Modular home constructed in Providence neighborhood
One of 14 modular boxes lowered into place. When completed, the rowhouse will offer 8 units of affordable housing.
Stephen Ide, ONE Neighborhood Builders, The Providence Journal
The Rhode Island investors who scoop up real estate when its owners fall behind on their taxes don’t like competing for the properties with hedge funds and other deep-pocketed out-of-state businesses.
So they’ve asked state lawmakers to ban remote participation at municipal tax sales, arguing that the distant financial firms bidding at these auctions are preventing derelict or underutilized urban properties from being spruced up or turned into new housing.
This local-ownership movement is led by Rhode Island’s historian laureate and tax sale king Patrick Conley, who, by his count, has acquired 140 vacant or abandoned properties over the last 14 years.
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“The way (tax sales) have been conducted (the) last two years in Providence and North Kingstown by electronic means had a lot of hedge funds from Louisiana and California bid,” Conley told the House Municipal Government Committee in March. “You are tying up property when we need it for affordable housing with a process that is detrimental to long-range slum clearance and affordable housing.”
Opposition to bill from both sides of the political aisle
But a number of lawmakers say the tax sale process does not exist to enrich a small clique of wealthy Rhode Island insiders who’ve mastered the obscure and complicated tax sale system.
Outside competition, they say, is good for the homeowners who are in danger of losing their property because they’ve fallen behind financially.
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And on Thursday, they managed to delay a scheduled House vote on the bill, at least for a couple of days.
“This is a special interest piece of legislation to prevent bidding on properties so the tax sale purchaser gets 100% and the property owner is out,” House Republican leader Blake Filippi said on the House floor Thursday. “This is wrong. We should be encouraging more bidding. We should not be shrinking the bidding pool. This is hurting homeowners, benefiting special-interest insiders who are at every tax sale.”
The concerns were not only from the GOP.
House Labor Committee Chairwoman Anastasia Williams, a Providence Democrat, called it a “bad bill” and asked for more time to talk with the sponsor “because this is not a great piece of legislation.”
She got her wish, and the bill is now slated for a vote on Tuesday.
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Lawmakers on the House floor and in the earlier Municipal Government Committee hearing struggled to grasp some of the details of the tax sale process.
Conley said there were probably around six lawyers in the state who understood the law around tax sales.
How does a tax sale work?
A tax sale is a way for cities to collect delinquent tax debt through third-party investors, who pay it in exchange for an ownership interest in the property.
Bidders must pay off the full tax debt, but they can compete on how small an ownership percentage they are willing to accept in exchange for that payment.
After the tax sale, the original property owner has one year to pay the lien before the auction winner can foreclose and take whatever ownership percentage was in their bid, which can be as low as 1%.
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Conley said the out-of-state investors are “monopolizing” the process with low-ball bids and when they win are not doing anything with their small ownership interest, unlike bidders who get 100% and try to redevelop.
The bill to ban remote bids at tax sales is sponsored by House Judiciary Chairman Robert Craven, a North Kingstown Democrat.
It has zero co-sponsors.
Conley was the only person to testify — for or against the bill — at the March committee hearing.
Providence Mayor Jorge Elorza’s office did not respond to email inquiries asking whether he supports it.
On Thursday, Craven explained the motivation behind the bill as saying “You’ve got to be here and have some connection to the State of Rhode Island.”
Rep. Charlene Lima, a Cranston Democrat, defended the bill, arguing that keeping ownership local is the most important issue.
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“If you get an out-of-state person or out-of-state bank, that house ends up falling apart, boarded up, delinquent with drug addicts living in there, and you try chasing down that bank from out of state … it is impossible,” Lima said.
But Filippi said the answer to property owners, be they local landlords or distant banks, failing to maintain their buildings is enforcement, not letting local investors vacuum up property without competition.
“I don’t want a few people who are all friends who show up at every tax sale and they promise not to bid against each other so they all get 100%,” Filippi said.
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On Twitter: @PatrickAnderso_