Bringing abandoned properties back into productive re-use is not easy. Weak-market cities such as Cleveland, Baltimore and Philadelphia have struggled for several decades to acquire abandoned properties and move them back to the market. Their experience confirms that vacant property recovery, particularly at scale, is complex and difficult, often requiring approvals from several agencies, the City Council and Mayor. To cut through the red tape, some municipalities establish a holding company or nonprofit land bank that, liberated from the bureaucracy, can perform more flexibly. Second, acquisition is difficult because it requires the identification of the owner and negotiation of a fair price when there is no accepted standardized formula for calculating market value for foreclosed properties. Third, handling foreclosure is challenging because local governments were set up to provide meat and potato services like policing and building infrastructure; some will not be able to expand their roles to include those of property owner, contractor and broker. Finally, no matter how effective local government is, the nation-wide scale of foreclosed properties is so vast, it will be difficult to slow or stop negative impacts.
Finding buyers for foreclosed properties may be difficult in some communities. According to a recent survey, many people are hesitant to consider buying a foreclosed property. "Negative sentiment associated with buying foreclosures" increased several percentage points between surveys in April and November of 2008, RealtyTrac Inc. chief economist Rick Sharga said. Buyers are demanding discounts of 25 percent to 50 percent compared with the price of a comparable home not in foreclosure, because "they are concerned that these properties will continue to lose value," Sharga said. Nationally, the average discount is 31 percent, although some individual properties are discounted as much as 87 percent. In some areas of central California, discounts are 70 percent, Sharga said. Peter Flint of Trulia.com said 80 percent of 2,033 adults surveyed in November of 2008 focused on the "negative" aspects of foreclosure, citing hidden costs and loss of value as concerns.
Local governments can limit liability for tort or environmental injury on government-owned foreclosed properties. Federal environmental law and state tort law offer immunities to governments that control property as part of their normal government functions. The risk of a court finding a government with temporary control of foreclosed vacant properties liable for an environmental or tortuous violation is small.
Environmental liability for governments that acquire abandoned land was limited in January 2002 by the Small Business Liability Relief and Brownfield Revitalization Act. This amendment to The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known as the Superfund Act, explicitly offers immunity to governments that acquire vacant land through eminent domain or tax foreclosure. The Act also states that a municipality or a land bank entity qualifies as an innocent landowner and is not liable for environmental hazards on properties acquired through other means if three conditions are met:
Release of hazardous substance was caused by unrelated third party;
Government acquired the property after the placement of the hazardous substance and exercised due care and took precautions against release of the substances; and
Either the new owner had no direct contractual relationship with the prior owner (i.e. obtained property via tax foreclosure or eminent domain) or if there was a formal property transfer, then the current owner did not know or have reason to know about the hazard.
Once government is protected, so are subsequent buyers of properties from government. To further protect themselves from environmental liability, local governments should request any environmental assessments the lender performed prior to making the loan and perform both a title search and an exterior inspection to look for any existing or potential environmental hazards.
Tort law differs in each state but typically provides full immunity to governments for trespassers’ negligent acts on government owned property. Typically a government is liable only for injuries to individuals who are legally and rightfully on the premises and for children injured by an attractive nuisance. An attractive nuisance is a dangerous condition that would attract a child, such as an accessible swimming pool or an empty refrigerator with its door still on that could trap a child inside. To avoid tort liability, government should evaluate state tort law and should inspect the premises of an acquired property to ensure there are no attractive nuisances.
