Property tax foreclosures come in record numbers
Drop a meteor-sized boulder into the pond, and the shape of the pond changes.
In 2008, Rock County suffered a meteor-sized economic hit: The housing market collapsed, the stock market took a dive—taking the national economy with it—and General Motors announced it would mothball the local plant.
Four years later, the impact of that meteor is showing up at the Rock County Treasurer's Office. Property tax foreclosures are setting records.
This spring, 288 properties entered the tax foreclosure process. That's up nearly 300 percent from 2008, when 76 property owners went through the same process.
Here's another change: This year, 122 parcels are plots in unfinished subdivisions.
Mortgage foreclosures—homeowners losing their properties because of missed mortgage payments—began flooding the local real estate market a few months after the first strike. But tax foreclosures—people losing properties for not paying property taxes—is a delayed reaction to the recession that started in 2008.
The tax foreclosure process takes a considerable amount of time as dictated by state statutes and county ordinances.
For example, the last installment of the 2008 property taxes was due July 31, 2009. Tax liens were placed on properties with unpaid taxes on Sept. 1 of that year and remain on the property for two years by state statute. Rock County starts foreclosure after taxes go unpaid for two years and six months.
Not all the properties that go into the process end up being foreclosed. In 2011, the county filed on 80 homes and foreclosed on 56.
On March 1, the foreclosure process begins in earnest and the county will take ownership of the properties sometime in the first full week of September.
Making the sale
Every August, the county board finance committee tours the tax delinquent properties and sets the base bid price for each.
"Last year, we didn't get finished until the evening," Rock County Treasurer Vicki Brown said. "I don't know how we'll do it this year."
Here's something that might make it easier: This year, almost half of the properties are parcels in subdivisions.
Three Janesville subdivisions—Sunset Meadows, Quail Ridge and Greenway Point—have multiple parcels going through the foreclosure process. Additional parcels are in a former Lockhart Builders' subdivision in Beloit.
Owners of subdivision parcels include:
-- Blackhawk Community Credit Union, 13 parcels
-- Geraldine G. McCluskey, seven parcels.
-- Michael and Milissa Rick, Janesville, 22 parcels.
-- Sunset Meadow Development, 33 parcels.
-- Wright Family LLC, 23 parcels.
-- Town of Beloit, 24 parcels.
The county can only take possession of the property; it cannot go after any other personal or business assets.
Pay now, later or not at all
The town of Beloit acquired its parcels through a quit claim deed from Lockhart Builders, according to Town Chairman Roy Pavlik.
"They defaulted on required payments to the town," said Pavlik.
A municipality might put in streets, curbs and streetlights for a development, and the developer would pay back the municipality as lots and homes are sold.
If they don't sell, the municipality is on the hook for the costs.
It has put the town in a tough spot, Pavlik said.
"It's what we've been struggling with—whether to pay the taxes or let the them (the properties) go." Pavlik said. "We're trying to look at it in a practical way. We already own more property than we need—more than any government needs."
The town of Beloit also owns the Heron Bay subdivision and has been trying to sell those lots, as well.
The town is considering paying the back taxes on the Lockhart parcels and then selling them at a loss.
But at how much of a loss? And where will the burden of that loss fall, on the whole county or on residents of Beloit Township?
Picking up the slack
When a property owner pays taxes, the money is sent to the county and then divided among the taxing jurisdictions. For example, Janesville residents' taxes go first to the county and then are divided up among the school district, Blackhawk Technical College, the county, the city and the state.
In August, the county distributes the money to the taxing jurisdictions after "buying out" the tax rolls. That means if the taxes haven't been paid, the county makes up the difference.
For the 2008 taxes, the difference was $218,000. In 2009, $1.2 million went unpaid, and in 2010 it was $2.9 million.
At the same time, the county expects to make $2.14 million in 2012 for interest and penalties on delinquent taxes in 2012, according to Rock County's budget document.
Ironically, the municipalities where the properties are located have first dibs on properties in tax foreclosure. To take ownership, the municipality must pay all taxes owed, not just those owed on the first delinquent year. For 2012, that would mean paying 2008-2011 taxes.
Municipalities might buy the parcels to reduce blight or for development.
The county board finance committee might have a tougher job when it makes the August tour of foreclosure properties and sets base bids for the property auction.
"In the past, the finance committee tried to make the county whole," Brown said. "In this economy, they're not always able to do that."
Rock County Board Supervisor Sandra Kraft has served on the finance committee for 12 years.
"It's not impossible to do, but there are some properties we'll be lucky to be able to sell," Kraft said.
Plenty of properties have sold for less than $1,000 she said.
"The goal is to get the properties cared for again, to get them back on the tax rolls," Kraft said. "We can't just hang on to them."