MAHONING COUNTY Treasurer's deal eliminates taxing problem

Some officials thought they were receiving additional checks from the sale.
By IAN HILL
VINDICATOR STAFF WRITER
YOUNGSTOWN -- It sounds like an infomercial pitch: For less than $100, you can take control of property that, until this year, had a tax debt worth thousands of dollars!
That's the offer the Mahoning County treasurer's office is making for 17,862 parcels included in the county's first negotiated tax-lien sale. The sale resulted in American Tax Funding of North Palm Beach, Fla., paying the county $4 million for the rights to about $40.2 million in delinquent real property taxes owed by the owners of the parcels, most of which are in the city.
Treasurer's goal
The sale included all delinquent real property taxes owed to the county, treasurer John Reardon said. "We have solved the county's delinquent tax problem," he added.
Money from the debt sale is going to schools, communities and organizations that levy property taxes.
Under the terms of the sale, Reardon can direct American Tax Funding to sell the rights to any tax debt it purchased for less than $500. The debt must be sold at the price paid by American Tax Funding, plus 18 percent annual interest.
Reardon said his goal is to turn debt-ridden land into productive property owned by people who pay their taxes.
"I think there will be a benefit to the region," he said.
The average tax debt on parcels included in the sale was $2,251 per parcel; the average price American Tax Funding paid for the debt was $40 per parcel. Reardon said the "vast majority" of the debt was purchased for $500 or less.
Before purchasing debt, a potential buyer must present a proposal to the treasurer's office for the future of the property tied to the debt. A letter from the treasurer's office to potential buyers notes that the proposal must meet "economic development guidelines."
Reardon said the guidelines are designed to ensure that debt is not sold to speculators who want to buy property with the intention of selling it in the future if it increases in value. He said as long as a potential buyer plans to maintain property and pay taxes on it, he or she most likely will meet the guidelines.
Owning the property
Owning the debt, however, doesn't mean owning the property. After purchasing debt, a person still needs to get the deed to the land.
A debt owner can obtain a deed either by buying it from the current property owner or by foreclosing on the property. The terms of the tax lien sale state that a debt owner can't foreclose on property tied to the debt until after April 30, 2005.
Once the deed is transferred to the debt owner, he or she will owe the delinquent taxes to himself or herself. That eliminates the debt.
The new property owner has then bought debt-ridden land without having to pay thousands of dollars in delinquent taxes.
Reardon noted that the county has a database of between 800 to 1,000 people who live next door to property included in the debt sale and might be interested in buying debt. Those who have already purchased debt include the owner of a local Belleria Pizza franchise, who bought $22,803 in delinquent tax debt on five parcels at the corner of Wick Avenue and McGuffey Road.
The franchise owner paid $664 for the debt.
Habitat for Humanity of Mahoning County bought debt on 11 parcels in Struthers, as well as four other parcels in the county. Habitat board member Bill Farragher said the organization plans to begin building homes for low-income families on the land next year.
"It's a wonderful, wonderful deal," Farragher said. He noted Habitat intends to sell the homes to tax-paying families.
Collecting debt
Reardon said the county never would have been able to collect the entire $40 million debt included in the sale, as state law does not allow the county to take court action against property owners for back taxes.
The county can foreclose on land because of back taxes, but foreclosure often costs more in legal fees than the county will collect when the land is sold at auction, Reardon added.
Shortly after the treasurer's office first announced the debt sale last year, the county collected about $3 million in delinquent taxes from property owners who came to the treasurer's office concerned that their debt would be sold, Reardon said.
The county collected another $3 million in delinquent taxes from property owners earlier this year after the treasurer's office announced that American Tax Funding had bid for the remaining debt.
American Tax Funding bought the remaining debt for $4 million in April this year.
Confusion
After the sale was complete, Reardon announced at a press conference that "the total delinquent tax collected specifically from properties included in this negotiated sale is a little over $10 million." That confused some local school and government officials, who though they'd be getting a check for their share of the $10 million.
Poland schools Superintendent Dr. Robert Zorn said at the time he was planning to spend the district's share of the $10 million on teacher raises.
"The way that it was put out there sounded like we got an extra $7 million or $10 million," said South Range Schools Treasurer Jim Phillips. "I don't think Mr. Reardon did that intentionally, but that's how it came down."
The checks, however, never came. Reardon said revenue from the debt sale will be included in the two tax collection payments schools and governments receive from the county.
Some officials have noted, however, that the amount they received from delinquent tax collections in the first payment from the county is less than they received in their first payment last year.
Austintown schools received $545,036 from delinquent tax collections in their first payment last year and $394,071 this year; Boardman schools received $864,420 in their first payment last year and $558,298 this year.
Reardon said schools and governments should be receiving more than expected in their second payment because of the debt sale. He added that officials may have been confused because the sale of the tax debt was a complicated process.
Reardon and other county officials have met with area school district treasurers in the last few weeks to further explain the sale.
hill@vindy.com