Record property value forfeited to St. Louis County in 2013The owners of 291 parcels across the county, valued at a record $8 million, did not pay, and the state now owns those properties — including homes, vacant lots and large commercial buildings.
By: John Myers, Duluth News Tribune
William Kaper Jr. walked into the St. Louis County courthouse in Duluth last Monday, his 76th birthday, and wrote a check for $63,972.11.
And just like that, Kaper, who had been St. Louis County’s largest delinquent property owner, was up to date on his back taxes.
County officials say Kaper rescued 35 parcels outright by paying up all current and delinquent taxes and fees. He also delayed forfeiture on another six parcels until 2015. And he made partial payments and set up payment plans on 192 other parcels, to be paid back over five or 10 years. He’ll pay 10 percent interest each year.
“He’s all good with us now,” said Brandon Larson, who heads property tax records for the County Auditor’s office.
The News Tribune in July featured Kaper as the largest of hundreds of property owners who were years behind in paying their taxes. These aren’t people who missed a payment or two — these are properties on which taxes haven’t been paid for at least five years for commercial property, six years for homesteads.
Many, like Kaper, paid up or established payment plans by the Dec. 1 deadline.
But the owners of 291 parcels across the county, valued at a record $8 million, did not pay up, and the state now owns those properties — including homes, vacant lots and large commercial buildings.
That’s double last year’s $4 million in property forfeited to the county and $2 million more than any other year on record.
“It’s the most I’ve ever seen. We’ve had some years with more parcels forfeited, but never anywhere near this kind of value,” Larson said.
All told, the forfeited property means $678,000 in property taxes won’t be paid, money that will have to be made up elsewhere, said Don Dicklich, St. Louis County Auditor.
This year’s forfeited list includes 77 homes, Larson said, and a commercial building on Hibbing’s main street that’s more than $86,000 delinquent. The building, which was the Hong Kong Super Buffet before it closed, is valued at $282,100.
More taxes left unpaid
Heading into this week’s deadline Kaper held the distinction of having the most parcels with unpaid taxes in St. Louis County — 225 — and the third-highest amount of taxes owed; nearly $170,000, including this year’s taxes. Only two bankrupt companies owe more.
But Kaper was far from alone. The legal notice posted by the county in June listed 919 parcels, owned by hundreds of people, as required by state law under what’s called a Notice of Expiration of Redemption. It was the longest delinquency list in years — up from 775 parcels last year and nearly double that of 2010.
County officials say it reflects the economic downturn that hit in 2007, with more people unable, or unwilling, to pay their taxes on time. But they also said there’s no clear pattern on why so much higher-valued property was forfeited this year.
This year’s 919 delinquent properties, with 291 parcels forfeited, compare’s to 775 delinquent and 246 forfeited in 2012.
The biggest jump was for single-family homes and commercial buildings. The number of single-family homes forfeited jumped from 46 in 2012 to 77 this year, while the value of those homes jumped from $1.4 million to $3.1 million.
The number of commercial buildings forfeited jumped from 13 in 2012 to 21 this year and the value jumped from $650,000 to $2.2 million.
State law requires five years of nonpayment of taxes before the county starts the delinquency process in the sixth year. In addition to the notices published in newspapers in June, sheriff’s deputies in July hand-delivered notices to people who live on the delinquent property, another step required by state statute. If no one lived there, a notice was pasted to the doorway.
If those people didn’t respond or pay, their property was forfeited as of Dec. 1.
Recession hit hard
The list of new forfeitures includes a half-million dollar commercial property at 1820 Maple Grove Road in Duluth, just across Highway 53 from the Miller Hill Mall. That 10,600 square-foot building, owned by Duluth Realtor Ken Truscott, has $59,512 in unpaid taxes.
Truscott purchased the former Schneiderman’s furniture store in 2004 when real estate prices for commercial property were skyrocketing. But then the recession hit, tanking the real estate market as well as the value of his building, Truscott said.
Since then Truscott has tried to keep up. But as cash flow problems worsened “we got to the point where the only option was to not pay the taxes for a time,” Truscott said, noting taxes on the building are now $22,000 per year.
In 2011, Truscott paid off $40,000 in back taxes. But when he tried to set up payment plan, like Kaper did for his parcels, he found out state law at the time didn’t allow it for buildings valued over $500,000. Truscott’s building is valued at $553,000.
“There was no way under the law we could set up a workout (payment) plan until after it goes to forfeiture, so that’s what we’re doing,” Truscott said. “We’ll go in after the first of the year and set up a plan where we can pay 10 percent down and pay the balance off over 10 years.”
State lawmakers just this year changed that law, Larson noted, and going forward, county auditors will have the discretion to allow delinquency payment plans for higher-valued commercial buildings.
The building remains for sale, Truscott noted (it’s listed at $850,000) and he hopes the rising economy and attractive location will ultimately lead to a sale.
Truscott also said he’s working to convince state lawmakers to change the current 10 percent interest charged on unpaid balances each year, noting it’s nearly double current interest rates charged by commercial lenders.
“It hasn’t been changed in decades,” he said. “It’s way out of line.”
System is patient for payments
As Truscott’s plan highlights, the state’s forfeiture laws are set up to give the owner multiple chances to pay back taxes and penalties before the property can be sold at auction to the public. That right to re-purchase lasts a year for bare land and commercial properties and never expires for a homestead.
The county Lands and Minerals Department will send out eviction notices in May, which amounts to the seventh year of nonpayment for homes, said Karen Zeisler of the St. Louis County Lands and Minerals Department. That notice, with the word “eviction” on it, often spurs payment.
Even after forfeiture and eviction notices, though, state law allows people to put 10 percent down of what they owe and start a payment plan, although at that point, the state holds the deed to the property until all the taxes are paid.
“They essentially buy it back on a contract for deed by paying all the taxes, penalties and interest,” Zeisler said.
If the owner makes no effort to pay, the earliest any of the recently forfeited parcels would be auctioned would be autumn of 2014.
The system’s long grace period, which amounts to five, six or even seven years, allows property owners like Kaper and Truscott to use the county as a sort of safety valve when finances aren’t good. They can still pay their mortgages and utility bills on the property, but hold off on taxes if the money isn’t there.
Kaper is a millionaire and real estate speculator who lives on a 7-acre estate in Barrington Hills, Ill. In July, he told the News Tribune he owns millions of dollars’ worth of property in multiple states.
But when his cash flow dipped during the Great Recession and he found himself holding properties worth less than what he paid, with no prospective buyers, Kaper said he opted not to pay some of his property taxes on time.
Kaper, like many others, knows the property tax system, dictated by state law, bends over backwards to keep people in their homes and owning their property. Because it takes years for the property to actually forfeit, property owners know they can go for long periods without paying taxes.
While some people have expressed anger that Kaper and others are abusing the system and taking advantage of other taxpayers, Kaper said the system has worked well.
He praised the efforts by county Auditor’s staff to set up his payment plan — both their math skills and courtesy.
“After your story ran (in July) I had many people, actually several dozen phone calls from people who I call bottom feeders wanting to buy my land for almost nothing,” Kaper said. “I was at a vulnerable time and they were trying to take advantage of me. … But the system works. And I want everybody in my situation to know they don’t have to deal with those bottom feeders. The county has a system where you can keep your property.”