Strategies for Reducing In Rem
Foreclosures in the City of Milwaukee
Prepared by:
Bryan Mette
Joe O’Connell
Michelle Prost
Erika Schoot
Elizabeth Silverstein
For the City of Milwaukee, Department of Administration,
Budget and Management Division
May 14, 2013
Workshop in Public Affairs
Spring 2013
©2013 Board of Regents of the University of Wisconsin System
All rights reserved.
For additional copies:
Publications Office
La Follette School of Public Affairs
1225 Observatory Drive, Madison, WI 53706
www.lafollette.wisc.edu/publications/workshops.html
publications@lafollette.wisc.edu
The Robert M. La Follette School of Public Affairs is a teaching and research department
of the University of Wisconsin–Madison. The school takes no stand on policy issues;
opinions expressed in these pages reflect the views of the authors.
The University of Wisconsin–Madison is an equal opportunity and affirmative-action educator and employer.
We promote excellence through diversity in all programs.
Table of Contents
List of Tables .......................................................................................................... v List of Figures ........................................................................................................ vi Foreword ............................................................................................................... vii Acknowledgments.................................................................................................. ix Executive Summary ............................................................................................... xi Introduction ............................................................................................................. 1 Problem Statement .................................................................................................. 3 Comparison to Other Cities .................................................................................... 5 Property Taxes and Assessment in Milwaukee ...................................................... 8 Pre-Foreclosure Process ........................................................................................ 19 Property Tax Collection Process....................................................................... 19 Three-phase Tax Enforcement Process............................................................. 19 Phase 1: In-house Collection ........................................................................ 19 Phase 2: Collection by Private-party Law Firm ............................................ 20 Phase 3: In Rem Foreclosure ........................................................................ 20 Post-Foreclosure Process ...................................................................................... 22 City of Milwaukee Constraints in Addressing In Rem Foreclosures .................... 24 Factors Associated with In Rem Foreclosure ........................................................ 25 Characteristics of Properties Acquired by City through In Rem Foreclosure... 25 Assessment Class .......................................................................................... 25 Aldermanic District ....................................................................................... 27 Assessed Property Values ............................................................................. 31 Assessed Value Changes During Foreclosure Process ................................. 32 Housing Quality ............................................................................................ 33 Disposition of Properties............................................................................... 36 Owner Occupancy ......................................................................................... 37 Previous Mortgage Foreclosure .................................................................... 38 Property Complaints and Violations ............................................................. 38 Characteristics of Taxes and Tax Collection Related to Property Acquired by
the City through In Rem Foreclosure ................................................................ 38 Tax Delinquency ........................................................................................... 38 Special Charges ............................................................................................. 42 Major Costs of the Foreclosure Process................................................................ 43 Regression Analysis: Factors of In Rem Foreclosure ........................................... 46 Independent Variables ...................................................................................... 46 Regression Analysis .......................................................................................... 50 Possibilities for Improvements to the Early Warning System .......................... 51 Policy Options....................................................................................................... 52 Option 1: Early Warning System ...................................................................... 52 Option 2: Separation of Special Charges .......................................................... 52 Option 3: Credit Card Installments ................................................................... 53 Option 4: Hardship Loan Fund ......................................................................... 53 Eligibility Requirements ................................................................................... 54 Suggestions for Future Consideration................................................................... 56 Conclusion ............................................................................................................ 58 Appendix A: Sample Delinquency Notifications ................................................. 59 Appendix B: In Rem Foreclosure Flowchart ........................................................ 65 Appendix C: Wisconsin Constitution Uniformity Clause .................................... 66 Appendix D: Wisconsin Statutes Covering Property Tax Delinquency ............... 67 Appendix E: Milwaukee Ordinances Covering Property Tax Delinquency ......... 69 References ............................................................................................................. 76 List of Tables
Table 1. Comparison of Peer City/County Tax Foreclosures ................................. 6 Table 2. General Fund Revenue by Source, in 2013 Dollars.................................. 9 Table 3. 2012 Taxable Parcels by Property Class................................................. 10 Table 4. Property Tax Delinquency throughout Three-Year Tax Collection
Enforcement Period for All Real Estate for Levy Years 2002–2012 ....... 13 Table 5. Comparison between All Tax Delinquent Residential Property
Owners for Levy Years 2008–2012 .......................................................... 14 Table 6. In Rem Tax Foreclosure Redemption and Acquisitions for All Real
Estate in Milwaukee, 2000–2012 .............................................................. 17 Table 7. In Rem Foreclosures of Residential Property Assessment Class,
2008–2012................................................................................................. 25 Table 8. Residential Properties Acquired by the City of Milwaukee through
In Rem Tax Foreclosure by Aldermanic District, 2008–2012 .................. 27 Table 9. Average Estimated Rehabilitation Costs for In Rem Residential
Properties Acquired and Inspected by the City of Milwaukee, 2008–
2012........................................................................................................... 33 Table 10. Average Estimated Rehabilitation Costs for In Rem Properties by
Property Type Acquired by the City of Milwaukee, 2008–2012.............. 34 Table 11. Dispositions of In Rem City of Milwaukee-Acquired Properties,
2008–2012................................................................................................. 36 Table 12. Residential Class Tax Delinquent Properties for Levy Years 2008
and 2009 Acquired by the City of Milwaukee through In Rem Tax
Foreclosure in 2011 and 2012 ................................................................... 40 Table 13. A Comparison between Levy Years 2008 and 2009 TaxDelinquent Residential Property Owners Whose Properties the City
of Milwaukee Acquired through In Rem Tax Foreclosure in 2011
and 2012 .................................................................................................... 41 Table 14. Model of Average Change in Delinquent Property Taxes from the
Point of Initial Delinquency City of Milwaukee Acquisition for
Levy Years 2008 and 2009 ....................................................................... 41 Table 15. City Costs for Tax Foreclosed Homes .................................................. 44 Table 16. Variable Definition, Expected Marginal Effects on Probability of
Payment, and Source ................................................................................. 49 Table 17. Logistical Regression of Tax-Delinquent Residential Properties,
City of Milwaukee, 2008–2009 ................................................................ 50 v
List of Figures
Figure 1. Number of Properties the City of Milwaukee Acquired Annually
Through In Rem Tax Foreclosure, 2008–2012 ........................................... 3 Figure 2. Relationship between the Alternative Tax Foreclosure
Measurements ............................................................................................. 7 Figure 3. 2012 Property Distribution Residential, Manufacturing, and
Commercial Parcels .................................................................................. 10 Figure 4. Distribution of In Rem City Acquisitions for All Property Classes,
2008–2012................................................................................................. 11 Figure 5. Distribution of Owner Occupants and Investor Owners across All
November Tax-Delinquent Residential Property Owners, 2008–
2012........................................................................................................... 15 Figure 6. Distribution of Owner Occupants and Investor Owners Across All
November Tax-Delinquent Residential Property Owners Who Made
at Least One Installation Payment, 2008–2012 ........................................ 16 Figure 7. In Rem Tax Foreclosure Redemption and Acquisition Rates for
All Real Estate, 2000–2012 ...................................................................... 17 Figure 8. Residential Property Proportion of All In Rem Acquisitions in the
City of Milwaukee, 2008–2012 ................................................................ 26 Figure 9. In Rem Tax Foreclosure Acquisitions, 2008–2012 ............................... 26 Figure 10. Percentage of In Rem City of Milwaukee Acquisitions of
Selected Properties by Aldermanic District, 2008–2012 .......................... 28 Figure 11. Percentage of Total In Rem Tax Foreclosures of Residential
Properties by Aldermanic District, 2008–2012 ........................................ 29 Figure 12. In Rem Tax and Private Mortgage Foreclosure as a Percentage of
Residential Parcels by Milwaukee Aldermanic District, 2008–2012 ....... 30 Figure 13. Median Assessed Property Values and In Rem Tax Foreclosure
Rates for all Residential Properties by Aldermanic District ..................... 31 Figure 14. Percentage Change in Average Assessed Home Value by
Aldermanic District, 2011–2012 ............................................................... 32 Figure 15. Average Percentage Change in Assessed Value Between Tax
Delinquent Year and Year the City of Milwaukee Acquired the
Property for Residential In Rem Tax Foreclosures, 2008–2012 ............... 33 Figure 16. Percentage of Average Estimated Residential Rehabilitation Cost
Relative to Median Assessed Value by Aldermanic District, 2012 .......... 35 Figure 17. Median and Mean Selling Prices of In Rem City of MilwaukeeAcquired Properties, 2009–2012 .............................................................. 35 Figure 18. Vacated In Rem Judgments, 2008–2012 ............................................. 37 Figure 19. Percentage of Owner Occupancy of City of Milwaukee-Acquired
Properties, 2008–2012 .............................................................................. 37 Figure 20. Percentage of City of Milwaukee-Acquired Properties with
Previous Private Foreclosure, 2008–2012 ................................................ 38 Figure 21. Collections and Gross Tax Delinquencies Assigned to Kohn Law
Firm ........................................................................................................... 44 vi
Foreword
This report is the result of collaboration between the Robert M. La Follette
School of Public Affairs at the University of Wisconsin–Madison and the
Budget and Management Division of the City of Milwaukee’s Department
of Administration. Our objective is to provide graduate students at La Follette
the opportunity to improve their policy analysis skills while contributing to the
capacity of the city government to provide public services to the residents of
Milwaukee.
The La Follette School offers a two-year graduate program leading to a master’s
degree in public affairs. Students study policy analysis and public management,
and they can choose to pursue a concentration in a policy focus area. They spend
the first year and a half of the program taking courses in which they develop the
expertise needed to analyze public policies.
The authors of this report are all in their last semester of their degree program
and are enrolled in Public Affairs 869 Workshop in Public Affairs. Although
acquiring a set of policy analysis skills is important, there is no substitute for
doing policy analysis as a means of learning policy analysis. Public Affairs 869
gives graduate students that opportunity.
This year the students in the workshop were divided into six teams. Other teams
have completed projects for the Wisconsin Department of Public Instruction; the
Wisconsin Department of Children and Families and the Wisconsin Department
of Health Services; the Wisconsin Department of Revenue; and the Wisconsin
Legislative Council. After soliciting possible research ideas from various city
government departments, the City of Milwaukee’s Division of Budget and
Management chose the topic of this report.
Over the past few years, Milwaukee has experienced a sharp increase in the
number of tax foreclosures. The five authors of this report were asked to
investigate the process through which delinquent property tax payments result in
tax foreclosures and propose ways in which the city might reduce the incidence of
tax foreclosures.
This report would not have been possible without the support and encouragement
of city Budget Director Mark Nicolini and project liaison Aaron Szopinski. A
number of other people throughout city government contributed to the success of
the report. Their names are listed in the acknowledgments.
The report also benefited greatly from the support of the staff of the La Follette
School. Marjorie Matthews contributed logistic support, and Karen Faster, the La
Follette School publications director, managed production of the final bound
document.
vii
By involving La Follette students in the tough issues confronting city government
in Milwaukee, I hope they not only have learned a great deal about doing policy
analysis but have also gained an appreciation of the complexities and challenges
facing city governments in Wisconsin and elsewhere. I also hope that this report
will contribute to the policymaking process in the City of Milwaukee.
Andrew Reschovsky
May 2013
Madison, Wisconsin
viii
Acknowledgments
We would like to extend our deepest appreciation to Aaron Szopinski, an analyst
in the Budget and Management Division, who served as our contact with the City
of Milwaukee and was invaluable in providing assistance to us during the course
of compiling our report. We would also like to express our gratitude to Jim
Klajbor, Robert Potrzebowski, and Sam Leichtling for taking the time to meet
with us in order to better explain the foreclosure process in Milwaukee.
Furthermore, we extend thanks to La Follette faculty and staff, including
Professor Andrew Reschovsky for his editing and advice and Karen Faster
for her help in this report’s publication.
ix
x
Executive Summary
The downturn in the housing market during the Great Recession resulted in a
foreclosure crisis for the City of Milwaukee. Especially troubling has been the
steep rise in tax foreclosures initiated by the City. To collect delinquent property
taxes, the City conducts an in rem foreclosure, which is the final step in a process
used to satisfy outstanding tax debts. In this process, the City takes ownership of a
property in lieu of receiving back taxes.
The problems surrounding tax foreclosure are twofold. During the past several
years, the amount of properties going into in rem foreclosure has spiked. That
many of the acquired properties are low in value, making it difficult for the city to
sell them, exacerbates the problems. With the City facing fiscal constraints, the
Budget and Management Division would like to investigate policies that could be
implemented to decrease the number of in rem foreclosures in Milwaukee.
In this report, we examine the characteristics of in rem foreclosures using data
compiled from various city sources. First, we look at the processes used in
property assessment and taxation, noting challenges and trends in the City of
Milwaukee in recent years. Next, we construct a comparison of peer cities and
counties in order to put Milwaukee’s experience with tax foreclosures into a
relative perspective. In addition, we examine the pre-and post-foreclosure
processes employed by the City and the legal constraints that limit municipal
decision-making. We also identify factors associated with in rem foreclosures and
use regression analysis to assist in the City’s future management of the situation.
Finally, we recommend policies designed to reduce the number of in rem
foreclosures in Milwaukee.
Our analysis of city processes found significant factors contributing to in rem
foreclosures. In particular, assessment classes, aldermanic districts, assessed
value, and property quality all affected in rem foreclosures. The regression
analysis also identified factors that may affect the likelihood of delinquent
properties entering the in rem foreclosure process.
Based on our research, we recommend the following policies to reduce the
number of city-initiated foreclosures. First, we recommend that the City of
Milwaukee implement an Early Warning System to identify delinquent properties
that are at risk for in rem foreclosure. Second, we recommend adjustments to tax
payment methods for the City by allowing special charges added to the tax bill to
be spread over installments while also allowing installment plans for owners who
choose to use a credit card to pay their property taxes. Our final recommendation
is to create a Hardship Loan Fund, modeled on similar programs coordinated by
local governments, that allows taxpayers to apply for microloans to satisfy
delinquent taxes.
xi
xii
Introduction
The City of Milwaukee, like many municipalities in the United States, continues
to face increasing fiscal pressure exacerbated by reduced employment and
declining home values. Homeowners facing long-term unemployment are less
likely to pay their property taxes. Two of the most significant consequences of the
economic downturn for the City of Milwaukee have been a declining tax base and
an increasing property tax delinquency rate (PNC Financial Services Group
2013). As the only “first class”1 city in Wisconsin, Milwaukee has the power to
take ownership of a property in order to satisfy delinquent property taxes. Despite
the efforts of the City to collect delinquent taxes, the number of properties ending
up in tax foreclosure continues to increase. Declining property values, high-risk
and predatory lending, and high unemployment have contributed to a sharp
increase in tax foreclosures in the City of Milwaukee.
Once the City has taken possession of these properties, many of them are not
likely to be resold. A good number of the properties the City acquires are worth
far less than the cost to maintain them. Tax foreclosures are disproportionately
located in economically stressed areas. Many of the foreclosed properties are old
and severely deteriorated by the time the city acquires title. In addition,
abandoned, foreclosed houses may have become targets for thieves who strip the
properties of their valuable contents, such as copper wire and fixtures. Vacant
homes may fall into a state of disrepair without a resident to maintain the house,
contributing to the downward trend in their values along with the values of
surrounding properties in the neighborhood.
The high cost associated with owning and maintaining many of these city-owned,
tax-foreclosed properties represents a diversion of scarce resources. The
properties need to be secured, critical structural problems corrected, and regular
maintenance — mowing and snow removal — ensured. Increasing acquisitions in
recent years translates to increasing costs. In addition to incurring these postforeclosure ownerships costs, the City loses tax revenue from these properties.
Tightening state budgets, tax levy limits, and tax revenues that have not kept up
with inflation have made the issues surrounding tax-foreclosed properties more
pressing for the City (City of Milwaukee n.d.b.). Milwaukee Mayor Tom Barrett
asked the state legislature to allocate more money from the national mortgage
settlements to offset the impact and cost of foreclosures shouldered directly by the
City. However, even if the City received additional funding, it would not help
people avoid tax foreclosure. In response, the City has asked the authors to
address tax foreclosures by making recommendations that will decrease the
number of properties that come into the City’s possession. To reach this goal, we
1
This designation requires a municipal population of 150,000 or more residents. Eligible cities
must apply for this designation.
1
have identified possible alternative approaches to preventing tax foreclosure taken
by taxing districts (usually counties) around the country facing similar spikes in
tax foreclosures. We also created our own alternatives to address issues specific to
the constraints faced by the City of Milwaukee, such as the Wisconsin
“uniformity in taxing” clause of the State Constitution. If successful, these policy
proposals should serve to lower tax foreclosure costs by reducing post-foreclosure
ownership costs for the City.
In this paper, we begin with a description of the issue and our statement of the
overarching problem our paper addresses. We then describe the three-phase taxforeclosure process that the City has adopted. Next, we use a regression analysis
to examine the characteristics that may affect the likelihood of tax foreclosure.
Using the results from the regression analysis and the best practices we identified
in other cities, we then propose some policy alternatives to the current process
followed by the City and discuss the merits and drawbacks of each proposed
course of action. Finally, we lay out the recommendations that we have for the
City of Milwaukee to decrease the number of properties being acquired by the
City.
2
Problem Statement
Since 2009, the City of Milwaukee has acquired an unprecedented number of
properties through in rem tax foreclosures, generating steeply increasing costs to
the City and causing further stress to neighborhoods already experiencing high
levels of mortgage foreclosures. The City pursues tax foreclosures as an in rem
process, which means that the legal action is directed toward the property rather
than a specific person. In 2012, the inventory of city-owned tax foreclosure
properties stood at roughly 1,200 — 10 times that of 2008 levels. Of the total in
rem foreclosures between 2008 and 2012, 65 percent have been residential
properties. As shown in Figure 1, in rem tax foreclosures of residential properties
have grown from fewer than 100 per year in 2008 to more than 700 in 2012. As
the economic recovery continues to be slow, in rem tax foreclosures of residential
properties are expected to increase.
Figure 1. Number of Properties the City of Milwaukee Acquired Annually
Through In Rem Tax Foreclosure, 2008–2012
In Rem Tax Foreclosure
Acquisitions
800
700
600
500
400
300
200
100
0
2008
2009
2010
2011
Year City Acquired Property
2012
Source: Authors, using data from Department of City Development
As we will demonstrate, the city incurs the most substantial costs during the postforeclosure phase. These costs include razing uninhabitable properties, securing
the properties, renovating the properties, mowing lawns, removing snow,
addressing other maintenance, and marketing the properties. Uncollected tax
revenue is an additional cost incurred during the pre- and post-foreclosure phases.
Because the City does not consider property management and marketing as either
a core competency or in its long-term interest, it has identified addressing this
growing problem as a top priority. Moreover, municipal expenditures on taxforeclosed properties have associated opportunity costs. Such funds cannot be
3
spent on vital municipal services such as public safety or road maintenance. City
goals include maximizing the number of properties on the tax roll and reducing
the negative impact of blighted, vacant, and demolished properties on its
respective neighborhoods. Reducing the number of tax foreclosures would
contribute to these goals as more properties would remain on the tax roll and
fewer properties would become vacant.
4
Comparison to Other Cities
More than 150 different systems for collecting the property tax exist within the
United States. Alexander and Powell (2011, 4) believe that “[c]omplexity, rather
than clarity and simplicity, characterizes property tax collection procedures in
most jurisdictions.” For example, many jurisdictions have procedures that involve
two, three, or four separate steps to enforce a property tax lien. Some states have
two sales — an initial sale of the property or lien followed by a statutory time
period before the final sale. Other states conduct a sale of the property that is
followed by a statutory redemption period. On average, completing a property tax
foreclosure in the United States takes anywhere from two to seven years
(Alexander and Powell 2011).
Alexander and Powell (2011) advocate for several changes to tax foreclosure laws
to make the system more efficient and effective. Milwaukee currently follows
these recommended practices. For example, Alexander and Powell support
shifting to in rem foreclosures, which the City practices. In rem procedures have
different constitutional requirements than proceedings against property owners
personally, known as in personam judgments. As a result, the in rem process
should result in less time, effort, and money spent obtaining personal jurisdiction
over irresponsible owners. Another recommendation is to require constitutionally
adequate notice and judicial tax foreclosure proceedings, as this route creates a
better opportunity to resolve all outstanding title defects. The City of Milwaukee
provides constitutionally adequate notice and judicial tax foreclosure proceedings.
Alexander and Powell also suggest increasing efficiency of the tax enforcement
system by permitting bulk petitions, which the City also utilizes. Bulk petitions
allow a local government to process hundreds or thousands of properties in one
hearing.
Table 1 compares the City of Milwaukee with other cities and counties regarding
tax foreclosures per year. The table lists the City of Milwaukee as having the
lowest tax foreclosure rate per capita among the comparable cities and counties.
5
Table 1. Comparison of Peer City/County Tax Foreclosures
City or
County
Years
Milwaukee,
WI
2008–
2012
Baltimore
County, MD
(Baltimore)
2010–
2012
Marion
County, IN
(Indianapolis)
2009–
2012
Hamilton
County, OH
(Cincinnati)
2008,
2009
Minneapolis,
MN
2008–
2011
Detroit, MI
2012
Measurement
Average Number
of Tax
Foreclosures
Per Year*
Population
Percentage
of Tax
Foreclosures
Per Capita*
414
597,867
0.07
1,897
817,455
0.23
3,664
918,977
0.40
4,259
800,362
0.53
2,334
387,753
0.60
19,001
706,585
2.69
Tax
Foreclosures
(2008-2010);
Residential
Property Tax
Foreclosures
(2011, 2012)
Tax
Foreclosures
for Sale
Tax
Foreclosure
Sales for A
List Properties
(2010-2012);
Tax
Foreclosure
Sales (2009)
Property
Foreclosure
Cases
Tax
Foreclosure
Sales
Tax
Foreclosures
for Sale
*Tax foreclosures based on measurement identified such as tax foreclosures, residential property tax foreclosures, tax
foreclosures for sale, tax foreclosure sales for A-list properties, tax foreclosure sales, or property foreclosure cases.
Sources: Hamilton, Ohio (2012) Annual Information Statement; Minneapolis Finance and Property Services
Department (2011); Christoff (2013); Baltimore County Office of Budget and Finance (2013); City of Indianapolis and
Marion County (2013); Ryan (2010); U.S. Census Bureau (2012)
The measurement of tax foreclosures in table 1 differs among the cities and
counties due to available data. Ideally, the table would include only residential
property tax foreclosures as a measurement because this paper’s focus is on those
foreclosures. The various measurements include number of tax foreclosure cases,
tax foreclosures, tax foreclosures for sale, residential property tax foreclosures,
tax foreclosures sales for A-list properties (a subset of properties within Marion
County, Indiana), or tax foreclosure sales. The number of tax foreclosure cases as
a measurement will likely be larger than all the other measurements because some
cases result in owners reclaiming their property and, therefore, properties are not
foreclosed on and put up for sale. The measurement of tax foreclosures and tax
foreclosures for sale are likely to be similar to each other because cities and
counties try to sell most of the properties that they acquire through tax
foreclosures. In a limited number of cases, a city or county may keep the property
to serve specific city or county interests. Tax foreclosures sales will likely be
6
smaller than the other measurements because properties sold may be less than tax
foreclosures, possibly due to demand being less than supply. In addition, the table
uses residential property tax foreclosures and tax foreclosures for A-list properties
as a measurement. These two measurements refer to specific property types.
Residential property tax foreclosures will likely be less than tax foreclosures
because residential properties are a subset of all types of property. Tax foreclosure
sales for A-list properties will likely be less than tax foreclosures for sale because
A-list properties are a subset of properties within Marion County, Indiana. Figure
2 displays that relationship between the alternative tax foreclosure measurements.
The measurement of residential property tax foreclosures is not included in figure
2 because its relationship with tax foreclosure sales and tax foreclosures for sale is
unclear.
Figure 2. Relationship between the Alternative Tax Foreclosure
Measurements
Tax Foreclosure Sales for A-List Properties ≤ Tax Foreclosure Sales ≤ Tax
Foreclosures for Sale ≤ Tax Foreclosures ≤ Tax Foreclosure Cases
Source: Authors
Even though the measurements differ among the cities and counties, the tax
foreclosures per capita are comparable because the various measurements are
similar to one another. The City of Milwaukee tax foreclosure measurements
include tax foreclosures and residential property tax foreclosures. In Milwaukee,
about 65 percent of tax foreclosures are residential. Therefore, although
Milwaukee’s tax foreclosure per capita is the lowest among the comparable cities,
its tax foreclosure measurement is one of the more inclusive measurements. This
means that Milwaukee’s foreclosure rate per capita is likely accurate, and the fact
that it is lower than the other cities and counties not due to the alternative
measurements of tax foreclosures.
7
Property Taxes and Assessment in Milwaukee
The City of Milwaukee’s primary local source of tax revenue is the property tax.
The City also receives revenues from the State of Wisconsin through a variety of
intergovernmental grant programs, the largest of which is the Shared Revenue
program. Per capita shared revenue payments are generally larger in
municipalities, such as Milwaukee, with relatively low per capita values of
property. The State of Wisconsin does not allow local government sales or
income taxes. As a result, the property tax is the City’s only major source of tax
revenue.
The 2011–2013 Wisconsin State Budget included limits on the property tax levy
of local governments, constraining the City’s ability to increase the levy to match
its funding needs (Wisconsin Statutes: General Municipality Law Ch. 66, §
66.0602(2)). As a result, the City may only increase the property tax levy by an
amount less than or equal to the percentage of value added due to net new
construction relative to the previous year’s equalized property value. The
equalized property value is determined by the Wisconsin Department of Revenue.
The total equalized property value for Milwaukee has declined by more than 3
percent in each of the past three years (Assessment Commissioner 2012).
The economic crisis has slowed net new construction in Milwaukee to less than 1
percent growth per year. Net new construction includes new construction and land
improvements offset by the demolition of buildings. In Milwaukee, net new
construction from 2011 to 2012 was 0.72 percent (Wisconsin Department of
Revenue 2012). The binding levy limit enacted with the 2011–13 State Budget
severely restricts the City’s ability to generate sufficient revenue to offset
inflation-related increases in the cost of providing the current level of services
(U.S. Bureau of Labor Statistics 2012). The Governor’s proposed budget for the
2013–15 biennium calls for extending the existing levy limit.
Further, as shown in table 2, from 2006 to 2013 the state reduced overall aid to
Milwaukee, in real 2013 dollars, from $314.5 million to $259.6 million, or more
than 20 percent. Once we adjust for inflation, Milwaukee’s total general fund
revenues have declined overall by more than 3 percent since 2006. The annual
reduction in intergovernmental support strains the City budget and burdens
property taxpayers and residents with covering the growing deficit through user
fees and charges for services (City of Milwaukee n.d.a.).
8
Table 2. General Fund Revenue by Source, in 2013 Dollars
Intergovern- Other Ownmental
Source
Revenue
Revenue
Millions of dollars
Intra-Fund
Charges
(Pensions
and
Benefits)
Total
Year
Property
Taxes and
Offsets
2006
$212.0
$314.5
$152.2
$56.6
$735.3
2007
$211.7
$306.0
$150.6
$48.6
$716.9
2008
$213.5
$293.1
$150.3
$49.9
$706.8
2009
$219.8
$295.5
$160.1
$53.0
$728.3
2010
$220.9
$289.2
$158.6
$71.2
$740.0
2011
$215.8
$282.8
$169.0
$50.7
$718.2
2012*
$212.1
$263.1
$163.0
$55.3
$693.4
2013*
$214.0
$259.6
$169.4
$70.3
$713.3
*2012 and 2013 are budget figures, not actual revenues
Source: From actual revenues, as summarized in the adopted City budget
The City Assessor’s office is responsible for assessing the value of property in
Milwaukee. Assessments are revalued annually using computer models that
determine a property’s market value by considering factors such as age, size,
condition, number of dwelling units, and location. Due to shifting market
conditions, revaluations in 2013 included factors such as private foreclosures and
board-ups, which may influence the market value of a property. The assessment
process is intended to ensure that the assessed value of each property is consistent
with its market value. Assessments on residential and commercial properties must
be completed by January 1. These assessments are then used to determine each
property owner’s share of the property tax burden the following December, when
the City Treasurer’s office sends out tax bills.
For administrative purposes, the City divides all property into several classes,
sub-classes, and types. The primary property classes include residential,
commercial, and manufacturing. The residential class includes two sub-classes:
residential (one to three family units) and condominiums. The commercial class
also includes sub-classes: local commercial, special commercial, and apartments
(four or more units). The classes and sub-classes also contain a variety of property
types. As illustrated in figure 3 and table 3, approximately 90 percent of the City
parcels are residential, with commercial properties making up the majority of the
remaining parcels. The City is responsible for the assessment of residential and
commercial parcels, but the Wisconsin Department of Revenue handles the
assessment of all manufacturing properties. Figure 4 illustrates the breakdown of
in rem acquisitions by property class.
9
Figure 3. 2012 Property Distribution Residential, Manufacturing,
and Commercial Parcels
Residential
Manufacturing
Commercial
0.42%
9.70%
89.88%
Source: Authors, using data from Office of the City Assessor
Table 3. 2012 Taxable Parcels by Property Class
Property Class
Residential
Condominium
Total
127,128
Percentage of all City
Parcels
82.30%
11,706
7.58%
138,834
89.88%
Manufacturing
651
0.42%
Manufacturing Total
651
0.42%
Local Commercial
6,832
4.42%
Special Commercial
3,083
2.00%
Apartments
5,069
3.28%
14,984
9.70%
154,469
100.00%
Residential Total
Total Commercial
Total All Classes
Source: Authors, using data from Office of the City Assessor
10
Figure 4. Distribution of In Rem City Acquisitions
for All Property Classes, 2008–2012
Apartments
Condominiums
Residential
Commercial
Exempt
Special Commercial
Source: Authors, using data from the Department of City Development
For the purposes of this analysis, the City of Milwaukee requested that we
examine certain property classes and property types data from 2008 to 2012. Of
the six unique property classes, the City requested that we examine two:
residential and condominiums. Of the 32 unique property types, the City
requested that we examine 11: condominium, duplex, duplex – 2, duplex and rear
cottage, duplex and single family, multi-family, multi-family and duplex, multifamily and single family, single family, single family – 2, and townhouse. The
City considers residential properties to be either vacant or improved lots. Vacant
lots do not have an existing structure or housing unit, whereas improved lots are
parcels that have a residential building or house on them. For the purposes of this
analysis, we consider the acquisition of improved lots only. Of all city-acquired
properties between 2008 and 2012, the selected property classes and types on
improved parcels account for 1,599 acquisitions — about 65 percent of the total.
Only these property classes and types are examined because they account for the
vast majority and an increasing share of municipal acquisitions.
The City Treasurer’s office sends out tax bills for the coming year each
December, and property taxes are due each year on January 31, after which the
City provides a five-day grace period. Failure to pay the property taxes in a timely
fashion results in late fees and penalties totaling 18 percent per year. The City
11
allows payment of the property tax portion of the property tax bill to be
distributed over a 10-month installment plan under Wisconsin Statute § 74.87 (3).
This number of installments far exceeds that used by other Wisconsin counties
and municipalities, which typically permit only two installments. Despite this
generous installment payment option, each February a number of property owners
of all classes of property fail to pay their property taxes in a timely fashion and
become tax delinquent.
The City Treasurer’s offices reports that more than 99 percent of real estate
property taxes are collected over the course of the enforcement period. However,
as shown in table 4, between 9 and 11 percent of taxpayers were delinquent at the
end of the five-day grace period in February from levy years 2002 to 2013.
Because the City relies heavily on the property tax to fund basic services, it must
borrow money to cover the cash-flow deficit. This short-term debt is repaid by
collections of delinquent taxes throughout the year.
Table 4 also demonstrates that the City’s tax delinquency rates have remained
stable throughout the private mortgage foreclosure crisis. One reason may be that
banks that initiated the foreclosures have been paying the property taxes to keep
them current until the banks can resell the properties. A lien on the property
allows the City of Milwaukee to foreclose on the property ahead of other liens
that may be against the property. If the bank failed to keep the property tax
payments current, the City would initiate its tax foreclosure process.
Even though the overall tax collection rate remains high, property owners are
taking more time to pay their delinquent taxes (see table 4). For example, by
August of the final year of the three-year tax collection enforcement process,
delinquent taxes accounted for less than 1 percent of property taxes for levy years
2002 through 2006. However, from levy years 2007 through 2010, delinquent
taxes exceeded 1 percent and were trending upward. Further, the longer
delinquency periods appear to be correlated with an increase in in rem filings and
acquisitions as a percentage of initial delinquency rates. As the economic
recovery continues to be slow, this trend is expected to continue.
12
Table 4. Property Tax Delinquency throughout Three-Year Tax Collection Enforcement Period
for All Real Estate for Levy Years 2002–2012
Year 1
Levy Year February
April
June
Year 2
August
November
March
April
Year 3
November
December
August
In rem
Filings
In rem
Acquisitions
2002
10.04%
9.08%
9.11%
9.08%
8.31%
4.52%
4.11%
1.86%
1.70%
0.73%
0.40%
0.18%
2003
10.02%
9.02%
8.57%
8.40%
7.10%
3.68%
3.08%
1.61%
1.49%
0.59%
0.28%
0.11%
2004
9.40%
8.36%
8.18%
8.00%
6.93%
3.57%
2.90%
1.42%
1.30%
0.56%
0.26%
0.10%
2005
9.52%
8.59%
8.40%
8.39%
7.43%
3.92%
3.21%
1.63%
1.50%
0.58%
0.34%
0.12%
2006
10.65%
9.63%
9.53%
9.46%
8.50%
4.92%
4.04%
2.11%
1.90%
0.82%
0.59%
0.30%
2007
11.39%
9.98%
9.97%
10.07%
9.26%
5.58%
4.88%
2.76%
2.54%
1.02%
0.71%
0.35%
2008
10.64%
9.92%
10.03%
10.28%
9.39%
5.35%
4.74%
3.01%
2.78%
1.29%
0.64%
0.39%
2009
10.15%
9.33%
9.42%
9.87%
9.14%
5.50%
4.85%
3.31%
3.14%
1.55%
0.76%
0.49%
2010
10.02%
9.18%
9.21%
9.46%
8.56%
5.62%
5.18%
3.42%
3.16%
NA
NA
NA
2011
10.17%
9.38%
9.37%
9.66%
8.95%
5.94%
5.34%
NA
NA
NA
NA
NA
2012
10.79%
9.27%
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
Average
10.25%
9.25%
9.18%
9.27%
8.36%
4.86%
4.23%
2.35%
2.17%
0.89%
0.50%
0.25%
Source: Authors, using data from the Office of the City Treasurer
13
Table 5 illustrates the changes in tax delinquencies for owners of residential
properties from levy years 2008 to 2012, comparing property owners who become
delinquent in February with those who become delinquent during the 10-month
installment period and are still delinquent in November. February delinquencies
declined between levy years 2008 and 2010, when they reached a low of 12,002.
February delinquencies then reached a five-year high in levy year 2012,
suggesting that more property owners were unable to or were choosing to not pay
their property taxes. The total amount of delinquencies that occur between March
and October and remain delinquent in November has been trending downward
since 2008, with a slight increase in levy year 2011.
The average amount of delinquent property taxes due at the time of delinquency
has remained stable across both those who went delinquent in February and those
who later become delinquent and remained so into November. This suggests that
even though the amount of property taxes owed may be shifting very little, the
property tax burden on property owners may be increasing. Property owners may
have less ability to pay their property taxes, despite relatively small changes in the
nominal amount of delinquent taxes.
Table 5. Comparison between All Tax Delinquent
Residential Property Owners for Levy Years 2008–2012
November
Delinquencies**
February Delinquencies
Levy Year
2008
2009
2010
2011
2012
Average
8,400
7,176
6,063*
6,563
6,731
6,987
5,610
5,805
5,939*
6,906
7,657
6,383
Total
14,010
12,981
12,002
*
13,469
14,388
13,370
Average
Amount
Delinquent
$3,031
$3,032
$2,872
*
$3,111
$2,920
$2,993
OwnerOccupied
2,561
2,053
1,591
1,755
NA
1,990
InvestorOwned
1,575
1,600
1,264
1,220
NA
1,415
Total
4,136
3,653
2,855
2,975
NA
3,405
Average
Amount
Delinquent
$961
$964
$966
$877
NA
$942
OwnerOccupied
InvestorOwned
*The February 2011 delinquency report was not available, so these numbers are from March 2011.
**The number of delinquencies reported in this category are less than the total delinquencies that occur between March and
October, the end of the 10-month installment period. The numbers are taken from November delinquency reports.
Therefore, property owners who went delinquent between March and October and who completed payment of their
property taxes prior to November are not counted in the delinquency totals.
Source: Authors, using data from the Office of the City Treasurer
14
Delinquent property owners can be divided into two categories: those who own
and occupy their property (owner occupants) and those who invest in property and
rent to tenants (investor owned). As shown in table 5, between levy years 2008
and 2012 the share of tax delinquencies between these two groups shifted. Figure
5 shows that owner occupants who were delinquent in February exceeded
delinquent investors between levy years 2008 and 2009. In levy year 2010, the
delinquencies of these two types of property owners were approximately equal;
however, in levy years 2011 and 2012, however, investors comprised a larger
share.
Figure 5. Distribution of Owner Occupants and Investor Owners across All
November Tax-Delinquent Residential Property Owners, 2008–2012
70%
60%
50%
40%
30%
2008
2009
2010
Owner Occupied
2011
2012
Investor Owned
Source: Authors, using data from the Office of the City Treasurer
Figure 6 illustrates the tax delinquency distribution of the two types of property
owners who completed at least the first installment payment but were still
delinquent in November. From levy years 2008 to 2011, owner occupants have
consistently made up a larger share of property owners becoming delinquent
during the 10-month installment period and remaining delinquent in November.
15
Figure 6. Distribution of Owner Occupants and Investor Owners
Across All November Tax-Delinquent Residential Property Owners
Who Made at Least One Installation Payment, 2008–2012
70%
60%
50%
40%
30%
2008
2009
2010
Owner Occupied
2011
Investor Owned
Source: Authors, using data from the Office of the City Treasurer
Table 6 shows that the City of Milwaukee filed in rem foreclosure against more
real estate properties during the 2000–2002 economic recession than it did at any
point during the recent housing crisis and Great Recession. However, consistent
with the trend of increased delays in property tax payments, the City has seen a
lower percentage of properties redeemed after filing in rem foreclosures (see PreForeclosure Process and Post-Foreclosure Process for a more detailed review of
the in rem tax foreclosure process). This may suggest that low-income
homeowners have been slower to recover economically from unemployment. This
may also indicate that investors are increasingly more likely to walk away from
their properties or perhaps that “underwater” homeowners who took out peakvalue home equity lines of credit loans in the mid-2000s have abandoned their
properties to avoid loan repayment and subsequent taxes.
16
Table 6. In Rem Tax Foreclosure Redemption and Acquisitions
for All Real Estate in Milwaukee, 2000–2012
Year
2000
Parcels Filed
Against
1,253
Parcels
Acquired
459
Redemption
Rate
63.37%
Acquisition
Rate
36.63%
2001
2,755
723
73.76%
26.24%
2002
1,577
373
76.35%
23.65%
2003
389
149
61.70%
38.30%
2004
413
180
56.42%
43.58%
2005
598
263
56.02%
43.98%
2006
417
160
61.63%
38.37%
2007
385
155
59.74%
40.26%
2008
508
184
63.78%
36.22%
2009
892
461
48.32%
51.68%
2010
1,089
532
51.15%
48.85%
2011
991
597
39.76%
60.24%
2012
1,152
744
35.42%
64.58%
Total
12,419
4,980
59.90%
40.10%
Source: Authors, using data from Office of the City Treasurer
As fewer property owners redeem their tax-delinquent properties, the City’s
acquisition rate has continued to grow. As shown in table 6 and figure 7, the City
acquired only 37 percent of the properties it filed against in 2000. However, by
2012, the acquisition rate rose to 65 percent.
Figure 7. In Rem Tax Foreclosure Redemption and Acquisition Rates
for All Real Estate, 2000–2012
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Redemption Rate
Source: Office of the City Treasurer
17
Acquisition Rate
Prior to 2008, the City’s acquisition of properties through in rem tax foreclosure
was at a level that the Department of City Development could manage. The real
estate market allowed for the City to acquire and re-sell properties at a rate that
resulted in a stable turnover of inventory. The city’s process of acquiring
properties allowed for the recoupment of lost or delinquent taxes through the
acquisition and selling of properties. Beginning in 2008, however, the inventory
of in rem city-acquired properties began to grow as house sales slowed.
Despite an expansion of its marketing efforts, the Department of City
Development has been unable to sell the majority of properties that the City
acquires through in rem foreclosure due in part to stricter underwriting standards
by banks and a lack of demand in the housing market. Another factor is the poor
condition of the in rem properties themselves, which are increasingly located in
economically stressed portions of the City.
In general, Milwaukee’s housing stock is aging and in need of rehabilitation. An
analysis of 2008 U.S. Census American Community Survey data completed by
the Department of City Development (2010) found that more than one-half of the
homes in the city were built prior to 1950 and more than 90 percent before 1980.
As the credit market tightened in the wake of the housing crisis and recession,
resources for homeowners to purchase and renovate properties were substantially
reduced, diminishing the City’s pool of potential buyers.
Due to the declining value of the housing stock and state-imposed levy limits, the
City has sought to generate additional revenue to reduce reliance on the property
tax. One result was an increase in user fees through the adoption of fees that
directly correspond to the user benefit (Government Finance Officers Association
Annual Conference 2012). However, the Wisconsin State Legislature has
restricted the user fee charge to the actual cost of service.
The weak economy plus the increased use of fees has resulted in a marked
increase in the late payment and delinquency of fees. To encourage the timely
payment of fees, the Milwaukee City Council passed ordinances that allow for
many delinquent municipal fees to be applied to the property tax bill as special
charges.
The Department of Neighborhood Services, Public Works, and the Milwaukee
Water Works issue more than 99 percent of the municipal fees that, if delinquent,
are added to the property tax bill as special charges (Berger et al. 2011). The
municipal fee collection process includes bill notification, the imposition of late
fees, and the availability of multiple payment options. While each of these factors
varies among each of the three primary municipal fee-issuing departments, after a
municipal fee is delinquent and placed on the property tax bill, the City Treasurer
assumes responsibility for collection. Once municipal fees are added to the
property tax bill, they must be paid in full with the first property tax payment and
are treated for collection purposes as a property tax balance.
18
Pre-Foreclosure Process
The City of Milwaukee has a standardized process for redeeming delinquent
property taxes. This process consists of three phases in which the third and final
phase begins with the City Treasurer filing an in rem tax foreclosure action in
Milwaukee County Circuit Court. This section describes the City’s property tax
collection process and tax enforcement procedure.
Property Tax Collection Process
The City of Milwaukee Treasurer’s Office maintains the responsibility of tax
collection for all six taxing jurisdictions within the city limits, including the City
of Milwaukee, Milwaukee County, State of Wisconsin, Milwaukee Public
Schools, Milwaukee Metropolitan Sewerage District, and Milwaukee Area
Technical College. Tax bills are sent out once per year and are due on January 31.
A property taxpayer who does not or cannot pay the entire balance due by that
date may have the option of going on an installment plan. That plan allows for up
to 10 payments — interest free — with each payment due by the last day of each
month between January 31 and October 31. This is the maximum number of
payments allowed by state law. Any fees and charges, however, cannot be
included in the installment plan and must be paid in full by January 31. Anyone
who pays less than the total balance due but more than what the first installment
would be automatically qualifies for the installment plan.
The city provides a number of payment options. One option is to pay the entire
balance due or the installment amount via electronic funds transfer or in cash or
with a personal check at City Hall, by mail, or at any one of the 13 US Bank
locations in the city (City of Milwaukee 2012). Additionally, property taxes may
be paid by credit card, but only for the entire balance due. A 2.75 percent
convenience fee is added to the charge to cover the City’s transaction charges as a
credit card merchant.
Three-phase Tax Enforcement Process
If neither the entire balance due nor the first installment has been paid by January
31, a five-day grace period begins. After that period has passed, the property tax
bill is considered delinquent. At this point, the Office of the City Treasurer begins
its tax enforcement process beginning with collection attempts, and if necessary,
ending with foreclosure on the parcel. This process is outlined below.
Phase 1: In-house Collection
During the first phase, the City Treasurer begins by sending out a series of four
collection letters, followed by two collection letters containing the signature of an
Assistant City Attorney. Monthly interest of 1 percent plus a monthly penalty of
0.5 percent are applied, retroactive to February 1. This phase takes place over a
period of 14 months. Samples of these letters can be found in appendix A.
19
Phase 2: Collection by Private-party Law Firm
During the second phase, any remaining delinquencies are turned over to the
Kohn Law Firm, a private firm contracted to the City that specializes in
collections. The firm begins by assessing each property owner’s ability to pay and
then makes attempts to collect. Collection attempts begin by attempting to work
out payment arrangements with the property owner may take the form of up to 10
monthly payments and include the interest and penalty. Payments may not exceed
10 months without approval from the City Attorney. Unlike most collections,
however, the firm has no authority to reduce the balance due by any amount.
Collection attempts are made via mail and telephone. No in-person visits are
made. The firm may pursue an in personam judgment, which consists of obtaining
a court order for the property owner to pay the City. After this point, the firm may
have the option of pursuing wage garnishment, tax refund interception (essentially
a garnishment of the property owner’s tax refund), and possession of personal
property. Additionally, if the property owner has investments, the firm may
pursue those, but retirement, social security, and other similar funds are exempt. If
the property owner is a landlord, the firm may pursue a rent attachment, which is
similar to wage garnishment and tax refund interception in that the firm collects
rent payments to the landlord.
The Kohn Law Firm handles these cases for a period of six months, after which
time they are returned to the City for further processing. The firm may hold onto a
small fraction of cases, however, if they feel that there is a significant likelihood
of collecting payment from a property owner in a relatively short period of time
(typically about one month).
Phase 3: In Rem Foreclosure
Upon receiving cases back from the Kohn Law Firm, the City Treasurer begins
the third and final phase of the tax enforcement process, called in rem foreclosure,
by filing an in rem tax foreclosure action in Milwaukee County Circuit Court.
When this occurs, the City’s lien takes precedence over all others that may exist
and the City is listed as the first lienholder. Upon the publishing of the action in
The Daily Reporter newspaper, an eight-week redemption period begins, during
which a parcel may be saved from tax foreclosure by payment of the entire
balance due. After this point, a four-week answer period begins during which a
property owner may prevent tax foreclosure only by showing one of the following
three circumstances: 1) the affected parcel was not liable to taxation, 2) the
balance due was paid in full before the last day of the eight-week redemption
period, or 3) the tax lien is barred by the statute of limitations. If none of those
three circumstances are met, the City is granted a foreclosure judgment by the
court and ownership is transferred to the City. The final option for a property
owner to retain ownership of the parcel is to petition the Milwaukee Common
Council to vacate the in rem foreclosure judgment. The property owner must do
this within 90 days of the in rem foreclosure judgment and the petition must also
include an administrative fee of $1,370. The council’s Judiciary and Legislation
Committee then holds a hearing on whether or not to vacate the judgment. If the
20
committee recommends vacating the judgment, the full council then votes upon
the recommendation. The property owner must pay all outstanding fees and
charges prior to this vote. If the Council votes to vacate the judgment, the
property owner must pay the entire tax balance due within 30 days. If the property
owner is delinquent on property taxes for any other jurisdictional parcels, those
also must be paid in full within 30 days, or an authorized payment plan must be
put into place.
For a flowchart of the in rem foreclosure process, see appendix B.
21
Post-Foreclosure Process
If the 90-day redemption period passes without the former property owner
recovering the title, the City’s Department of Neighborhood Services inspects the
property, assesses its condition, and estimates the cost of bringing the property to
code compliance where feasible. The property may be sold to a private party.
Foreclosed houses sell for an average of $7,000 to $27,000. Prior to entering an
agreement with a potential buyer, the City conducts a background and credit
check to reduce the risk of having the property being vacated or foreclosed again.
The buyer must also agree to be an owner-occupant of the home for a minimum
of five years.
Unoccupied houses that are not immediately sold are boarded up for future sale,
and the Department of City Development (DCD) remains responsible for property
maintenance such as snow removal and grass cutting. If the foreclosed home is
tenant-occupied, the City makes a lease with the tenants. In this case, municipal
funds are used to make necessary repairs, and DCD remains responsible for
property maintenance. Another option is that the property may be referred for
demolition to the Department of Neighborhood Services, which makes the final
determination to demolish the property. The department is responsible for
coordinating demolition work on residential properties determined to be
uninhabitable. The typical cost of demolishing a home is $10,000 to $15,000. The
Department of Public Works-Forestry Division maintains foreclosed vacant lots
or properties where a house was demolished. Vacant lot reuse strategies include
using the property for community gardens, selling the lot to adjacent property
owners for green space, holding property for larger future development, or selling
the property for in-fill (U.S. Conference of Mayors 2008). Alternative uses being
considered include pop-up art exhibits, neighborhood exercise stations, and
batting cages.
The City has no interest in retaining most foreclosed properties and instead seeks
to resell and restore them to productive, taxable use. DCD markets the properties
that are suitable for resale. DCD operates under authority of §304-49 Milwaukee
Code Ordinances and has developed policies for marketing foreclosed properties
through both traditional means and over the Internet. The City will sometimes
fund capital improvements to a small number of qualifying properties through its
Housing Infrastructure Preservation Fund, per § 304-31.5.
According to the in rem foreclosure procedure based on Wisconsin Statute
§75.521, the DCD notifies former owners that the City has taken title and advises
them of their right to claim any excess proceeds from sale of their property under
Wisconsin Statute §75.36. The former owners are sent any net proceeds minus the
following: 1) delinquent taxes, interest, and penalties the homeowner owes on this
or any other properties owned within the City and 2) additional costs associated
with marketing the property, according to Wisconsin Statutes, Section 75.36 (2m).
For the former homeowner to be entitled to these proceeds, he or she must fill out
an affidavit and submit it within 60 days of the date of the City’s notice.
22
The DCD has set up a real-time database to track and map foreclosed properties.
The information is shared with the Milwaukee Police Department, the Milwaukee
Fire Department, and Department of Neighborhood Services. The latter works to
quickly identify and monitor foreclosed properties for code violators, and the
Milwaukee Police Department monitors vacant property for criminal activity.
COMPASS2 and MapMilwaukee3 have started tracking foreclosed properties data
so it can be analyzed with crime data and other neighborhood indicators (City of
Milwaukee 2009).
2
Community Mapping and Analysis for Safety Strategies is a Milwaukee initiative that uses a
shared database to help policymakers collaborate on citywide issues.
3
MapMilwaukee uses GIS to map citywide data.
23
City of Milwaukee Constraints in Addressing In
Rem Foreclosures
Compared to private organizations that collect outstanding debt, the City of
Milwaukee’s options for collecting property taxes are more constrained. Like
most state constitutions, Wisconsin’s constitution contains what is commonly
referred to as a uniformity clause (Johnson 2008). The clause is included in
Article VIII, Section 1, the most relevant part of which reads: “The rule of
taxation shall be uniform…” Essentially, this means that all property tax payers
must be treated alike. The clause applies to the levying and, to a significant
extent, the collection of property taxes. Because of that, while private
organizations may choose to settle with debtors for lesser amounts, the City is not
empowered to make settlements with delinquent property tax payers for less than
the entire balance. One option the City does practice is the allowing of up to 10
installment payments. But a delinquent taxpayer is no longer automatically
eligible for the installment payment option. In addition, because the City elects to
add fees and charges to the property tax bill, the City must exhibit the same
uniformity in collection of those as they do with property taxes. This self-imposed
constraint prevents the City from offering any flexibility to property tax payers
who are delinquent in their payments in terms of payment arrangements,
settlements, or any other measure aimed at satisfying their debts and bringing
them out of tax delinquency.
As a result of the 1967 case Gottlieb v. Milwaukee, the Wisconsin Supreme Court
ruled that, “for the direct taxation of property under the uniformity rule, there can
be but one constitutional class.” In essence, this ruling means that all property that
is subject to property taxation must be taxed at the same rate based on its value
and that all other property “must be absolutely exempt from property taxation.”
One of the most significant effects of this ruling has been to disallow property
taxing jurisdictions, including the City of Milwaukee, from applying different
standards of tax levying or tax collection to property owners who differ by any
variable, such as income level or employment status, or to properties that differ by
any variable, such as value or class (e.g., commercial versus residential).
For the City to consider exhibiting flexibility in the realm of fees and charges,
however, or even if the City were constitutionally permitted to exhibit some level
of non-uniformity between differing property taxation classes, the role of moral
hazard would need to be sufficiently considered. Offering delinquent debtors
favorable payment options removes, to some degree, the incentive to pay on time.
For the relevant constitutional text, state statutes, and municipal ordinances that
govern the City’s foreclosure process, see appendices C, D, and E.
24
Factors Associated with In Rem Foreclosure
This section considers the characteristics that may be associated with in rem
property tax foreclosure. We initially consider aldermanic districts and individualproperty level characteristics. We then discuss characteristics of taxes and tax
collection that may impact the likelihood of in rem foreclosure.
Characteristics of Properties Acquired by City through In Rem Foreclosure
Residential properties the City acquires through in rem foreclosure are
concentrated in certain areas of Milwaukee. We first consider assessment class,
aldermanic district, and assessed property values by aldermanic district when
examining characteristics of residential properties that may contribute to the
increased likelihood of in rem tax foreclosure. Next, we consider individual
property-level data concerning property complaints and examine the potential
impact of ownership occupancy in contrast to investor properties that may be
renter-occupied.
Assessment Class
Milwaukee has various property types that fall into the residential property
assessment class. As illustrated in table 7, in rem foreclosures in single-family
homes and duplexes account for more than 95 percent of the total in rem
foreclosures of residential property acquired by the City between 2008 and 2012.
Table 7. In Rem Foreclosures
of Residential Property Assessment Class, 2008–2012
Property Class
Property Type
Residential
Condominium
Condominiums
0
48
640
0
Duplex – 2
2
0
Duplex and Rear Cottage
1
0
Duplex and Single Family
15
0
Multi-Family
31
0
1
0
1
0
853
0
Single Family – 2
6
0
Townhouse
1
0
1,551
48
Duplex
Multi-Family and Duplex
Multi-Family and Single
Family
Single Family
Total
Source: Authors, using data from the Department of City Development
25
As mentioned, the selected property classes and types account for about 65
percent of all municipal acquisitions. When examining that proportion over the
selected five-year period, we observe a relatively steady increase, beginning with
about 47 percent in 2008 and ending with close to 78 percent in 2012. Figure 8
shows the historical trend of this data.
Figure 8. Residential Property Proportion of All In Rem Acquisitions
in the City of Milwaukee, 2008–2012
80%
75%
70%
65%
60%
55%
50%
45%
2008
2009
2010
2011
2012
Source: Authors, using data from the Department of City Development
The number of acquisitions during the selected period has also increased, with the
exception of a noticeable decline in 2011 followed by a sharp increase in 2012, as
shown in figure 9.
Number of Properties
Figure 9. In Rem Tax Foreclosure Acquisitions, 2008–2012
1000
900
800
700
600
500
400
300
200
100
0
2008
2009
2010
2011
2012
Selected Property Types
Source: Authors, using data from the Department of City Development
26
All Property Types
Aldermanic District
The volume of and increase in the number of in rem foreclosures of residential
properties varies by aldermanic district. However, the distribution is
disproportional. As illustrated in table 8 and figures 10 and 11, of the City’s 15
districts, just four of them — Districts 1, 6, 7, and 15 — account for more than 75
percent of the total in rem foreclosures from 2008 to 2012. The remaining 11
districts account for fewer foreclosures than District 15 alone, which accounts for
more than 26 percent of city-acquired residential foreclosures. The districts with
the highest concentrations of in rem tax foreclosures also have the highest
percentages of in rem tax foreclosures relative to the total number of residential
parcels. This suggests that the higher concentrations of in rem tax foreclosures are
not the result of more residential parcels in these districts, but rather the result of
other factors.
Table 8. Residential Properties Acquired by the City of Milwaukee
through In Rem Tax Foreclosure by Aldermanic District, 2008–2012
Year City Acquired Property through In Rem Tax
Foreclosure
Aldermanic
District
1
2008
11
2009
16
2
1
6
3
1
4
Total
188
2011
25
2012
97
12
10
17
46
0.48%
4
4
4
1
14
0.19%
5
8
8
8
16
45
0.98%
5
3
3
4
2
4
16
0.14%
6
16
31
71
81
139
338
3.77%
7
14
25
61
48
113
261
2.37%
8
4
5
13
8
22
52
0.79%
9
5
10
12
4
22
53
0.58%
10
4
2
10
9
17
42
0.38%
11
0
1
1
2
0
4
0.03%
12
3
8
14
11
38
74
1.14%
13
1
1
2
1
6
11
0.10%
14
2
8
4
3
17
34
0.30%
15
17
31
92
89
192
421
5.09%
87
159
347
305
701
1,599
1.15%
Total/Average
2010
39
Total Tax
Foreclosures
as a
Percentage
of
Residential*
Parcels
1.92% *Residential properties include properties classified as residential and condominium
Source: Authors, using data from the Department of City Development and the Office of the City Assessor
27
Figure 10. Percentage of In Rem City of Milwaukee Acquisitions
of Selected Properties by Aldermanic District, 2008–2012
80%
70%
60%
50%
40%
30%
20%
10%
0%
Districts 1, 6, 7, 15
All other districts
Source: Authors, using data from the Department of City Development
28
Figure 11. Percentage of Total In Rem Tax Foreclosures
of Residential Properties by Aldermanic District, 2008–2012
0.00 – 0.49%
0.50 – 0.99%
1.00 – 1.49%
1.50% or greater
Source: Map downloaded from the City of Milwaukee website and filled in using data from the Department of City
Development and the Office of the City Assessor
29
Despite the small percentage of tax foreclosures relative to the number of
residential parcels in the district, the City’s in rem tax foreclosures are in addition
to private mortgage foreclosures. The combined effects of private mortgage and
tax foreclosures reduce property values throughout neighborhood and blight
communities. Figure 12 illustrates the relative burden of in rem tax and private
mortgage foreclosures as measured using data on sheriff’s sales in each
aldermanic district. From 2008 to 2012, sheriff’s sales totaled 11,720. All districts
have experienced private home foreclosures, with districts 1, 2, 6, 7, and 15
experiencing the highest volume of sheriff’s sales. District 2 bears a low burden
of in rem tax foreclosures but has a relatively high number of sheriff’s sales,
while districts 1, 6, 7, and 15 have the burden of both high numbers of in rem tax
foreclosures and sheriff’s sales.
Figure 12. In Rem Tax and Private Mortgage Foreclosure as a Percentage of
Residential Parcels by Milwaukee Aldermanic District, 2008–2012
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
1
2
3
4
5
6
In Rem Foreclosure Burden
7
8
9
10 11 12 13 14 15
Private Mortgage Foreclosure Burden
Source: Authors, using data from the Department of City Development
30
Assessed Property Values
Median assessed property values vary across aldermanic districts in Milwaukee.
As shown in figure 13, the districts with the highest concentration of in rem tax
foreclosures — districts 1, 6, 7, and 15 — also have some of the lowest median
property values in the City, while districts with the fewest in rem foreclosures are
among those with the highest median property values.
Figure 13. Median Assessed Property Values and In Rem Tax Foreclosure
Rates for all Residential Properties by Aldermanic District
$200,000
6%
$180,000
5%
$160,000
$140,000
4%
$120,000
$100,000
3%
$80,000
2%
$60,000
$40,000
1%
$20,000
$0
0%
1
2
3
4
5
6
Median Assessed Value 2012
7
8
9 10 11 12 13 14 15
In Rem Foreclosure Rate, 2008 - 2012
Source: Authors, using data from the Office of the City Assessor
In addition to lower assessed property values, the districts with the highest
concentration of in rem foreclosures in which the City acquired properties have
also experienced the largest decreases in average assessed values from 2011 to
2012. As shown in figure 14, all aldermanic districts in Milwaukee saw sharp
declines in property values. However, aldermanic districts 1, 5, 6, 7, 8, and 15 had
declines of greater than 15 percent.
31
Figure 14. Percentage Change in Average Assessed Home Value by
Aldermanic District, 2011–2012
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15
0%
-5%
-10%
-15%
-20%
-25%
Source: Authors, using data from the Office of the City Assessor
Assessed Value Changes During Foreclosure Process
The three-year tax collection enforcement period between the time that a property
owner is initially delinquent on the property tax and when the City acquires the
property through in rem tax foreclosure may result in a significant decline in
home value. Because we are analyzing data concurrent with the housing market
crisis, it is difficult to isolate the decline in home values due to the housing crisis
from the decline in value that typically occurs in the three years prior to in rem tax
foreclosure. However, figure 15 illustrates the average changes in the assessed
value of in rem tax-foreclosed residential properties from 2008 to 2012. The
majority of the homes acquired by the City in 2008 resulted from the 2005 tax
levy year and became delinquent in 2006. The properties the City acquired in
2012 were predominantly tax delinquent beginning in 2009. The percent change
was calculated between the years that the properties went delinquent and the third
year, when the City acquired the property. Most aldermanic districts experienced
an increase in assessed home values between 2006 and 2008. However, consistent
with the findings reported in figure 14, home values declined in every district
across the City in the subsequent years. Aldermanic districts 6, 7, and 15
experienced the greatest increases in home value between 2006 and 2008, and the
same districts also witnessed the biggest declines. These three districts also
accounted for the majority of in rem tax foreclosures between 2008 through 2012
(see table 8). The jump in home values in the mid-2000s coupled with the
availability of credit and flexible-lending practices may have induced people to
buy and invest in properties. After home values declined significantly in
subsequent years, owners may have walked away or disinvested in the properties,
leading to the substantial increase in the inventory of in rem tax-foreclosed
properties.
32
Figure 15. Average Percentage Change in Assessed Value Between Tax
Delinquent Year and Year the City of Milwaukee Acquired the Property for
Residential In Rem Tax Foreclosures, 2008–2012
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
2008
2009
2010
2011
2012
Source: Authors, using data from the Office of the City Assessor
Housing Quality
The quality of the residential properties the City acquired through the in rem
foreclosure process deteriorated between 2008 and 2012. After acquiring an in
rem foreclosed property, the Department of Neighborhood Services completes an
inspection to determine the approximate cost to return the property to a minimum
standard based on code compliance. The City does not engage in significant
renovation projects; however, the minimum standard estimates serve as a proxy to
illustrate the degradation in the quality of the properties. Tables 9 and 10
demonstrate changes in the estimated rehabilitation costs for in rem-acquired
residential properties from 2008 through 2012.
Table 9. Average Estimated Rehabilitation
Costs for In Rem Residential Properties
Acquired and Inspected
by the City of Milwaukee, 2008–2012
Year
2008
2009
2010
2011
2012
Average Total
Cost
Average Estimated
Rehabilitation Costs
$28,070
$32,881
$31,936
$41,952
$36,439
$35,725
Source: Authors, using data from the Department of City
Development
33
Table 10. Average Estimated Rehabilitation
Costs for In Rem Properties
by Property Type Acquired
by the City of Milwaukee, 2008–2012
Property Type
Condominiums
Duplex
Duplex – 2
Duplex & Rear Cottage
Duplex & Single Family
Multi-Family
Multi-Family & Duplex
Multi-Family & Single Family
Single Family
Single Family - 2
Average Total Cost
Average Estimated
Rehabilitation Costs
$30,796
$31,441
$15,233
$56,874
$32,403
$51,126
$15,225
$79,375
$38,676
$27,121
$35,762
Source: Authors, using data from the Department of City Development
Figure 16 shows the relationship between the minimum cost to bring a home up to
code and the median assessed home value of the aldermanic district in 2012. In
seven aldermanic districts, the City is acquiring homes that require an investment
of more than one-half the median assessed value to return them to a minimum
standard of habitability. City acquisitions in districts 6, 12, and 15 have the
highest percentage of rehabilitation cost relative to median assessed home value.
This indicates that the City or potential home buyer may be required to invest
more in the property to return it to code than they could net from selling it. This
degradation of property quality means the City is less likely to recoup delinquent
taxes and it increases costs. As properties degrade in quality and diminish in
value, the Department of City Development has greater difficulty selling the
properties. As a result, property maintenance remains the City’s responsibility for
longer periods of time as inventory continues to grow.
34
Figure 16. Percentage of Average Estimated Residential Rehabilitation Cost
Relative to Median Assessed Value by Aldermanic District, 2012
102%
78%
68%
54%
58%
53%
51%
38%
37%
28% 24%
25%
1
2
3
4
5
6
7
8
9
24%
20%
16%
10
11
12
13
14
15
Source: Authors, using data from the Office of the City Assessor and the Department of City Development
Another trend in the data is the decline in the selling prices of acquired properties.
Because there was only one sale in 2008 for the selected property classes and
types, we use 2009 as the baseline. As illustrated in Figure 17, between 2009 and
2012 both the mean and the median selling prices of acquired properties declined
by more than 60 percent.
Figure 17. Median and Mean Selling Prices
of In Rem City of Milwaukee-Acquired Properties, 2009–2012
$25,000
$20,000
$15,000
$10,000
$5,000
$0
2009
2010
2011
Median
Mean
Source: Authors, using data from the Department of City Development
35
2012
Disposition of Properties
After the City acquires a residential property through in rem foreclosure, the
Department of Neighborhood Services assesses the property and makes a
determination about whether the property should be demolished, restored and
sold, or sold in its current condition (see Post-Foreclosure Process for further
details). Table 11 shows some of the common dispositions of residential
properties acquired through in rem tax foreclosure from January 2008 through the
end of December 2012. Please note that the status of approximately 30 percent of
the properties acquired in 2012 was unknown because many properties were
acquired later in the year and had not yet been assessed or their status had not yet
been recorded. Therefore, dispositions for these properties are not included in
Table 11. Despite this, available information suggests that more acquisitions are
entering the track to demolition and fewer properties are being sold relative to the
inventory being acquired. The City will restore some historic properties, but such
properties are a very small percentage of the overall acquisitions.
Table 11. Dispositions of In Rem
City of Milwaukee-Acquired Properties, 2008–2012
Year
2008
2009
2010
2011
2012
Average
Demolition
Track
2.30%
1.89%
6.05%
13.44%
13.41%
10.07%
Disposition
Restoration
Track
Sold
0.00%
40.23%
0.00%
54.09%
0.29%
47.26%
0.33%
37.05%
0.57%
8.70%
0.38%
28.71%
Vacated
Judgment
50.57%
30.82%
17.58%
11.80%
7.70%
15.26%
Source: Authors, using data from the Department of City Development
The last option that a property owner has to maintain title to their property is a
vote by the Milwaukee Common Council to vacate the circuit court’s in rem
judgment. Here, we observe a noticeable trend as well. In 2008, more than 50
percent of in rem judgments were vacated in this manner. By 2012, that number
had plummeted to just less than 8 percent — a decline of nearly 85 percent.
Figure 18 depicts this trend.
36
Figure 18. Vacated In Rem Judgments, 2008–2012
60%
50%
40%
30%
20%
10%
0%
2008
2009
2010
2011
2012
Source: Authors, using data from the Department of City Development
Owner Occupancy
Another variable of interest is the owner-occupancy rate of acquired properties.
As depicted in figure 19, less than 60 percent of the acquisitions of the selected
property types between 2008 and 2012 were owner-occupied. From 2009 to 2011,
the owner-occupancy rate trended sharply downward and then increased by more
than 30 percent between 2011 and 2012.
Figure 19. Percentage of Owner Occupancy
of City of Milwaukee-Acquired Properties, 2008–2012
75%
70%
65%
60%
55%
50%
45%
2009
2009
2010
Source: Authors, using data from the Department of City Development
37
2011
2012
Previous Mortgage Foreclosure
Consistent with previous reports, we found about 30 percent of city-acquired
properties of the selected property classes and types previously had a private
foreclosure filed against them. As shown in figure 20, this percentage steadily
increased from 2008 to 2012. In 2008, a private foreclosure had been filed against
just less than 20 percent of the selected city-acquired properties. By 2012, that
figure rose to more than 36 percent.
Figure 20. Percentage of City of Milwaukee-Acquired Properties
with Previous Private Foreclosure, 2008–2012
40%
35%
30%
25%
20%
15%
2008
2009
2010
2011
2012
Source: Authors, using data from the Department of City Development Property Complaints and Violations
Further analysis regarding property complaints and violations is needed. We
hypothesize that residential properties acquired through in rem tax foreclosure
have previous complaints and violations that may serve as a warning that a
property is at risk. However, we were unable to test this hypothesis and complete
a data analysis because the data was not available.
Characteristics of Taxes and Tax Collection Related to Property Acquired by
the City through In Rem Foreclosure
In this section we examine the characteristics of taxes related to in rem
acquisitions.
Tax Delinquency
Residential property owners whose properties the City acquires typically lose
their properties because their property taxes and special charges that are added
to the tax bill are in arrears for three years. Therefore, this report includes an
analysis of tax delinquency. Table 12 illustrates the relationship between
38
residential property owners who were delinquent in tax levy years 2008 and 2009
and how frequently such delinquencies concluded with the municipal acquisition
of the property. Aldermanic districts 1, 6, 7, and 15 experienced the highest rates
of both tax delinquency and in rem foreclosures resulting in the acquisition of
properties.
As discussed, residential property owners are both owner-occupants and investors
who rent the property to tenants. Table 13 shows the number of owner-occupied
and investor-owned properties that were delinquent in 2008 and 2009 and
acquired by the City through in rem foreclosure in 2011 and 2012, respectively. In
contrast to all residential class tax delinquencies for levy years 2008 and 2009
(see table 5), investors made up the majority of February property tax delinquent
owners for all residential properties that were acquired by the City in 2011 and
2012. Consistent with all residential class tax delinquencies in levy years 2008
and 2009, owner occupants were more likely to attempt to pay property taxes and
then become delinquent during the course of the 10-month installment plan.
The average amount of delinquent property taxes for those who were delinquent
in February and eventually lost their property through the City’s in rem tax
foreclosure process is consistent with the average across all delinquent residential
property owners for levy year 2008, but is more than 6 percent higher in levy year
2009 (see tables 5 and 12). Property owners who started paying property taxes in
installments before becoming delinquent owed more at the point of delinquency
than the average across all residential class tax delinquencies for levy years 2008
and 2009. For levy years 2008 and 2009, property owners who lost their
properties through in rem foreclosure in 2011 and 2012, respectively, owed 12
percent more than the average for all residential delinquencies. For levy year
2009, such property owners owed almost 5 percent more than the average. The
evidence suggests that property owners who ultimately lost their homes may have
become delinquent earlier in the 10-month installment plan than the average
property owner who managed to pay the delinquent property taxes and retain the
property.
39
Table 12. Residential Class Tax Delinquent Properties for Levy Years 2008 and 2009
Acquired by the City of Milwaukee through In Rem Tax Foreclosure in 2011 and 2012
Levy Year 2008
Aldermanic
District
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Total/Average
February
Tax
Delinquent
Properties
1,391
1,044
364
523
624
1,955
1,772
652
863
739
312
828
454
629
1,860
14,010
PostFebruary
Tax
Delinquent
Properties
391
298
198
141
224
441
468
190
259
274
137
276
150
245
444
4,136
Percentage
of Total
Tax
Delinquent
Properties
9.82%
7.40%
3.10%
3.66%
4.67%
13.20%
12.34%
4.64%
6.18%
5.58%
2.47%
6.08%
3.33%
4.82%
12.70%
100.00%
Residential
In Rem City
Acquisitions
2011*
25
10
3
8
2
81
48
8
4
9
2
10
1
3
89
303
Levy Year 2009
Percentage
of Tax
Delinquent
Properties
Acquired
by City
1.40%
0.75%
0.53%
1.20%
0.24%
3.38%
2.14%
0.95%
0.36%
0.89%
0.45%
0.91%
0.17%
0.34%
3.86%
1.67%
February
Tax
Delinquent
Properties
1,249
825
407
524
565
1,969
1,672
568
766
634
289
789
381
550
1,793
12,981
PostFebruary
Tax
Delinquent
Properties
***
361
249
165
117
179
387
398
193
238
223
142
219
160
208
414
3,653
Percentage of
Total Tax
Delinquent
Properties
9.68%
6.46%
3.44%
3.85%
4.47%
14.16%
12.44%
4.57%
6.04%
5.15%
2.59%
6.06%
3.25%
4.56%
13.27%
100.00%
*Of the 305 residential class properties the City acquired in 2011 through in rem foreclosure, 303 were delinquent in levy year 2008.
**Of the 701 residential class properties the City acquired in 2012 through in rem foreclosures, 693 were tax delinquent in levy year 2009.
*** The April 2010 report was incomplete, so these numbers do not reflect delinquencies that occurred in April 2010 that were no longer delinquent in May 2010.
Source: Authors, using data from the Office of the City Treasurer, Office of the City Assessor, and Department of City Development
40
Residential
In Rem City
Acquisitions
2012**
95
17
1
14
4
138
111
22
22
17
0
37
6
17
192
693
Percentage
of Tax
Delinquent
Properties
Acquired
by City
5.90%
1.58%
0.17%
2.18%
0.54%
5.86%
5.36%
2.89%
2.19%
1.98%
0.00%
3.67%
1.11%
2.24%
8.70%
4.17%
Table 13. A Comparison between Levy Years 2008 and 2009 Tax-Delinquent
Residential Property Owners Whose Properties the City of Milwaukee
Acquired through In Rem Tax Foreclosure in 2011 and 2012
Levy Year
Post-February
Delinquencies
February
Delinquencies
2008
2009
Average
Owner-Occupied
132
293
213
Investor-Owned
140
350
245
Total
272
643
458
$3,091
$3,235
$3,163
16
31
24
Investor-Owned
15
19
17
Total
Average Amount
Delinquent
31
50
41
$1,097
$1,013
$1,055
Average Amount
Delinquent
Owner-Occupied
Source: Authors, using data from the Office of the City Treasurer and the Department of City Development
Data reporting the amount of delinquent taxes at the time of in rem foreclosure
was not readily available. Therefore, we were unable to complete an analysis
comparing the change in delinquent taxes over the three-year tax collection period
for properties that were ultimately acquired by the City. Instead of conducting this
preferred analysis, we modeled changes in delinquent taxes over time, applying
the 1.5 percent interest and penalty charge and assuming the property owners
made no payments after they became delinquent. Additionally, we assume that the
interest and penalty charges accrued for 36 months, the length of the typical threeyear tax collection period. As shown in table 14, the average amount of
delinquent taxes in levy years 2008 and 2009 was approximately $3,000.
Therefore, under the aforementioned assumptions, delinquent property owners
whose properties were acquired by the City through in rem foreclosure would
have owed an average of $5,000 in property taxes and special charges from levy
year 2008. These calculations do not take into account delinquent taxes that were
likely incurred during subsequent years.
Table 14. Model of Average Change
in Delinquent Property Taxes
from the Point of Initial Delinquency
City of Milwaukee Acquisition
for Levy Years 2008 and 2009
Levy Year
2008
2009
0 months
$2,887
$3,087
12 months
24 months
$3,452
$4,127
$3,691
$4,413
36 months
$4,934
$5,276
Source: Authors, using data from the Office of the City Treasurer
41
Special Charges
Further analysis in the area of special charges is needed. For example, specifying
the proportion of the total tax bill that consists of special charges and the
associated trends over time could illustrate their overall impact on delinquencies.
Special charges, however, are added to the balance due on the tax bill once they
have become delinquent. As of the publication of this paper, data that separates
special charges from property taxes is unavailable.
42
Major Costs of the Foreclosure Process
The City does not have an interest in either long-term ownership of vacant or
abandoned properties or holding properties at the current volume. Once the City
becomes the owner of the title of the property, it is responsible for property
inspection and maintenance. To evaluate the structural integrity and safety of a
property, Department of Neighborhood Services conducts monthly inspections of
foreclosed properties owned by the City. Thus, the increase in tax foreclosures has
led to a greater demand for inspectors and increase in staff time devoted to
inspecting properties. The Department of City Development (DCD) devotes
resources and incurs costs for maintaining properties. Property maintenance
typically consists of boarding up properties, removing snow, and cutting grass.
Depending on the status of the property, the City may market the property to find
a buyer, demolish the property, or make a lease with a current tenant. Each of
these tasks involves costs to the City.
Sell: The City may market and try to sell a property. If the City sells a property to
a private buyer (an owner-occupant, investor or non-profit organization), it costs
the City to market, manage, and prepare properties for sale. Some City programs
will do limited exterior and interior renovation on a small number of tax
foreclosed properties. By some estimates, these renovation costs can amount to
180 percent of the assessed value of the property.
Demolition: Some City-acquired properties are deemed unfit for habitation and
unable to be cost-effectively rehabbed. In these cases, the Department of
Neighborhood Services is tasked with arranging the demolition work and on
average demolition costs range from $10,000 to $15,000. Neighborhood
Stabilization Program 1 and Neighborhood Stabilization Program 2 funds have
been used on a limited basis for this purpose but most costs are borne by the
City’s operating budget.
Rent Property to Current Tenant: If a foreclosed property is tenant-occupied, then
the City enters into a lease with the tenant(s) and acts as the landlord. To ensure
that these properties are healthy and safe for habitation, the DCD must provide
necessary repairs for the property. The City incurs labor and material costs in
performing this obligation.
Table 15 presents major costs to the City in acquiring tax-foreclosed homes.
43
Table 15. City Costs for Tax Foreclosed Homes
Tasks*
Inspection
Cost
About $40
per tax
foreclosed
home for each
inspection**
Property
Maintenance
$1.22 million in
2011
(about $1,300 per
tax foreclosed
home***)
Demolition
Marketing
About
$10,000$15,000 per tax
foreclosed
home
$60,000 in
2012
*Most homes are inspected and boarded. Usually homes are marketed or demolished.
**Cost estimated based on inspector pay and time required to inspect homes and conduct relevant
paperwork/data entry. Inspections are done monthly for each property in the City’s inventory.
*** This estimation uses vacant lots in the calculation of property maintenance.
Source: Authors, using data from City of Milwaukee Division of Budget and Management
The above-mentioned costs are attributed to the post-foreclosure phase. The tax
foreclosure process has additional costs prior to foreclosure. One cost to the City
is its contract with Kohn Law Firm. Figure 21 shows the increasing number of
cases and delinquent tax receipts assigned to Kohn between 2005 and 2012.
Figure 21. Collections and Gross Tax Delinquencies
Assigned to Kohn Law Firm
7000
6000
Collections assigned to Kohn
20
5000
15
4000
3000
10
2000
5
1000
0
Gross value of delinquencies assigned to Kohn
(milliosn of $)
25
Collections
assigned to Kohn
Gross value of
delinquencies
assigned to Kohn
(in millions of $)
0
2005 2006 2007 2008 2009 2010 2011 2012
Year
Source: Authors, using data from Kohn Law Firm
According to the its contract with Kohn Law Firm, the City compensates the firm
based on the value of individual claims, the amount collected pre-lawsuit, and the
amount collected post-lawsuit. In 2012, the City paid $2,059,796 to Kohn Law
Firm for collecting $10,132,059 in delinquent property taxes.
44
Another relevant cost is the lost tax base. From 2008 to 2012, the City of
Milwaukee lost about $5 billion in value (Assessment Commissioner 2012).
Because of this lost tax base, the City makes up for lost revenue with the use of
non-property tax sources, such as user fees, charges for service, and assessments
(Department of City Development and Department of Neighborhood Services
2011).
45
Regression Analysis: Factors of In Rem
Foreclosure
Because of its limited resources, the City of Milwaukee must target interventions
to the highest risk properties. To assist the City with targeting highest risk
properties, this regression will follow all properties that were delinquent on their
taxes from 2008 to 2009 to identify what factors are common to the properties
that ended up in tax foreclosure in 2011 or 2012. We use a multivariate logit
regression to estimate the probability of a property ending in tax foreclosure. Our
dependent variable returns a 0 if the property is not, as of 2012, in tax foreclosure
and a 1 if it is in tax foreclosure. The population for this regression is any
residential property that was delinquent on its taxes during levy years 2008 and
2009. This time frame means properties that continued to be delinquent on their
taxes were in tax foreclosure by 2011 or 2012. The authors compiled the dataset
used in this analysis from the Assessor’s Office, the Treasurer’s Office, and the
Department of City Development.
We were unable to find literature on early warning systems or regressions
analyzing tax foreclosure. Thus the regression model’s variables are based on
previous scholarly and city-level models simulating abandonment or vacancy
likelihood for other large cities such as Chicago, Washington DC, Minneapolis,
Los Angeles, and Philadelphia. Additionally, City of Milwaukee officials posited
some of the variables in the model as possible indicators of tax foreclosure
likelihood.
Only variables that can easily be monitored by the City were included in the
model. This allows the City to use the results to target properties for earlier
interventions. This data only involves properties, which means that individual
characteristics of property owners, such as job loss or illness, are not taken into
account. Two properties may appear identical in all of our independent variables
but may result in one going into foreclosure and one not going into foreclosure.
This model is intended not to predict what properties will go into foreclosure, but
rather to assess whether certain factors are associated with an increase in tax
foreclosure.
Independent Variables
Property Class: This variable differentiates between the two major property
classes in the dataset, residential (1) and condominiums (0). There is not much
literature on the differences in likelihood of tax foreclosure between these two
classes of properties. However, differences are likely to arise because a residential
property is assumed to be in less affluent areas of the city than condominiums.

Mortgage Foreclosure: This variable describes whether a banking
institution filed against a property. The data on mortgage foreclosures
dates back to 2008, but only foreclosures before 2011 are counted to help
46
with any endogeneity4 issues. Mortgage foreclosures are commonly used
as an indicator of a property in distress. Lori Mardock (1998) used
mortgage foreclosure as a variable in her early warning system for housing
abandonment in Minneapolis. She posited that mortgage foreclosure
would increase the likelihood of abandonment. However, Hillier et al.
(2003) found “no mortgage” as increasing the likelihood of abandonment.
These contradicting articles mean that we have no prediction of how this
variable will affect our regression.
4

Other Recent Tax Foreclosure: This variable will indicate whether the
property was in tax foreclosure between 2006 and 2010. Hillier et al., in
their 2003 article, found that having a property with a forced sale (e.g.,
some type of recent foreclosure) was statistically significantly more likely
to be abandoned. Because of the timing of the housing market crash, we
believe that many of the owners of these recent tax foreclosed properties
may have been trying to flip the house and got caught in a housing crash,
meaning they could not recoup their losses. The rapid change in the
economic climate may cause this variable to increase the likelihood of tax
foreclosure.

Owner-occupied: Another dichotomous variable is whether the property is
owner-occupied at the end of the tax foreclosure process. City staff
indicated that owner occupancy might be a variable that affects likelihood
of tax foreclosure. We posited that owners who also live in properties have
a stronger incentive to keep from being foreclosed upon. However, Hillier
et al. (2003) found that owners living on site created a statistically
significant increase in the likelihood of the property being abandoned.

Wisconsin Resident Owner: This variable will represent whether the
owner is a Wisconsin resident. State residents are generally easier to
collect on when taxes are delinquent then out-of-state owners, according
to City employees. For example, Kohn Law Firm is more likely to be able
to collect on owners who have other property within the state. Out-of-state
owners include two broad categories of owners who may not be very
invested in the Milwaukee properties. The first category is non-Wisconsin
owners who buy properties from banks in bundled deals. These deals are
the bank’s way to eliminate properties from their balance sheets they do
not want by selling them in conjunction with more desirable real estate in
other states. This may mean that the new owners of the mortgage
foreclosed properties did not want the property in the first place, making
them less likely, City staff posits, to pay their taxes. Other out-of-state
owners are in fact located out of county and presumed to be less invested
in the wellbeing of a Wisconsin neighborhood than owners who live in the
state. There will be co-variation with the “owner-occupied” variable,
Occurs when the independent variable is correlated with the error term in a regression model.
47
requiring for the regression that these two variables be combined into a
three category dummy variable. See table 16 for details.

Purchase Year: This variable will indicate the number of years since the
last purchase of this property, meaning the number of years since the
purchase and 2012 (e.g., if a property was purchased in 2008 this variable
would equal 4). Hillier et al. (2003) found a small but statistically
significant correlation between houses that were bought in earlier years
and likelihood of abandonment. A possible explanation of these findings is
that owners may be more likely to abandon their homes after they have
lived there longer. The Chicago Neighborhood Early Warning System also
uses real estate sales data in their abandonment model, but the results of
their model are murky at best (Snow et al. 2003). Alternatively, due to the
recession, our data may show more of a trend that those who bought their
properties closer to 2008 would be more likely to be in tax foreclosure.
2010 is listed for those properties that had no purchase date.

Value of House: This will be assessed in $1,000 increments. For example,
a house valued at $25,467 would be listed as 25, for ease of variable
interpretation. These values are for the year 2012. In the Philadelphia
Neighborhood Information System, assessed value is a variable of interest
for assessing abandonment according to their website; however its exact
implications are not explained (University of Pennsylvania 2013). We
decided to include this variable because owners will have less incentive to
keep a house that is not worth much at market value.

Aldermanic District: This was used as a proxy for the relative wealth and
other socioeconomic factors. We added this variable based on our initial
research showing significant differences among the aldermanic districts in
rate of tax foreclosure. This variable will be divided into 14 dummy
variables to account for each district individually.
These variables are summarized in table 16 along with the source information for
each variable.
48
Table 16. Variable Definition, Expected Marginal Effects
on Probability of Payment, and Source
Variable
Property Class
Mortgage
Foreclosure
Other Recent
Tax
Foreclosure
Non Owner
Occupied, Non
Wisconsin
Resident
Non Owner
Occupied,
Wisconsin
Resident
Year Property
Was Purchased
Value of
Property
Aldermanic
District
Definition
Dummy = 1 if Residential Non Condo
= 0 Condo
Dummy = 1 if the property has been filed
against since 2008
= 0 if no mortgage foreclosure
Dummy = 1 if the property has been in tax
foreclosure since 2006
= 0 if no tax foreclosure
Dummy = 1 if the property has a non-WI
resident owner
= 0 if the owner is a WI resident
Dummy = 1 if property has an owner who
does not live on the property but
is a Wisconsin resident
= 0 if the owner is both a non-WI
resident and not living on the
property
This is a series of dummy variables
representing different intervals of dates
(start date is 2010)
DummyOne = 0–5 Years since last
purchase
DummyTwo = 6–10
DummyThree = 11–20
DummyFour = 21–30
DummyFive = 31–65
65+ years since last purchase is included in
the constant of the regression
2010 assessment of property value (in
$1,000 units)
Dummy = 1 if property is located in
specific
district
= 0 if not located in specific
district
Source: Authors
49
Expected
Marginal Effect
on Probability of
Property Going
into Foreclosure
+
No Expectation
Source
Assessor
Data
DCD
Data
+
DCD
Data
+/-
Assessor
Data
No Expectation
Assessor
Data
-
Assessor
Data
-
Assessor
Data
Treasurer
Data
No Expectation
Regression Analysis
The following section is an analysis of the results from our logistical regression
found in table 17.
Table 17. Logistical Regression of Tax-Delinquent Residential Properties,
City of Milwaukee, 2008–2009
Variable
Natural Log Assessed Value
Mortgage
Other Tax Foreclose
Not Owner-Occupied, Not Wisconsin Resident
Not Owner-Occupied, Wisconsin Resident
Property Type
Alder District 2
Alder District 3
Alder District 4
Alder District 5
Alder District 6
Alder District 7
Alder District 8
Alder District 9
Alder District 10
Alder District 11
Alder District 12
Alder District 13
Alder District 14
Alder District 15
Dummy Five-Year Purchase
Dummy Four-Year Purchase
Dummy Three-Year Purchase
Dummy Two-Year Purchase
Dummy One-Year Purchase
Constant
Number of observations = 18975
LR chi2(25)= 1483.34, Probability > chi2 = 0, Pseudo R2 =
0.1662
Odds Ratio
0.59**
0.96
214.95**
3.24**
0.87
3.64**
0.15**
0.45*
1.29
0.15**
1.72**
1.36*
0.77
0.15**
0.65
0.28*
0.97
0.25**
0.44**
1.97**
0.96
1.08
1.04
0.89
0.95
0.14**
*Significant to a .05 level
** Significant to a .01 level
Source: Authors
The LR ratio chi2 statistic (1483.34) indicates that, overall, the model
demonstrates a statistically significant improvement (p < .001) in the predictive
ability with the inclusions of the independent variables. The Pseudo R2 statistic
indicates roughly a 17 percent improvement in likelihood score generated by the
fully specified model. These two statistics essentially demonstrate that the
independent variables are useful for prediction of the value of the dependent
variable. Because tax foreclosures are such an uncommon event, this model was
tested with a rare events logistical regression (relogit), but this was found to make
50
little difference in the coefficients as compared to a conventional logistical
regression. Finally, relevant variables were tested for co-linearity and no concerns
were found. Thirteen of the independent variables in the model were statistically
significant with an alpha = .05 (or a p-value less than .05).
The assessed value of the property is a statistically significant variable. Because it
was transformed using natural log, the odds ratio is actually a percent change in
the odds. So if there were a 1 percent increase in the assessed value of a property,
we would expect to see the odds ratio of tax foreclosure drop by .59 percent.
Another statistically significant variable was other recent foreclosures. This
variable is associated with a 214.95 increase in the odds ratio, indicating that a
property that has had a foreclosure between 2006 and 2010 has a 21,494 percent
increase in the odds of being in foreclosure in 2011 and 2012. However, this
result must be tempered by the fact that there were not many properties in this
dataset that had a recent tax foreclosure (n = 133), so the results may reflect small
sample bias. The model also shows that a property that is owned by someone who
is not from Wisconsin also has an over three-fold increase in its odds of being in
tax foreclosure (or 3.24). In contrast, being a Wisconsin owner who does not
occupy the property was not statistically different from a Wisconsin owner who
resides on the property (which was part of the constant). Because properties were
divided by property type (0 for condos and 1 for residential building), the
significant positive odds ratio for the property type variable means that residential
non-condos are more likely to be in tax foreclosure. The aldermanic districts were
divided up, with district 1 being included in the constant. The districts that were
statistically different from district 1 included districts 2, 3, 5, 6, 7, 9, 11, 13, 14,
and 15. Districts 6, 7, and 15 all had odds ratios above one, meaning properties
located in these districts were more likely to be in tax foreclosure than properties
in district 1. This also means that if properties were in districts 2, 3, 5, 9, 11, 13,
or 14, the odds ratio that the property would end up in tax foreclosure went down.
Possibilities for Improvements to the Early Warning System
There were three variables that we were unable to include in this model due to
data issues. Many of the early warning systems concerning property abandonment
we studied used number of neighborhood violations as an indicator of
abandonment likelihood. The Department of Neighborhood Services, which keeps
track of such neighborhood violations, has a database that can only be searched by
individual properties. This makes large-scale modeling more time-consuming.
Another variable of interest in the literature we analyzed was the number of tax
liens against the property. We were unable to locate enough data to find all the tax
liens against the properties in this study. Finally, we did not include a variable that
compared special charges as a percent of total house value as a variable. The City
posited that this may increase tax foreclosure. Any data about special charges
includes any charges to the total amount owed by a property, so there is no way to
separate out special charges and compare them among different properties. These
three variables could be added to future regression models to get a better picture
of the factors that correlate with tax foreclosures in the City of Milwaukee.
51
Policy Options
In this section, we will propose several options that should help reduce in rem
foreclosures and their associated costs.
Option 1: Early Warning System
The Early Warning System model is designed to help the City identify properties
that are at the highest risk of tax foreclosure. This knowledge should help the City
to target its resources toward the most needy properties. Staff could use the early
warning system to make decisions about allocating their scarce resources. The
system would require the hiring of an additional DCD staff member to monitor
the system and target outreach to individuals and families at risk of tax
foreclosure. The City could also conduct outreach such as publicizing the
availability of non-profit financial counseling.
The Early Warning System is based on the results of the regression analysis in the
previous section. The most significant variables found in the regression analysis
were other recent tax foreclosures, the assessed value of the property, property
type, and a property being in district 6, 7, or 15. City staff could use the initial list
of tax delinquencies released from the City Treasurer and compare it with DCD
data on previous tax foreclosures, type of property, and the aldermanic district
location of the delinquent properties. Once the properties with the highest risk of
reaching tax foreclosure are identified, City resources can target the lowest
assessed properties first, allowing the City to target the properties with the highest
probability of ending in tax foreclosure. This Early Warning System can work
with any City or non-profit resources, be it money or debt counseling. Putting this
system into place would require coordination between City offices and a staff
person to create the database, collect information on delinquent properties, and
disseminate final lists of properties to be targeted.
Option 2: Separation of Special Charges
As mentioned, once payment of special charges has become delinquent, the
balance due for those is combined with the balance due for property taxes.
Because of that, from that point forward they are considered to be property taxes.
Interest on this outstanding balance accumulates over time at a combined rate of
18 percent per year, increasing the total amount that a property owner must pay to
avoid tax foreclosure.
Under Wisconsin’s constitution, in rem tax foreclosure may only be pursued for
non-payment of property taxes. Further, when not combined with the outstanding
balance for property taxes, special charges are not considered to be property taxes
and therefore not subject to the state’s uniformity clause. Keeping special charges
separate from the property tax balance could decrease the total amount that
property owners would need to pay to keep their property. In addition, because
special charges would not be subject to the uniformity clause, the City would have
52
more options for working with property owners who are delinquent on such
charges. Two possible options are flexible payment arrangements or settlement
for less than the total balance due. However, any such policy would still be
subject to other state statutes, municipal ordinances, and constitutional guidelines,
such as the equal protection clause of the state constitution. While the City’s
options could have increased flexibility, the similar treatment of similarly situated
individuals would need to be ensured.
Option 3: Credit Card Installments
Currently, the City of Milwaukee offers several different options to property
owners for paying their property tax bills. One option is to pay by credit card.
Property owners who choose this option must pay the entire balance due in a
single payment; installment payments are not permitted. In addition, a 2.75
percent convenience fee is added to the charge to cover the City’s transaction
charges as a credit card merchant. One option for the City to consider is allowing
property tax payers to make installment payments by credit card. This option is
suggested under the premise that increasing the means for property tax payers to
pay their property tax bills may decrease delinquency. Under this policy, a
convenience charge would be added to each payment for the same reason that
they are included under current policy.
One potential consequence of such a policy, however, is that it could lead to
property tax payers accruing increased credit card debt, but this is also possible
under the current policy, which allows one lump-sum credit card payment.
Administrative costs of this policy should be low or negligible because those costs
associated with the accepting of installment payments by credit card should not
vary significantly from those associated with the accepting of other forms of
electronic payment, such as debit cards or electronic funds transfer, and because
the transaction costs would be passed on to the individual property tax payer.
Option 4: Hardship Loan Fund
In rem foreclosures are primarily concentrated in aldermanic districts with
residential properties of low property value. Circumstantial evidence suggests tax
delinquency for some property owners is not an issue of unwillingness to pay but
rather an inability to pay. Helping homeowners with their property taxes could
allow the City to prevent municipal acquisition via in rem foreclosure.
Furthermore, assistance would keep residents in their homes, thereby avoiding an
increase in the City’s in rem inventory while also maintaining the integrity of the
community.
There are established programs that assist property owners in paying taxes. State
governments in regions of the country hit especially hard by the foreclosure crisis
have implemented short-term loans directed toward property tax assistance. The
Michigan State Housing Development Authority (through the Michigan
Homeowner Assistance Nonprofit Housing Corporation) created a program called
Step Forward Michigan that allows homeowners to apply for property tax
53
assistance through the Loan Rescue Program (Michigan Homeowner Assistance
Nonprofit Housing Corporation 2011). Applicants are allowed to apply for tax
loans up to $30,000. In this specific program, homeowners who are approved are
given a loan with a 0 percent interest rate and not required to make monthly
payments; the loan is forgiven at 20 percent each year the property remains as the
grantee’s residence. The state of New Hampshire also has a property tax
assistance program for low-to-moderate income residents who must satisfy
income eligibility requirements to receive funds for property tax relief (New
Hampshire Department of Revenue Administration 2013).
In Wisconsin, local governments have also implemented property tax assistance
programs designed to keep people in their homes. These programs contain certain
eligibility criteria including income and age requirements designed to minimize
administrative and program costs for these local units of government. The City of
Madison employs the Modified Reverse Mortgage Program, which provides
reverse mortgages to resident homeowners age 62 or older who are delinquent on
their property taxes. The City of Madison lends to participants at an interest rate
of its borrowing rate plus 1 percent and then places a lien on the property. It
collects the loan balance whenever the property is sold or the title is transferred
(City of Madison 2013). The Wisconsin Housing and Economic Development
Authority (2012) operates a state-run property tax deferral program directed
toward seniors that allows for a property tax loan. Payment of the loan is deferred
until the recipient either moves or the title of the property is transferred.
Property tax assistance initiatives are an innovative policy for addressing the rise
in in rem foreclosures. Keeping people in their homes and avoiding the costs of
low-value property acquisition are in the City’s long-term fiscal interest. To apply
a property tax assistance program to Milwaukee, the City must take steps to
ensure that there is adequate funding for the program as well as sound eligibility
criteria. We analyzed what a program like this could look like in Milwaukee.
Additionally, we predicted what a funding mechanism would look like and what
types of eligibility requirements should be included.
The Hardship Tax Loan Fund would provide loans to low-to-moderate income
Milwaukee residents who have become tax delinquent due to personal hardship
such as unemployment. Applicants would be required to meet stringent eligibility
criteria to limit risks to the lender, ensure loans are going to Milwaukee residents,
and discourage the moral hazard of recipients declining to pay property taxes.
Eligibility Requirements





Annual income of less than $20,000
Residency requirement
Residence is a single family dwelling
Must have lived in home for a minimum of five years
No prior tax delinquencies
54

Outstanding debt and/or liens on the home cannot exceed 33 percent of
its property value
Through discussions with City staff, we determined that the City should not
directly finance this program. Instead, an outside party should administer the fund
to maintain independence and ensure that the City is not directly influencing
residents’ tax delinquencies (Szopinski, personal communication, April 19, 2013).
An outside party would be able to lend directly to homeowners to ensure that
people remain in their homes. Possible candidates include foundations with
involvement in the Milwaukee area such as the Greater Milwaukee Foundation.
Other candidates include organizations from the private sector as well as housing
non-profits. A successful program should leverage financing from these
independent groups to help establish a funding mechanism. As a guide, Madison’s
Reverse Mortgage Program has been a successful policy tool. A similar program
in Milwaukee could yield positive results.
55
Suggestions for Future Consideration
This analysis provides a basic framework for understanding the relationship
between common characteristics of properties and of taxes and tax collection in
conjunction with in rem tax foreclosure. A comprehensive analysis would involve
violations and complaints with the Department of Neighborhood Services as well
as more detail related to the special charges that are added to the property tax bill
and changes in the balance owed over the three-year tax collection enforcement
period. We recommend that further analysis be completed to examine the
predictive value of property violations and complaints and the extent to which
special charges contribute to the property tax balance of property owners who lose
their properties through in rem tax foreclosure. Additionally, a more in-depth
analysis of the change in the outstanding property tax balance over the course of
the three-year period would provide insight into the extent to which property
owners may be struggling to retain their properties. Further, the analysis
completed in this report includes two complete three-year tax collection
enforcement cycles, beginning with levy years 2008 and 2009. To understand
trends in tax delinquency and in rem tax foreclosure over time, this analysis
should be extended to include findings from subsequent levy years.
To conduct a comprehensive analysis that examines trends across tax collection
enforcement cycles, we recommend that data maintenance within and across City
departments be improved. This recommendation is consistent with that of a 2011
La Follette School of Public Affairs report, “The City of Milwaukee: The
Collection of Municipal Fees” (Berger et al.). Currently, the data maintenance
system presents challenges to conducting in-depth analysis of problems that the
City encounters, particularly those that involve multiple departments. For
example, the Office of the City Treasurer collects data sufficient to accomplish
many of the department’s goals. However, special charges that are transferred to
the property tax bill become difficult to track and monitor over time, making
detailed analysis unfeasible. With limited time and resources, City staff should
have access to data to analyze to improve efficiency.
In addition to enhancing efficiency, the improvement of data maintenance would
allow the City to expand its use of Milwaukee-specific evidence to make policy
decisions. For example, the policy recommendations concerning property taxes
and the handling of special charges in this report are difficult to quantify,
primarily because we could not discern the proportion of the property tax bill that
comprises special charges. While we consider the costs of the report
recommendations to be minimal and likely to be offset by the prevention of in
rem tax foreclosure, we were ultimately unable to quantify the impact. A
comprehensive, integrated data management system would provide information to
expedite evaluation of policy options to address time-sensitive problems that the
City encounters. Further, such a system could be used to identify changes in
trends that may highlight areas of concern. For example, even though the tax
delinquency rates have remained fairly steady since 2002, the observed trend
suggests that property owners were taking longer to pay their outstanding
56
property taxes. Identification of this trend may have alerted City staff more
quickly, allowing them additional time to implement evidence-based prevention
strategies. Improved data maintenance is particularly vital when multiple
departments may be involved. A timely examination of data across departments
may signal a warning even when an internal report may appear normal.
57
Conclusion
The rapid increase in Milwaukee’s in rem housing pool has intensified fiscal and
administrative burdens for City policymakers. In this report, we identified and
described the various elements of the municipal procedures used to respond to
property tax delinquencies as well as factors contributing to in rem foreclosures.
Our analysis also found certain variables linked to an increased likelihood of in
rem foreclosure for tax delinquent properties. Finally, we prescribed policy
options for the City to limit the number of properties entering the in rem
foreclosure process. Ultimately, we hope this report will help policymakers to
improve municipal governance and, more importantly, increase the efficiency of
City programming for the benefit of Milwaukee’s taxpayers.
58
Appendix A: Sample Delinquency Notifications
Shown below are sample delinquency notifications. The first four letters are sent
in February, April, June, and August of the delinquent tax year from the Office of
the City Treasurer. The last two letters below, sent in November of the first year
of tax collection and March of the second year, are from the Office of the City
Attorney.
59
60
61
62
63
64
Appendix B: In Rem Foreclosure Flowchart
Property owner becomes delinquent on taxes
City Treasurer sends a series of
4 letters to delinquent owners
City Attorney sends 2 final letters to delinquent owners warning
of collection by Kohn Law Firm
Collections are turned over to
Kohn Law Firm
Kohn works with
delinquent owners to
collect back taxes,
arrange installment
plans, or pursue in
personam judgments
Kohn returns lists of
delinquencies found
to be uncollectible,
bankrupt, or
ineligible for in
personam judgment
City Treasurer prepares a list of
tax accounts for in rem
foreclosure
City Attorney initiates suit
against delinquent properties in
Milwaukee County Circuit Court
8 week redemption period, followed
by 30 day answer period
In rem foreclosure judgment
90 day period to
petition the
Common Council
to vacate judgment
City takes ownership of
the property
65
Appendix C: Wisconsin Constitution Uniformity
Clause
Wisconsin Constitution Article 8, Section 1: Uniformity Clause
The rule of taxation shall be uniform but the legislature may empower
cities, villages or towns to collect and return taxes on real estate located therein by
optional methods. Taxes shall be levied upon such property with such
classifications as to forests and minerals including or separate or severed from the
land, as the legislature shall prescribe. Taxation of agricultural land and
undeveloped land, both as defined by law, need not be uniform with the taxation
of each other nor with the taxation of other real property. Taxation of merchants’
stock-in-trade, manufacturers’ materials and finished products, and livestock need
not be uniform with the taxation of real property and other personal property, but
the taxation of all such merchants’ stock-in-trade, manufacturers’ materials and
finished products and livestock shall be uniform, except that the legislature may
provide that the value thereof shall be determined on an average basis. Taxes may
also be imposed on incomes, privileges and occupations, which taxes may be
graduated and progressive, and reasonable exemptions may be provided.
66
Appendix D: Wisconsin Statutes Covering Property
Tax Delinquency
Wisconsin Statute 74.53: Personal liability for delinquent taxes and other
costs
(1) Recovery of taxes and costs against persons. Except as provided in subs. (3)
and (5), a county or a municipality may bring a civil action against a person to
recover any of the following amounts that are included in the tax roll for
collection and any of the amounts under pars. (b) and (c) that are not included in
the tax roll for collection:
(a) Delinquent real property taxes, special charges, special assessments
and special taxes, not including amounts under pars. (b) and (c), that were
delinquent during the period that the person owned the property.
(b) The cost of razing and removing property and restoring the site to a
dust-free and erosion-free condition incurred under s. 66.0413 (1) (br) 2., (f), (g)
or (i), (2) (d) or (4) or of filling an excavation incurred under s. 66.0427 if the
person owned the property when the property was razed and removed and the site
restored or the excavation was filled, or if the person owned the property while
the order to raze the property was recorded in the register of deeds office.
(c) The cost of abating a public nuisance under s. 254.595 or 823.04 if the
person owned the property when the public nuisance was abated.
(2) Co-owner liability. Co-owners of property are jointly and severally liable for
the payment of real property taxes, assessments or costs collectible under sub. (1).
(3) Limitation. A county or a city authorized to act under s. 74.87 may not
proceed against any person under sub. (1) for amounts under sub. (1) (a) unless
the property against which the amounts are levied in the tax roll is included in a
tax certificate issued under s. 74.57.
(4) Recovery limited. A county or a municipality that proceeds against a property
owner under this section may not recover more than the amount owed plus
interest and penalties.
(5) Prior approval; notice. No action may be commenced under sub. (1) for the
amounts under sub. (1) (a) unless it is approved by the county board or the
governing body of the municipality. The clerk shall mail, to the last-known
address of the person against whom an action is proposed to be commenced,
advance written notice of the time and place the county board will meet to
consider approval of legal action. A county board or the governing body of the
municipality may abrogate its duty to approve and notice each action to be
commenced under sub. (1) by adopting an ordinance waiving the duty and
specifying procedures by which an action under sub. (1) may be commenced.
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(6) Action by taxing jurisdiction. A taxing jurisdiction may bring a civil action
under this section against a person to recover special assessments as defined in s.
75.36 (1) and special charges levied by it for which the county or municipality did
not settle in full or which were not fully paid by proceeds distributed under s.
75.05 or 75.36. Any amount recovered in an action under this subsection shall be
reported to the county or city treasurer, who shall subtract it from the amount
owed for purposes of sub. (4).
(7) Appointment of receiver. A court may appoint a receiver to take charge of
property included in a tax certificate under s. 74.57 if a county or a city authorized
to act under s. 74.87 proceeds against the owner of the property under this section.
The receiver shall manage the property, collect rents and apply income to the
payment of delinquent real property taxes.
Wisconsin Statute 75.521(3m): Extending time for foreclosing tax liens
(a) In this subsection:
1. "Dwelling" means any building that contains one or 2 dwelling units and any
land included with that building in the same entry on the tax roll.
2. "Dwelling unit" means a structure or that part of a structure used as a home,
residence or sleeping place by one person or by 2 or more persons maintaining a
common household, to the exclusion of all others.
(b) The common council of any city authorized to proceed under s. 74.87 may by
ordinance direct its treasurer to defer the foreclosure of tax liens on dwellings.
The ordinance shall designate the period of time that the foreclosure of tax liens
shall be deferred after the one-year period provided under sub. (3) (a) 1. and 2.
The deferral period may not exceed 2 years. The deferral shall apply to those
delinquent taxes and assessments incurred while the dwelling was owned and
occupied by the person who owns and occupies the building at the beginning of
the deferral period. If the owner ceases to occupy the dwelling during the deferral
period, the city treasurer shall foreclose the tax lien on the dwelling as soon as
practicable. A city adopting an ordinance under this subsection may require the
dwelling owner to submit proof that the owner is eligible for a deferral under this
subsection.
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Appendix E: Milwaukee Ordinances Covering
Property Tax Delinquency
Milwaukee Ordinance 304-38: City penalty on delinquent taxes
In accordance with s. 74.47(2)(a), Wis. Stats., the common council imposes a
penalty of 0.5% per month, or fraction of a month, on any delinquent general
property taxes, special assessments, special charges and special taxes included in
the tax roll. This penalty is in addition to the interest under s. 74.47(1) Wis. Stats.,
and also in addition to any penalty that Milwaukee county imposes under s.
74.47(2)(a), Wis. Stats. In accordance with s. 74.47(2)(b), Wis. Stats., this section
shall be effective February 1, 2004, and the penalty hereunder shall then and
thereafter apply to any general property taxes, special assessments, special
charges and special taxes that are delinquent on or after February 1, 2004.
Milwaukee Ordinance 304-39: Deferred foreclosure on tax liens
1. The city treasurer shall, under s. 75.521, Wis. Stats., defer the foreclosure on
tax liens for one and 2-family owner-occupied dwellings for a period of 2 years
from the date the tax lien is originally filed, provided sufficient evidence is
presented to the city treasurer to justify the deferral.
2. Each applicant for a deferred foreclosure shall submit an application form
supplied by the city treasurer before a determination on the deferral shall be made.
3. If the owner ceases to occupy the dwelling during the deferral period, the city
treasurer shall foreclose the tax lien on the dwelling immediately.
Milwaukee Ordinance 304-48: In personam actions for delinquent real estate
taxes and other charges
In accordance with s. 74.53(5), Wis. Stats., the common council waives the duty
to specifically approve each in personam action that the city may bring under s.
74.53, Wis. Stats., and waives its duty to send notice to each person against whom
such actions may be commenced.
1. PURPOSE. As authorized under s. 74.53, Wis. Stats., this section allows the
city to bring in personam actions (actions against the person, not the property) for
delinquent real estate taxes, special charges, special assessments and special
taxes.
2. DECISION TO BRING ACTION. The city attorney shall review the city
treasurer’s records regarding delinquencies and determine in his or her discretion
whether to commence an in personam action against the parcel owner.
3. LETTER OF NOTICE. The city attorney shall report to the treasurer those
parcels where the city attorney in his or her discretion deems that an in personam
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action is advisable. The city attorney (or his or her collection agent) shall send
written notice to the owner or owners of parcels selected as defendants that a
decision has been made to commence an in personam action against him or her.
The notice shall indicate that if full payment of the amounts recoverable under s.
74.53, Wis. Stats., including interest and penalties is received within 4 weeks
from the date of the notice, the action will not be commenced. The notice shall be
mailed to the owner at his or her last known address. An affidavit of the city
attorney (or his or her collection agent) setting forth the names of the owners for
whom an address has been ascertained, giving the addresses and stating that
notice was mailed, giving the date of mailing, and stating that no present address
was ascertainable for the Finance 304-50other owners, shall constitute full
compliance with this subsection.
4. COMMENCEMENT OF ACTION. If the owner fails to make full and timely
payment as requested in the notice, the city may commence the in personam
action.
5. RECEIVER. Upon commencement of any in personam action, the city may
request that a receiver be appointed in accordance with s. 74.53(7), Wis. Stats.
Milwaukee Ordinance 304-49: Disposal of city real estate
1. DEFINITIONS. In this section:
a. A Commissioner means the commissioner of the department of city
development.
b. A Development property means any city-owned parcel that is not neighborhood
property.
c. A Neighborhood property means any city-owned parcel that is any one of the
following:
c-1. An improved residential lot containing 4 housing units or less.
c-2. A vacant residential lot suitable for one or 2 housing units.
c-3. A vacant lot which is not suitable or amenable of improvement because of the
size, shape, dimensions, surface or subsurface conditions or other conditions of
the lot.
d. A Report means a neighborhood property disposition report sent to the
common council from the commissioner describing all neighborhood property
that, in the commissioner’s determination, is not being used by the city and is
recommended for sale or disposition.
2. NEIGHBORHOOD PROPERTY REPORT. a. The commissioner shall, from
time to time, tender to the common council by letter, a report listing, by
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aldermanic district, each parcel in the city's inventory of neighborhood property.
For each parcel, the following information shall be provided:
a-1. Address.
a-2. Tax key number or numbers, if available.
a-3. Property description, including whether or not the property is improved and,
if improved, a brief description of such improvements.
a-4. Parcel size.
a-5. If the parcel is improved, the classification of the property pursuant to par. b.
a-6. If the property is either a vacant lot or an improved property classified as a
habitable property pursuant to par. b, the proposed method of disposition of the
property.
b. In consultation with the local common council member, the commissioner shall
classify each improved neighborhood property in one of the following categories:
b-1. Habitable Property. This property is habitable in its current condition or can
be rendered habitable with reasonable effort and funds proportionate to the
assessed value of the property. The property shall be marketed to private
purchasers for owner-occupancy unless otherwise directed by the common
council member in whose district the property is located. If rehabilitation or
restoration is required, the property shall not be sold until the commissioner of
neighborhood services has approved a rehabilitation or restoration plan for the
property and the commissioner of city development has determined that the
prospective purchaser has the skills and financial resources to successfully carry
out the plan.
b-2. Uninhabitable Property. This property is not habitable in its current condition
and cannot be rendered habitable with reasonable effort and funds proportionate
to the assessed value of the property. The property shall be designated for
demolition or deconstruction and shall not be subject to further disposition action
under this section.
b-3. Special Consideration Property. This property is not habitable in its current
condition and is unlikely to be restored or rehabilitated by a private purchaser
because the scope of work exceeds the amount of work that a private purchaser
would reasonably be able to complete. However, the property is worthy of
restoration or rehabilitation based on such factors as neighborhood context,
architectural characteristics or quality, historic status of the structure or the
neighborhood in which it is located, or other relevant factors. Each property in
this category shall be further categorized as one of the following:
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b-3-a. Restoration Property. This property is suitable and recommended for
immediate restoration or rehabilitation by the city, the housing authority, the
redevelopment authority or another public entity. The commissioner shall submit
to the common council, concerning any property classified as public restoration
property, a recommendation as to the source of funds and identity of the public
entity that might restore or rehabilitate the property. Classification under this
category does not itself impose any duty on any public entity to restore or
rehabilitate the property.
b-3-b. Mothballing Property. This property is not suitable for immediate
restoration or rehabilitation, but shall be designated for mothballing or
landbanking by the city and maintained in accordance with s. 304-59.
Mothballing shall include boarding of windows with Lexan, securing the structure
and emergency repairs required to prevent further deterioration of the structure,
including but not limited to roof repairs, basic landscaping and exterior site cleanup. A property in this category shall not be subject to further disposition action
under this section, but shall be re-evaluated annually to assess any change in
circumstances which may warrant a change in its classification.
3. COMMON COUNCIL DIRECTION AFTER REPORTS. Any member of the
common council may, within 15 calendar days after receipt of a report, direct the
commissioner to withhold from disposition any parcel listed on the report that is
located in his or her aldermanic district. The council member may also direct the
commissioner to remove the restriction to market the property only to private
purchasers for owner-occupancy. Such directives shall be in writing and timely
delivered to the commissioner. In the event of timely designation, the
commissioner may only sell or dispose of the designated parcel after common
council approval.
4. CITY SALES OF NEIGHBORHOOD PROPERTY. a. The department of city
development, under direction of the commissioner, shall, pursuant to this
subsection, have authority to advertise and market for conveyance, and to convey,
by lease, deed, or other appropriate form of conveyance, all neighborhood
property in the report except:
a-1. An improved parcel of neighborhood property which is classified as an
uninhabitable property or a special consideration property pursuant to sub. 2-b.
a-2. Any parcel of neighborhood property designated by a member of the
common council pursuant to sub. 3, and for which the common council fails to
approve the sale of such parcel of neighborhood property.
b. If the department chooses to solicit bids for a neighborhood property, the
department shall, at the direction of the common council member in whose
district the property is located, prepare a notice which may be mailed by the
common council member to each resident and property owner of the circular area
having a radius of 500 feet, centered on the property which is to be sold,
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informing residents and property owners that the city is soliciting offers to
purchase the property. The bid solicitation notice shall state that if the resident or
property owner is interested in purchasing the property, the resident or property
owner should submit an offer to purchase by 10:00 a.m. on the 30th day after the
date of notice. If the 30th day falls on a weekend or holiday, the deadline for
submitting an offer shall be the next business day. A bid submitted by a resident
or property owner within the 500-foot radius who intends to occupy as an owner
shall be given first consideration with respect to the purchase of a property. Any
person submitting a bid for an improved parcel of neighborhood property that is
classified as habitable property shall be able to demonstrate that the person will
satisfy the owner occupancy requirement, unless this requirement has been
removed through direction of the council member, and also that the person will
submit a restoration plan and demonstrate skills and financial resources to carry
out the plan
c. All conveyances shall be for adequate market consideration, as determined by
the commissioner or commissioner's designee, which consideration may
recognize and value monetary as well as non-monetary consideration, including,
but not limited to, public policy considerations of property and neighborhood
stabilization, health, safety and welfare concerns, future improvements to or
development or remediation of the parcel, returning the parcel to the tax rolls, and
promoting home ownership. The commissioner may impose restrictions and
remedies in connection with any such conveyance in order to effectuate the
transaction, including, but not limited to, deed restrictions requiring home
ownership or ownership by property-tax-paying owners, deadlines for
commencement and completion of improvements, requiring the combination of
the parcel with another or other parcels, requiring the correction of building code
violations and satisfaction of orders of the health department and department of
neighborhood services, requiring the satisfactory completion of a property
rehabilitation or restoration plan required by sub. 2-b-1 and reversionary or other
city-protective provisions in the event of breach or default.
5. CITY SALES OF DEVELOPMENT PROPERTY. a. The commissioner may
only sell, convey or lease, for a term greater than one year, city-owned
development property after and pursuant to council approval.
b. Notwithstanding the foregoing, the commissioner may, without common
council approval, lease development property for a term not to exceed one year,
provided the commissioner has provided the member of the common council in
whose district the development property is located, notice of such proposed lease
and a summary of the terms thereof; and either the commissioner receives no
objection to the proposed lease from the common council member at any time
during the period 15 days following delivery of such notice, or the commissioner
timely receives an objection to the proposed lease from the common council
member in whose district the development property is located, but such objection
is overruled by a vote of the common council approving such proposed lease.
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6. GARDEN PERMIT LEASES. Annual leases, for no more than the growing
season, of neighborhood property, may be issued to individuals by the department
of neighborhood services in order to permit such individuals to plant and cultivate
a garden thereon.
7. ALL SALES. The city of Milwaukee adopts ss. 62.22(1) and 62.23(17) Wis.
Stats., pursuant to the council’s authority under s. 62.03(2) Wis. Stats. Pursuant to
those provisions, and to s. 62.11(5), Wis. Stats., and s. 4-10 of the city charter,
sales and conveyances authorized hereby may be to designated persons or entities
for adequate fair market consideration which consideration may recognize
monetary as well as non-monetary consideration, including, by not limited to,
those public policy and other considerations referred to in sub. 4.
8. GENERAL BUYER POLICIES. Notwithstanding the foregoing, unless
otherwise authorized by a vote of the common council, the city shall not convey
development property or neighborhood property to any person or entity (A
grantee) unless the commissioner determines that the grantee has the skills and
financial resources needed to successfully carry out the property rehabilitation or
restoration plan required by sub. 2-b-1, if applicable, and without first obtaining
such grantee's warranty that neither the grantee nor any principal of the grantee is:
a. Delinquent in the payment of any property tax, special assessment, special
charge or special tax to the city.
b. A party against whom the city has an outstanding judgment.
c. A party against whom the city has outstanding health or building code
violations or orders from the city’s health department or department of
neighborhood services that are not actively being abated.
d. A party who has been convicted of violating an order of the health department
or department of neighborhood services within the past year.
e. A party who owned property in the city that, at any time within the past 5 years
the city acquired by means of property-tax foreclosure.
f. A party who has been convicted of a felony determined by the commissioner to
reasonably cause neighborhood or community concern with respect to
neighborhood stability, health, safety or welfare. In making this determination, the
commissioner may consider factors such as the nature of the crime, the date of
conviction and the existence and nature of community impact and complaints.
9. DEED SIGNATURES. The commissioner or designee is authorized to sign
deeds and instruments of conveyance and related documents such as, without
limitation, a release of deed restriction on behalf of the city with respect to
conveyances authorized hereunder.
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10. RECORDING OF DEEDS. All deeds for conveyances authorized hereunder
shall be recorded by the department of city development with the Milwaukee
county register of deeds office within 7 business days of closing, and the grantee
shall pay the cost of recording. Alternatively, a title insurance company, a lender
or the grantor’s or grantee’s attorney may record the deed so long as such party
agrees to meet the time period for recording required hereunder.
11. SALE PROCEEDS. The net proceeds from the sale of city-owned real estate
acquired through property-tax foreclosure, other than rental proceeds, shall be
credited to the reserve for tax deficit fund.
12. NO TAX EXEMPTION. All deeds of conveyance for development property
shall contain a permanent restriction prohibiting the grantee and all subsequent
owners from applying for an exemption from real estate taxation for such
development property pursuant to s. 70.11, Wis. Stats., unless otherwise approved
by a two-thirds vote of the common council.
13. PROPERTY NOT AFFECTED. This section does not affect or apply to:
a. Property owned or utilized, at any time, by the Milwaukee board of school
directors.
b. Property owned or controlled by the board of harbor commissioners.
c. Leases of neighborhood property pursuant to sub. 6.
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