Cleveland and Cuyahoga County need new policies to help residents address property tax delinquency

by Chuck Hoven

     (Plain Press August 2024) Cleveland homeowners face foreclosure at a higher rate than the national average. A good percentage of those foreclosures are due to residents getting behind on their property tax payments. Cleveland and Cuyahoga County policy makers could do a much better job in assuring residents are able stay in their homes rather than being evicted due to foreclosure. Some recent court cases may give Cuyahoga County an incentive to create programs that help residents stay in their homes or compensate them fairly for the difference between the amount they own in taxes and the value of their homes.

NEWS ANALYSIS

     An article, by Katya Schwenk, titled “Supreme Court decision – good for homeowners – bad for land banks” published on October 19, 2023, in Shelterforce, outlines some of the implications of the May 2023 decision by the United States Supreme Court in the case of Tyler v. Hennepin. Schwenk says, Tyler v. Hennepin has “generally been touted as a safeguard for homeowners against certain harmful tax foreclosure practices.” While the article focuses on the implications of the Supreme Court decision on land banks’ “efforts to fight vacancy and neglectful landlords and how it could potentially benefit speculators”, the article also describes the benefits of the court decision to homeowners.

     The article describes the plaintiff in the case, Geraldine Tyler, as a 94-year-old grandmother in Minneapolis who moved out of a condo she owned to go into a senior living complex. After leaving the condo, Tyler stopped paying property taxes and ending up owning $15,000 in taxes, interest, and penalties. Hennepin County took possession of her property and the State of Minnesota put Tyler’s property up for auction where it sold to the highest bidder for $40,000. According to Minnesota tax law, the State was allowed to keep the $25,000 difference between what Tyler owned and what the property sold for. In a unanimous decision, the Supreme Court ruled that the practice violated the United States Constitution’s Fifth Amendment’s takings clause.

     Due to the Tyler v. Hennepin ruling, homeowners have a right to request a sale in a foreclosure hearing and receive the amount of the sale price that is beyond the amount they own in taxes. Ohio is one of the states where this ruling has implications for current policy. Cuyahoga County has had a practice of transferring delinquent properties to a land bank for subsequent sale and not compensating the original owner for the difference between the taxes owed and the sale price.

     A June 26 ,2024 article in cleveland.com by John H. Tucker titled, “Cuyahoga County took millions from property owners through unconstitutional foreclosure practices, lawsuit claims”, describes a class action lawsuit in Cuyahoga County Common Pleas Court before Judge Jeffery Saffold, that “alleges that the County has relied on tax deed mechanisms to take possession of private homes from delinquent residents without compensating them with the property’s market value surplus following foreclosure.”

     This case, if successful, could have far reaching impact for many Clevelanders that have been displaced from their homes by this unfair practice. The Cuyahoga County Common Pleas Court could enforce the United States Supreme Court ruling in Tyler v. Hennepin. Imagine a Cleveland resident that has paid off their home, but falls behind on taxes, and has their home foreclosed on and sold for a price many times higher than what they owed in taxes and receives nothing. With the debt in taxes, the homeowner may not be able to sell the home or get a reverse mortgage to pay off the tax debt prior to the foreclosure. If they are retired and on fixed income, the tax debt may continue to grow, while they hopelessly try to make unaffordable payments set up by a Cuyahoga County payment plan. Eventually unable to make a payment deadline, they succumb to foreclosure. If they receive no equity from their home, they could end up having difficulty finding an affordable place to live.

     A February 10, 2022, report on Channel 5 News titled “New data rank Ohio, Cleveland among the top in the nation with highest foreclosure rates” shows how widespread foreclosures are in Cleveland. The news report cites a study by Attom Data Solution saying Cleveland had one of the highest foreclosure rates in the country with one of every 1,659 housing units in foreclosure. The news report also quotes Vice President of Realty Track Rick Sharga as saying, “87% of homeowners currently in foreclosure have positive equity in their properties.”

     Another study by The Center for Municipal Finance at the University of Chicago Harris School of Public Policy “finds that a property valued in the bottom 10% within a particular jurisdiction pays an effective tax rate that is, on average, more than double that paid by a property in the top 10%. The study by Professor Christopher Berry published on Shutterstock.com is cited in an article titled, “Nationwide study finds that lower income residents pay more, subsidizing the homes of the wealthy.” The study is available at https://propertytaxproject.uchicago.edu .

     This report outlines the overall unfairness of the property tax assessment process. It is particularly unfair in Cleveland where Cuyahoga County bases assessment on sales of properties near your home. Homeowners living in an old house with substantial repair needs may find their home compared to nearby substantially rehabbed home, or a new home. Adding to unfairness is the new and substantially rehabbed homes receiving a 15-year tax abatement in Cleveland.

     If the City of Cleveland and Cuyahoga County were truly interested in helping low- and moderate-income residents stay in their homes, they could devise housing programs that would help make this possible. If the City of Cleveland insists on continuing to give tax abatements, perhaps it could take funds from its general fund in the amount of the City of Cleveland’s portion of the property tax it has abated and set up a fund to aid residents living in homes where they have fallen hopelessly behind in paying their property taxes. They could work with Cuyahoga County to perhaps set up a government funded reverse mortgage program that helps some homeowners to pay off property taxes while remaining in the home for the remainder of their lives. Policy makers could design other creative programs with the goal of residents remaining in their homes, rather than being evicted due to foreclosure.

     The County should also examine its appraisal process and make sure the poorest citizens in Cuyahoga County are not subsidizing the wealthiest. The City of Cleveland should end its tax abatement policy which substantially contributes to that problem as well.

     New policies need to be developed that, instead of subsidizing higher income residents, help the poor and moderate-income residents avoid displacement from their neighborhoods. City and County officials should develop some creative policies to help renters afford housing and involve residents in creating new housing options such as housing cooperatives to help Clevelanders to be able to afford to live in a city with escalating rental and housing costs.

     Our policy makers need to develop a preferential option for the poor and moderate-income residents instead of catering to developers and residents who have incomes adequate to afford market rate housing.