Land Banking 101:
What is a Land Bank?
About this Tool
Description:
This document provides general information on land banking. It provides a
detailed definition of a land bank and discusses the four critical elements
to successful land banking. Finally, it provides a discussion of types of
land bank programs, governance structures, and traditional income
sources.
Source of Document:
This document was created by the Center for Community Progress.
Disclaimer:
This document is not an official HUD document and has not been
reviewed by HUD counsel. It is provided for informational purposes only.
Any binding agreement should be reviewed by attorneys for the parties to
the agreement and must conform to state and local laws.
This resource is part of the NSP Toolkits. Additional toolkit resources may be found at
www.hud.gov/nspta
U.S. Department of Housing and Urban Development Page 1
Neighborhood Stabilization Program
What is a Land Bank?
Dan Kildee, Co-Founder and President
Amy Hovey, Co-Founder and Senior Vice-President
Center for Community Progress
So, what is a Land Bank?
Land banks are not financial institutions. They are public or community-owned entities created
for a single purpose: to acquire, manage, maintain, and repurpose vacant, abandoned, and
foreclosed properties –the worst abandoned houses, forgotten buildings, and empty lots.
There are approximately 75 communities now operating formal land bank programs across the
country. And while land banks are most often associated with communities with large-scale
blight and abandonment, many communities now see the benefit of implementing land banking
as a means of preventing the contagious blight that can sweep across urban neighborhoods like
a plague, infecting house after house until whole blocks – even neighborhoods - become empty
and abandoned shadows of their former selves.
Land banks across the country are often created to replace an antiquated system of tax
foreclosure and property disposition. Land banks replace those “liquidation” based systems -
generally comprised of the sale of tax liens (the uncollected tax receivables of a given
municipality) or public tax auctions are essentially liquidation systems, wherein government
trades their interest in tax-delinquent property to speculators, often for pennies on the dollar.
Those systems place a higher premium on the modest collections derived from such
transactions, with no consideration for the impact such a transaction will have on surrounding
properties. That impact, in cities across America, is devastating to a neighborhood struggling to
hold its own in an already weakened market. Those local governments sell interest in
properties to investors who view property not as real estate, but as an investment on paper to
be sold to another investor or simply represent a loss in the larger pool of properties or tax liens
they may have acquired. It is rare that such sales lead to reinvestment in those properties.
Families don’t shop for the family home at tax lien sales, and developers don’t seek the site for
their next multi-million dollar deal at the courthouse auction.
A land bank is the alternative to such systems, as they give communities the opportunity to
repurpose abandoned properties in a manner consistent with the communities’ values and
needs - demolishing unsalvageable homes and creating open green space or a community
garden, restoring interesting buildings, or simply holding land in careful stewardship until a new
purpose can be determined.
Land banks treat properties as real estate, not as a disposable commodity that, once used, not
longer has a meaningful purpose.
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There are four critical elements is successful land bank initiatives:
1. Connect the Land Bank to the tax collection and foreclosure system. Tax
collection is the principal interaction with abandoned properties –as owners typically do
not pay taxes on abandoned property. The effective use of the governments’ superior
tax lien can be the primary mechanism of acquisition of the properties. Further,
connecting the economics of tax collection to the management and disposition of
properties coming through the process is a critical element. Most tax systems privatize
profits through penalties and interest earned by tax lien investors, or from equity derived
from more valuable properties that are foreclosed. The land bank model captures that
revenue stream and utilizes those financial resources to manage the properties held by
the land bank. In both scenarios, the property would be lost to the owner – this
‘improved’ system simply places that process and the earnings derived from the
collection process under the control of the community, not out-of-state speculators. It is
imperative that any such public system include a strong foreclosure prevention effort.
2. Scale the land bank at the metropolitan level, or around the most diverse real
estate market possible. Land banks are most effective when they are not relegated to
ownership of only the worst of the foreclosed or abandoned properties. A common
fallacy of tax foreclosure – or property abandonment – is that it is all “junk” property.
While most of the properties titled to land banks would meet that definition, it is the case
that a small percentage of tax-foreclosed properties have some market value –
occasionally significant value. By scaling the land bank around a diverse market, the
possibility is increased that more valuable properties conveyed to private ownership
through a land bank will generate revenues to be used in managing and improving the
most difficult properties. This source of internal subsidy is founded on the notion that a
land bank is better positioned than a public auction to convert valuable properties to
productive use, and can utilize the earnings from land sales to rehabilitate, clean, board,
or even bulldoze other properties in worse condition. The Genesee County Land Bank
generates between $500,000 and $1 million per year in land sales, money which not
only recovers the uncollected taxes on those properties, but also funds a robust property
maintenance program.
3. Ensure a Land Bank is policy driven – and transparent in policies and
transactions. The public –for good reason – is often suspicious of any government role
in the real estate market. In the case of these properties, of course, the government
already owns the property as a result of tax foreclosure. Still, it is critical that the
operation of a land bank be fair and predictable. To build public confidence in a Land
Bank, the adoption of well considered policies and priorities that govern to whom –and
for what purpose – properties are sold or transferred. Terms and pricing policy must be
clear and uniform, as well.
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4. Emphasize community engagement and participation. The land held by Land Banks
is typically scattered among neighborhoods throughout the community. So, the Land
Bank has neighbors, sometimes thousands of them. The most successful Land Banks
engage those neighbors on the policies and practices that determine the outcomes for
those neighborhoods. Public acceptance of the hard choices that will inevitably need to
be made regarding property held by a Land Bank is much more likely when those
neighbors have a voice – a formal voice – in policy and operations. By formalizing that
process, through regular neighborhood meetings, and in some cases with the formation
of a Community Advisory Council, Land Banks get public input on terms that make that
input more meaningful than if that input comes in the form of uninvited anger or
frustration with land use decisions.
The best land banks do not work alone, but rather develop strategic partnerships with non-
profits, community organizations, lenders, and local governments – all in an effort to leverage
the resources available to deal with the most distressed land in the community.
Land banks across the country land banks vary significantly in staff size, inventory, budgets and
programs. The Genesee County Land Bank Authority (GCLBA) is currently the largest of all
operating land banks. It has acquired over 10,000 structures and properties since its inception,
most of which are scattered throughout the county (with highest concentrations in the City of
Flint) and exist in a neglected, vacant and abandoned condition. The GCLBA has developed
extensive programming that consists of sales, development, property management (rental
program), land-use planning, side lot, ‘adopt-a-lot,’ urban gardening and demolition. However,
many land banks across the state operate with a much less intensive inventory management
strategy, only using the land bank tools on a few properties per year.
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Quick Guide to Land Banks
What Can A Land Bank Do?
Sell or convey property through locally developed policies that reflect the community’s
priorities
• Sell through negotiated sales
• Convey property for other than monetary consideration
• Sell, lease, manage property with terms deemed to be in the interest of the Land Bank
• Utilize land bank financing tools for tax foreclosed and other targeted properties
• Support local planning decisions by adhering to local priorities as to use and transferee
of land bank owned properties
Sample Land Bank Programs
• Demolition
• Property maintenance
• Rental management
• Land Use Planning
• Sales
• Real Estate Development and Rehabilitation
• Land assembly for development
Sample Governance Structure
• Legal authority determined by statute or intergovernmental agreement
• If a formed as an independent or quasi-indepent public entity, the Board of Directors
appointed according to local ordinance, intergovernmental agreement, or state
authorizing statute
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• Policies and procedures determined by Board, implemented by staff according to
adopted policies - delegation of authority determined by Board policy
• Land banks may create local agreements with county, cities, townships, and villages as
to the use and transferee of properties within their specific municipalities
• Public participation may include Advisory Council of citizens and interested parties
Potential Sources of Income
Land bank authorities typically have access to a variety of sources of income to fund land bank
programs, including: foundation grants, government contracts, land sale revenues, specific tax
collection, developer fees, and rental income. Below is a description of these income sources:
1) Land banks are typically eligible for foundation grants due to its corporate structure or
governmental status. When a land bank is in its formative stages and initially developing
its capacity to operate, it may need to rely heavily upon foundation grants to covers
operating costs. Such grant funding allows a land bank to build its capacity to operating
programs that will potentially generate resources to operate the programs of the land
bank.
2) Federal grants funded through HUD's Neighborhood Stabilization Program (NSP) may
provide acquisition, maintenance and operating funds for land banks for a maximum
period of ten years. Specific guidance for NSP can be found at the NSP Resource
Exchange, www.hud.gov/nspta
. In addition, land banks can be used in conjunction with
the HOME and CDBG programs with certain specific limitations. Be sure to check with
local program managers regarding the availability of HOME and CDBG funding and the
potential connections for land banks within each program.
3) Land sales revenue is generated when the land bank authority is able to sell properties
for more than the land cost the land bank. Land banks are able to acquire property at
below market value in a variety of ways. First, land banks are able to accept donated
land. Property owners may want to donate their land for the tax benefits or even to
relieve themselves of the maintenance obligations for the property. It is advisable that
the land bank conduct proper due diligence prior to accepting donated property. It is
appropriate for a land bank to provide a letter of acceptance for donated properties, but
not to designate a donative value to the donor - rather it should advise donors to consult
their tax professional for assistance in determining the tax implications for the donor.
Secondly, the land bank may purchase low value properties at the auctions though it will
be bidding against other buyers.
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4) Some land bank can receive a portion of the tax revenue for land bank properties that
are transferred to new owners. Under Michigan law land banks receive 50% of the
specific tax generated on all properties that are sold by the land bank for five (5) years
succeed the transfer of the property.
5) If the land bank participates as a developer or co-developer in real estate development
projects in targets redevelopment areas. As a result of these development projects, the
land bank may generate a developer’s fee ranging from 7% to 20% of project costs.
6) Many land banks have the authority to keep properties in their inventory and rent them to
both commercial and residential tenants. A rental program is often necessary in the
current economy due to the difficulty in securing financing for real estate. Further, the
provision of stable and quality rental properties to the market is an important aspect of
any stable real estate market, and this program may be within the overall mission of the
land bank.
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