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New rules governing foreclosures set to take effect
SHERRY KARABIN
Legal News Reporter
Published: July 15, 2016
Ohio Gov. John Kasich has signed a bill that will change the way foreclosures are handled in the state.
Supporters of Sub. H.B. 390 say the legislation gives more power to local governments to manage vacant and abandoned properties, while providing protections to homeowners.
“For the first time, local governments will have the ability to ask the prosecuting attorney to initiate a sale when a property is abandoned,” said Ohio Rep. Jonathan Dever (R-Madeira), who sponsored the predecessor H.B. 463, which was rolled into Sub. H.B. 390.
Gov. Kasich signed Sub. H.B. 390 on June 28.
“Prior to this legislation the main recourse officials had was to take the matter to housing court,” said Dever who represents the 28th House District. “While this might lead to some repairs being made to the property, at the end of the day the blighted property was still there.”
But some officials in Portage and Summit counties argue the bill could actually lead to an increase in abandoned and foreclosed properties.
“This bill does little to address blight,” said Michael Migden, deputy fiscal officer at the Summit County Fiscal Office. “It simply removes the properties from banks’ inventories. One could argue that this could exacerbate the situation.”
But Dever disagrees. “From my perspective, this bill is not about blight. The goal is to force properties into banks’ inventories or into the hands of an individual who is going to remediate the real estate,” he said. “The properties are not in the banks’ inventories that’s the problem.”
According to Matthew Duncan, a partner at Buckingham, Doolittle & Burroughs, the state currently employs a judicial foreclosure system, in which actions are initiated against a homeowner when a lender files a complaint in court.
If the court grants the lender a foreclosure judgment, the county sheriff generally sells the property at a public auction. The homes at the sheriff’s sale are offered at two-thirds of their appraised value, which can result in no one bidding on the property.
Sub. H.B. 390 creates a fast-track foreclosure process for properties that the court declares vacant and abandoned. At the initial filing, the lender can request that the judge expedite the case. The lender must first prove the property is indeed vacant and abandoned by satisfying certain criteria, including a requirement that a government official certify it as such.
According to Dever if a property owner does not defend the case and there is no opposition to the request, the fast-track process can be completed in as little as 75 days. Prior to the legislation, he said these cases could take years to complete.
In addition, he said the bill codified the “existing practice” whereby a creditor can ask the court to allow a private selling officer to handle the sale of the property.
As part of the changes, an official statewide sheriff sale website would be created and overseen by the Department of Administrative Services. The website would allow any bidder to vie for properties through an online sales process, with the Ohio Attorney General’s Office responsible for storing the data.
Migden said allowing properties to be purchased online by those in other states and countries could yield more “uncommitted” buyers.
“First of all our goal should be to assist Ohioans with home ownership,” said Migden. “Someone who lives in the state is more likely to take care of the property and pay taxes.
“If you don’t live in the state and instead buy a property for rental purposes, it’s less likely you will take care of it and more likely that it will be abandoned down the road after a buyer drains its remaining value.”
Dever said the website would make it easier to go after owners who neglect properties and don’t pay taxes since all buyers must now provide detailed information about themselves.
“Right now anyone with a fake name and cash can buy a property,” he said. “That’s the problem. This legislation will give us a uniform standard collection requirement in all 88 counties. We will finally know who the buyers are. We require a driver’s license, address, credit card, phone number and valid email. If it is a company, they will need to provide the name of their statutory agent and they have to be a valid business registered with the state of Ohio.”
But perhaps the biggest point of contention concerns the rules governing bidding. While the first sale would still start at two-thirds of the appraised value, subsequent auctions don’t have a minimum bid requirement.
“If there is no minimum bid on the second sale, there is no reason for anyone to bid the first time,” said Migden. “We are struggling with some irresponsible homeowners and investors who are not keeping the properties up to code. If someone can buy a property for as little as $1, there is little incentive to maintain the property or pay taxes.
“We’ve seen data in Cuyahoga County where buyers have the opportunity to acquire property in the same fashion as this bill provides through a forfeited land sale. The data shows taxes remain unpaid and delinquencies increase, thus increasing blight.”
Dever said in cases where the property doesn’t sell the first time around, it’s up to the bank’s attorney or the prosecuting attorney to attend the sheriff’s sale and make sure the sales price covers what’s owed on the home.
Assistant Summit County Prosecutor Regina Van Vorous said another big problem with the bill is that delinquent taxes no longer have to be paid at the time of the purchase.
“If the property sells for $1 that is all that has to be paid at the time of the sale,” said Van Vorous. “The legislation provides that the delinquent taxes will be added on to the next tax bill.
“If the amount due is $3,000 that means that the homeowner is already behind by $2,999 when he/she receives the first tax bill,” she said. “Receiving that bill alone could be enough of an incentive to abandon the property.”
Portage County Treasurer Brad Cromes said history has shown that it’s best to collect back taxes at the time of the sale. He’s also concerned about the bidding process.
“The lack of a minimum bid during the second sale is a serious flaw from the prospective of the treasurer’s office,” said Cromes. “We have no guarantee that we will ever see the back taxes. This is very bad for communities that are responsible for the upkeep of these vacant properties.”
Dever said it was the County Treasurers Association that provided some of the language that appears in the bill.
Van Vorous said she’s also concerned that the online process could bring in out-of-state buyers who are unaware of the poor condition of some of the properties.
“We have an ongoing lawsuit now with an overseas investor over a property because it is not rentable,” said Van Vorous.
“The online sales portal will provide buyers and sellers with a lot of information about the properties, including tax delinquencies,” said Dever. “But at the end of the day caveat emptor.”
Sub. H.B. 390 is expected to take effect around the end of September.
Cromes said the County Treasurers Association of Ohio plans to lobby for changes.
“The bill (390) that was passed was an unrelated bill that was fast tracked through the legislature before they left for recess,” said Cromes.
“There are a number of provisions that we are hoping to amend in the fall and we are cautiously optimistic that the legislature will be open to addressing our concerns.”
While Dever said he believes Sub. H.B. 390 is “a good bill,” that will produce “many positive results,” he said he would consider amending certain items via H.B. 463.