Strategies for Reducing In Rem Foreclosures in the City of Milwaukee
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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 .......................................................... 52Option 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 Tax-
Delinquent 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
vList 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 Milwaukee-
Acquired 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
viForeword
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.
viiBy 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
viiiAcknowledgments
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.
ixx
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.
xixii
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 post-
foreclosure 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.
1have 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 tax-
foreclosure 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.
2Problem 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
800
700
In Rem Tax Foreclosure
600
Acquisitions
500
400
300
200
100
0
2008 2009 2010 2011 2012
Year City Acquired Property
Source: Authors, using data from Department of City Development
As we will demonstrate, the city incurs the most substantial costs during the post-
foreclosure 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 tax-
foreclosed properties have associated opportunity costs. Such funds cannot be
3spent 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.
4Comparison 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.
5Table 1. Comparison of Peer City/County Tax Foreclosures
Average Number Percentage
City or of Tax of Tax
Years Measurement Population
County Foreclosures Foreclosures
Per Year* Per Capita*
Tax
Foreclosures
(2008-2010);
Milwaukee, 2008–
Residential 414 597,867 0.07
WI 2012
Property Tax
Foreclosures
(2011, 2012)
Baltimore Tax
2010–
County, MD Foreclosures 1,897 817,455 0.23
2012
(Baltimore) for Sale
Tax
Foreclosure
Sales for A
Marion
2009– List Properties
County, IN 3,664 918,977 0.40
2012 (2010-2012);
(Indianapolis)
Tax
Foreclosure
Sales (2009)
Hamilton Property
2008,
County, OH Foreclosure 4,259 800,362 0.53
2009
(Cincinnati) Cases
Tax
Minneapolis, 2008–
Foreclosure 2,334 387,753 0.60
MN 2011
Sales
Tax
Detroit, MI 2012 Foreclosures 19,001 706,585 2.69
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
6smaller 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.
7Property 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.).
8Table 2. General Fund Revenue by Source, in 2013 Dollars
Intra-Fund
Charges
Property Intergovern- Other Own- (Pensions
Taxes and mental Source and
Year Offsets Revenue Revenue Benefits) Total
Millions of dollars
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.
9Figure 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
Percentage of all City
Property Class Total Parcels
Residential 127,128 82.30%
Condominium 11,706 7.58%
Residential Total 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%
Total Commercial 14,984 9.70%
Total All Classes 154,469 100.00%
Source: Authors, using data from Office of the City Assessor
10Figure 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, multi-
family 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
11allows 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.
12Table 4. Property Tax Delinquency throughout Three-Year Tax Collection Enforcement Period
for All Real Estate for Levy Years 2002–2012
Year 1 Year 2 Year 3
In rem
Novem- Novem- Decem- In rem Acquisi-
Levy Year February April June August ber March April ber ber August Filings tions
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
13Table 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
Levy Year
2008 2009 2010 2011 2012 Average
Owner-
8,400 7,176 6,063* 6,563 6,731 6,987
February Delinquencies
Occupied
Investor-
5,610 5,805 5,939* 6,906 7,657 6,383
Owned
12,002
Total 14,010 12,981 13,469 14,388 13,370
*
Average
$2,872
Amount $3,031 $3,032 $3,111 $2,920 $2,993
*
Delinquent
Owner-
2,561 2,053 1,591 1,755 NA 1,990
Occupied
Delinquencies**
Investor-
November
1,575 1,600 1,264 1,220 NA 1,415
Owned
Total 4,136 3,653 2,855 2,975 NA 3,405
Average
Amount $961 $964 $966 $877 NA $942
Delinquent
*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
14Delinquent 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 2011 2012
Owner Occupied 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.
15Figure 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 2011
Owner Occupied 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 Pre-
Foreclosure 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 peak-
value home equity lines of credit loans in the mid-2000s have abandoned their
properties to avoid loan repayment and subsequent taxes.
16Table 6. In Rem Tax Foreclosure Redemption and Acquisitions
for All Real Estate in Milwaukee, 2000–2012
Parcels Filed Parcels Redemption Acquisition
Year Against Acquired Rate Rate
2000 1,253 459 63.37% 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 Acquisition Rate
Source: Office of the City Treasurer
17Prior 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.
18Pre-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.
19Phase 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
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