Land Banks: Too Good to Fail

Reed Smith, LLP
Dusty Elias Kirk

December 20, 2013

Pennsylvania municipalities and potential developers interested in converting vacant, abandoned, tax delinquent or foreclosed properties into productive use should take note of legislation enacted in 2012 that permits a municipality with more than 10,000 residents to create a land bank.1 Land banks are governmental entities that convert such properties into productive use, particularly for developers who seek to capitalize on land that would otherwise remain blighted and underdeveloped. Land banks also enable developers to acquire property that might otherwise be impossible or too costly to acquire because of clouded legal title.

Certain conditions give rise to the need for land banks. Large, but fragmented, inventories of abandoned and vacant property with little market value are the usual key triggers. The challenge that many municipalities and developers face in acquiring clear title to blighted or tax-delinquent property is identifying and locating the former property owners who have abandoned the property. Abandoned property imposes significant costs and burdens on adjacent properties and communities, including lowered property values, decreased tax revenues and undermined community cohesion. The Pennsylvania land bank legislation seeks to enable municipalities to turn deteriorating spaces into vibrant places.

Land banks, defined under the legislation as a “public body,” can be created by ordinance, which enables the land bank to acquire the properties by donation, lease-purchase agreement, tax foreclosure, or transfer from a municipality or redevelopment authority. Once acquired, the land bank may, among other things, develop, construct, rehabilitate, demolish, sell, transfer, lease or mortgage the properties. However, the land bank does not have the power of eminent domain. Land banks are funded by grants and loans from the federal government, the commonwealth, municipalities and private sources. The land bank may also borrow money and issue tax-exempt revenue bonds, providing a benefit to developers and prospective property owners.

The city of Philadelphia recently approved what is now the country’s largest land bank. The city is utilizing the tool to fight the effects of blighted property caused by nearly 40,000 vacant properties. The land bank, expected to be in operation by the end of 2014, will hold the deeds to 9,000 vacant properties owned by the city. Pennsylvania is not the first to enact land bank legislation. The first land bank was created in 1971 in St. Louis. A number of other cities have followed suit, including Cleveland, Atlanta, New York and Louisville. A land bank is a useful tool that can become another form of public-private partnership to not only obtain more tax revenue, but to also encourage private investment in an economically challenged community, thereby improving community cohesion and vitality, and the community’s optimism in its ability to change its own future.

1 See the text of the law here.

 This article is being provided for informational purposes only and not for the purposes of providing legal advice or creating an attorney-client relationship. You should contact an attorney to obtain advice with respect to any particular issue or problem you may have. In addition, the opinions expressed herein are the opinions of Ms. Kirk and may not reflect the opinions of Synergy Environmental, Inc., Reed Smith LLP or either of those firms’ clients.

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