuyahoga County (Cleveland, Ohio), to name a few.
How does a land bank work?
Land banks are a public agency created by local governments, using state or county funds, or by governmental entities, such as redevelopment authorities or housing and land reutilization authorities.
Once funded, they gain special authority to dissolve any delinquent taxes or tax liens and in many cases can convey property free of any title defects or liens, including prior mortgages, through a tax foreclosure process.
Depending on the land bank program, the land bank can have special authority to maintain abandoned foreclosed properties or a vacant property in tax foreclosure even without legally owning it, temporarily leasing the property or placing a lien against the property for the cost of maintaining it.
It's important to emphasize that every land bank authority is different and that each county, city, or state defines the powers and processes for the operation and sale process of that land bank.
How do land banks help cities?
There is no denying that distressed properties lower property values and invite crime, especially in areas with high vacancy rates. Land banks help convert "problem properties" into positive economic development for the area by maintaining, demolishing, or selling the land for redevelopment.
Many vacant and abandoned properties have a defect of some sort. There could be clouded titles, or there may be delinquent property taxes that exceed what the property or land is worth in its current state. Land banks can clear a property's defects, turning what was once a liability into an asset for the community.
Buying properties from a land bank
Some land bank authorities will sell land bank properties to investors, not-for-profits, or developers, although many give priority to selling properties to owner-occupants, veterans, college graduates, or refugees first, like Cuyahoga Land Bank.
Most land banking entities will choose to sell to an investor or developer who has a positive redevelopment project. For example, if one nonprofit developer wants to develop a high-end retail center while another wants to build an affordable housing community, the land bank will often choose the investor or developer that best aligns with the area's current needs, even if the offer price is lower.
Many counties that sell properties will offer a list of land bank properties that will vary in price. Some properties or lots can be purchased for a few thousand dollars to tens of thousands of dollars or more. Most land banking institutions require you to apply and pay an application fee in order to become a qualified buyer. You may also need to meet certain requirements, such as having completed a development project in the last three years (Dallas Land Bank), not being in a foreclosure process or tax delinquent (Albany County Land Bank), or meeting certain radius or income requirements for special programs (Detroit Land Bank).
Land banks have been an important part of reviving areas that have been hit hard over the years, providing an opportunity for the residents of the community and controlling the number of vacant, blighted homes. While land banks can be challenging to work with, they can provide worthwhile opportunities to homeowners and investors who are willing to put in the work it takes to revive and restore real estate in areas of need.