Ohio bill would force payment of delinquent taxes before property is transferred

The bill also would generally prohibit tax-delinquent property owners from buying tax-foreclosed properties.

“Should Senate Bill 186 pass, it will have a tremendous effect in bringing more integrity and accountability to a certain class of real estate transactions,” said Montgomery County Treasurer John McManus during testimony before the Ohio Senate Ways and Means Committee last week.

Montgomery County saw about 1,598 delinquent property transfers last year, and about two-thirds of the properties were in the city of Dayton, according to data from the Montgomery County Auditor’s office.

The delinquent parcels that were transferred owed nearly $9.4 million in delinquent taxes.

The Dayton Daily News was unable to identify any organized opposition to the proposed legislation.

Mike Frye, president of the Greater Dayton Real Estate Investors Association, said the proposed bill probably won’t affect serious real estate investors very much.

“Greater Dayton REIA teaches responsible, ethical investing and educates to be prepared for the unexpected and avoid tax delinquency situations,” he said. “Greater Dayton REIA will continue to monitor S.B. 186 and it will be a topic of our legislative committee meeting next month.”

The proposal

Ohio Senate Bill 186 would prohibit properties from being transferred or subdivided unless all property taxes are paid up front, said Ohio Sen. Louis Blessing III, a Republican representing portions of Hamilton County.

Also, under the bill, buyers at public auctions would be required to sign an affidavit that essentially declares they have no delinquent tax issues throughout the state, said Blessing, who is primary sponsor of S.B. 186, along with Sen. Catherine Ingram (D-Cincinnati).

If buyers have delinquent taxes, they would have to state in an affidavit that those issues are in the process of being resolved or they were the result of local government errors or they had other legitimate reasons for delinquency that can be backed up with supporting documents, Blessing said.

Making false statements in the affidavits would be a first-degree-misdemeanor criminal offense of falsification and there could be civil liability.

S.B. 186 is badly needed legislation that would give county treasurers new tools to fight tax delinquency and blight, said Cuyahoga County Treasurer Brad Cromes, who is 1st vice president of the executive committee of the County Treasurers Association of Ohio.

The bill would help treasurers collect delinquent taxes while closing loopholes that far too often are exploited by real estate speculators and investors to avoid taxation, Cromes said.

Treasurers say abandoned and blighted properties depress property values, discourage investment and attract criminal activities.

Passing S.B. 186 into law would be a “fundamental shift” toward accountability in real estate in Ohio, said Montgomery County Treasurer McManus.

“As we speak, there are untold amounts of money being made by individuals who exorbitantly enrich themselves through the sale and transfer of tax-delinquent properties,” he said. “This conduct is a profound disrespect to the millions of law-abiding Ohioans who dutifully pay their property taxes, especially those who struggle to do so while trying to make ends meet in a difficult economy.”

Montgomery County saw 24,115 property transfers last year, and nearly 7% were delinquent transfers, according to auditor data.

Total tax delinquency in the county was about $227 million last year.

McManus said his office has significantly reduced the tax-delinquent parcel count in the last several years, but delinquencies remain a major concern and problem.

Clark County Treasurer Pamela Littlejohn said the bill would protect people who may lack knowledge or experience in the home-buying process and may not think to complete a title search of a property.

“The way the process is done now, too many people are victimized,” she said.

Littlejohn’s office recently heard from a woman who had a property with delinquent taxes who was approached by a buyer who offered to help with the delinquency.

The woman completed a quit claim transfer to the buyer, believing she would be able to buy her property back on a land contract. The buyer then sold the property — without paying the back taxes — to another person, forcing the woman out of her home.

“With the housing crisis, and the delinquencies within the inner city (of Springfield), what we have seen recently is that we have a lot of predators,” Littlejohn said. “We’re seeing an influx of people taking advantage of others and quickly turning those properties.”

Greene County Treasurer Kraig Hagler said tax delinquencies are not a major problem in Greene County, considering less than 2% of parcels owe back taxes.

But Hagler said he understands that some counties have high delinquency rates and he supports legislation to help treasurers in those communities.

Hagler says he has no issue with requiring delinquent taxes to be paid before transfer, but he does not support a provision to require current year taxes to be estimated and paid.

“Stick with just the delinquent taxes and leave any taxes that have not been calculated or levied against the property out of the calculation,” he said.

In Miami and Butler counties, the treasurers’ offices do not commonly see properties transferring with unaddressed tax delinquencies. But officials from both offices believe that the bill would help prevent tax delinquency and protect communities.

Butler County Treasurer Michael McNamara said that during his career, he’s seen “bad actors” evading real estate taxes to increase the profits they receive from their properties.

“Is ‘bad-actor delinquency’ widespread in Butler County? No,” he said. “Is this practice devastating to neighborhoods where bad actors thrive? Absolutely. Senate Bill 186 sends a message that Ohio will not be a permissive environment for tax scofflaws who feel that they are exempt from the law and provides a tool for collection of delinquent taxes while also preventing tax delinquent property owners from purchasing more real estate.”

“The fact that it can happen allows for transactions and profits made on sales to go forward without fixing the issue and kicking the delinquency down the road,” Miami County Treasurer Jim Stubbs said. “Our experience has been that back taxes usually reflect a property in decline and therefore, current or future blight, let alone someone being able to skip out on the shared costs of running a community while their neighbors are supporting those things.”

County Treasurers Association of Ohio Executive Director Kevin Futryk said this bill is the association’s top priority for this year.

Futryk said this should not be controversial legislation because it’s aimed at addressing the growing problem of tax-delinquent properties remaining that way because they are being purchased by parties that already have properties saddled with delinquent tax bills.