This is the first of a two-part story about the system of tax lien sales in West Virginia and how they’re connected to the growing problem of vacant and blighted properties in the capital city.
Three years ago, Janie Hamilton moved back to her childhood home on Woodland Drive, only to discover the prominent, Colonial-style house next door that once anchored the hilly neighborhood had become a living nightmare.
In the 1960s, she remembers, its previous owners lovingly tended to the home and grew flowers and vegetable gardens in the backyard.
The charming home from Hamilton’s youth has now been vacant for more than a decade. What remains now is a kudzu-covered ghost of Hamilton’s memories. She refers to it as “the jungle.”
The large front porch is completely inaccessible — the weeds and brush render the front door invisible.
The side entrances aren’t boarded up, creating easy access for the homeless and trespassers.
The inside, Hamilton said, is just as bad. What hasn’t been pilfered over the years is strewn around the house. The kitchen has been all but gutted. An upstairs bedroom is filled with stacks of newspapers and magazines reaching toward the ceiling. Mold grows up the walls from where water made its way inside over the last decade. Tufts of feathers and fur from curious animals litter the floor.
“There’s just filth all over the house,” said Hamilton, who admitted to trespassing in the house shortly after moving back home.
As the home’s physical state worsened, its owner Kenneth Nicholas, a relative of the previous owners, stopped paying property taxes.
Eventually, the property’s liens were auctioned off at a Kanawha County tax sale in 2014 for $2,000.
The lien purchaser, an Atlanta-based limited liability company, took title to the property in April after Nicholas failed to redeem it. It remains to be seen whether the new owners will make improvements to the property.
“I’m here alone, 60 years old, and I’m here fighting a jungle,” Hamilton said.
Hamilton’s story is just one example of West Virginia’s tax lien system and its trickle-down effect across the capital city’s neighborhoods.
Proponents of tax lien sales, which are used in at least 30 states, argue that the process is a tool for cash-strapped local governments to quickly collect on debt. The county receives the amount it’s owed for property taxes immediately after the liens are sold — and it also gets to pass off the burden of collection to a private third party.
Critics argue that the practice perpetuates the cycle of delinquency that frequently accompanies long-vacant, low-value properties because there’s no way to ensure investors will make them safe and habitable.
As Charleston’s Building Commission scrambles to consistently update its vacant building registry — a list of roughly 400 empty, blighted properties in the city — it’s losing the battle of addressing those that have been cycled through the tax lien system.
A Gazette-Mail investigation found that nearly 170 of those vacant properties — more than 40 percent — have gone through the tax lien system at least once in the past decade. Many of these properties are clustered on the West Side flats around Mary C. Snow Elementary, and also in various neighborhoods on the West Side hill.
The county collects between $1.5 and $2 million at each tax sale, according to Kanawha County Tax Deputy Allen Bleigh.
West Virginia state code declares that selling tax liens provides for the transfer of delinquent properties “to those more responsible to, or better able to bear, the duties of citizenship than were the former owners;” and for the reduced cost to the state and local governments.
Each November, the Kanawha County Sheriff’s Office holds two-day tax lien sales, where scores of investors, local attorneys and representatives of out-of-state hedge funds bid on liens for at least the amount due in property taxes. In some cases, that’s as little as a few hundred dollars.
The most savvy investors buy hundreds of liens at each sale. Per state code, the lien buyers become the collectors of the debt they purchase. Over the next 18 months, they’re responsible for contacting the owners or heirs to give them a chance to pay back the debt and redeem the property.
The economic incentive for buying tax liens has little, if anything, to do with the real estate itself. Rather, the industry is driven by the high interest rates owners must pay to keep their property — that’s how investors turn a profit.
During the redemption period, the buyer collects 1 percent interest on their investment monthly for up to an 18-percent return if the property is redeemed. If it’s not, the lien buyer has a legal right to take title to the property.
The identity of the Woodland Drive property’s new owner is murky at best. The deed was granted to Christiana Trust, a subsidiary of Delaware-based WSFS Bank. Christiana Trust is actually the custodian for a Georgia-based hedge fund, GSRAN-Z, LLC, which is also named on the tax deed application.
A custodian is a third party that oversees an investors’ assets to ensure the lender receives its money if the investor defaults.
Like most tax sale investors, Christiana Trust profits from collecting on the liens it purchases in bulk at tax sales.
It makes sense, then, that investors benefit from researching property tax liens before the sale to determine which ones are most likely to be redeemed by the owners.
It’s a familiar practice that real estate attorney Frank Alexander, a co-founder of the national Center for Community Progress, has studied over the years. He believes selling tax liens to private investors is damaging to communities in the long run.
“How do they maximize revenue? They want to buy the tax liens with the highest probability of redemption,” he said. And the longer investors wait to collect on the debt, he said, the more interest they accumulate.
More than 2,000 liens were sold at the 2015 Kanawha County tax sale. About 25 percent of those properties are within Charleston city tax districts, Bleigh said.
During the 2014 tax sale, Christiana Trust purchased 206 liens as custodian for GSRAN-Z — for more than $1.5 million.
After the 18-month redemption period concluded, only eight of those properties — 3 percent — weren’t redeemed by their owners, including the one next to Hamilton’s house.
But what happens to the 3 percent of properties that aren’t redeemed — and why would an investor take title to them?
“The rational reason is that it’s convinced the value of the property is greater than the lien amount, and can sell it immediately,” Alexander explained.
Shawn Means, executive director of Habitat for Humanity for Kanawha and Putnam, first learned about tax lien sales years ago, when people would offer to donate their properties to the organization to get tax write offs.
But there was a problem: Many of those people offering to donate properties didn’t own them.
“After chasing down numerous potential donations and finding out that either they had purchased a lien and never had a deed issued, or the lien had been resold, I started learning more and more about the process,” Means said.
A major issue with tax lien sales, he said, is that many people don’t understand what they’re buying.
“There’s a very common misconception that if you go to a sheriff’s tax sale and buy a lien, you’re actually buying the property,” Means said.
Habitat works to build safe, affordable homes for area families, but Means said it’s not realistic to build new homes in neighborhoods peppered with blighted, tax-delinquent structures.
“We have these neighborhoods that become huge tracts of delinquent properties, [which] tends to degrade neighborhoods even more,” Means said. “Habitat’s mission is to provide decent shelter ... it’s very difficult to accomplish that when most properties in a community are decimated by time [and] neglect, with no incentives for owners to take care of their property.”
Georgia attorney and investor John Ramsey heads GSRAN-Z, the investment fund that bought the lien on the property next to Hamilton’s home.
Barely a month after GSRAN-Z, via its custodian Christiana Trust, took title to 1240 Woodland, it filed a quitclaim deed in the Kanawha County Clerk’s Office, transferring the title to NR Deed, LLC, another company linked to Ramsey — its listed address is identical to his Atlanta law office.
Local attorney John Kennedy Bailey, who does due diligence and legal work for Ramsey’s investment groups, said it’s common for investors to use one company to purchase tax liens, and another to take ownership over the few that aren’t redeemed.
“Generally, the entities that lend money to buy liens are not interested in owning houses at the end,” Bailey said. “There’s basically a separation between raising money to go to these sales, and then dealing with whatever property might come out of the process.”
Bailey said Ramsey’s business practice is to rehabilitate and sell the properties his firms acquire via tax liens, but said finding reliable construction crews poses issues.
“It’s just very hard to get people to do rehab work that are both affordable [and] show up every day and work,” Bailey said. “[They] struggle to find someone in between who will get it fixed at a reasonable price.”
Numerous calls to Ramsey for this story were not returned.
A similar scenario played out last year when GSRAN-Z took title to 837 Watts St., after the lien it bought for $2,700 at a 2013 tax sale wasn’t redeemed. The firm immediately transferred it via quitclaim deed to NR Deed.
Today, 837 Watts is still empty, untouched and barely visible from the street. No one cuts the grass or trims back the weeds, which keeps the property concealed.
In other cases, local investors who become owners of unredeemed properties have no interest in dealing with the headache of housing and building code violations that frequently accompany such buildings, so they transfer them to someone who does.
“That’s a problem inherent in the tax sale,” Bailey said. “Most of the houses that [aren’t] redeemed have some underlying problem or issue that makes it more likely they’ll be vacant properties.”
Because investors tend to buy only the most valuable and low-risk liens, Alexander argues local governments are actually losing money in the long run.
“If a tax lien investor bought $10 million in tax liens, they’re probably going to make between $1.8 and $2 million in 12 months,” he said. “[Local governments] get the base taxes paid as of the day of sale, but they’re ... giving up a positive income stream.”
But the problem goes further than governments losing out on interest to the private sector — it also means they’re still burdened with the worst properties that no one wants to bid on.
“The local government is stuck with the properties the market doesn’t want to buy liens on,” Alexander said. “It hurts neighborhoods because nothing is done on the weakest properties.”
By selling the most valuable liens, Alexander argues, local governments end up keeping the problem of low-value, blighted properties.
In 2013, nearly 700 of the 2,030 properties, or 34 percent, whose liens went to the Kanawha County tax sale received no bids.
Over the past three years of tax lien sales, on average, more than one-third of the listed properties received zero bids.
In those cases, the no-bid properties are then certified to the state Auditor’s Office, where they sit for another 18 months before being sent off to the Deputy Land Commissioner for another public auction.
“It’s a crude instrument for reducing the number of vacant properties,” Bailey said.
Some of Charleston’s bleakest examples are clustered around the West Side hill, especially west of Garvin Avenue. The steep, unforgiving terrain quickens foundation issues.
Livingston Avenue is just half a dozen blocks north of Washington Street, but the sound of traffic is replaced by the roar of insects. The occasional car rolls slowly by. Bits of trash, food and condom wrappers sprinkle the roadside beneath power lines weighed down by years of untrimmed vines and ivy.
Margaret Wilkinson moved into a house on the 1500 Block of Livingston Avenue recently, and is familiar with the West Side’s reputation as crime ridden. The slew of vacant homes surrounding her own doesn’t put Wilkinson’s mind at ease.
Another neighbor, who owns her home, worries that someone will break into the empty house next door and start a fire. The owner of the neighboring structure, NAJ LLC, is headed by local attorney Bob Johns.
Johns is listed as a member or manager for nearly half a dozen LLCs that have purchased more than 1,000 tax liens since 2012.
During the 2013 tax lien sale, NAJ paid the county more than $438,000 for 227 liens. Roughly 75 percent were redeemed by their owners during the subsequent 18 months.
Attempts to reach Johns for comment were unsuccessful.
A while back, Wilkinson said, she walked to another vacant house at 1544 Livingston — what’s left of it, anyway. The house’s charred remains are still visible from the street, but a shed that sits on the property was untouched.
Inside the shed was evidence of squatters — just a few hundred yards from Wilkinson’s home.
“I went up there and just looked around. I saw an electric cord. There was a book bag, a bed and everything,” she said.
A 2015 report from the U.S. Fire Administration found that 7 percent of all residential building fires occur in vacant structures, based off data from 2010 to 2012.
At 37 percent, “intentional fires” were the leading reported cause of fires in vacant, residential buildings.
Several of the houses on Livingston have been demolished, but someone still owns the empty lots that have since grown into thick, invasive tangles that completely block out the view of the city below.
Because the owners don’t cut the weeds back, they grow up and down — and through — the power lines that criss-cross above the street. Power outages are common, Wilkinson says.
Shawn Little, a 20-year veteran with the Charleston Fire Department, is also working with tax lien opportunities.
He owns five lots in the 1500 Block of Livingston. Just one still has a house on it — shuttered and empty. The rest have melded in with the other empty lots that seem forgotten by their owners.
“I don’t want to comment, period, on what I do on my days off,” Little said.
Wilkinson said she thinks the city could be doing more to address vacant and problem properties.
“I don’t think it’s fair — people going in these abandoned houses, doing their drugs or staying there. They [could] catch it on fire, then the next house will catch on fire,” Wilkinson said. “It feels like we’ve been neglected.”
Coming Monday: One property’s long line of questionable ownership, loopholes in West Virginia’s tax lien system and possible solutions to address them.
Reach Elaina Sauber at elaina.sauber@wvgazettemail.com, 304-348-3051 or follow @ElainaSauber on Twitter.