In the District of Columbia, a lie about a townhouse will cost the owner $1.8 million.
The house is a former brick beauty with a corner turret, built while William McKinley was president, at 10th and C Streets NE.
According to the district’s top attorney, the owner claimed for more than a decade that the house was occupied when, in fact, it was vacant and in disrepair.
This you cannot do in Washington without penalty, for a couple of reasons.
First, under district law, it’s illegal to make false statements to evade a property tax obligation.
Second, D.C. has a serious tax penalty for leaving a property vacant or blighted.
This might soon be a tool available to help Baltimore push people who own some of the city’s 13,379 vacant buildings to improve them or sell them or lose them to foreclosure.
More on that after a look at how this works – or doesn’t – 40 miles to the south.
Several years ago, D.C. established a separate tax rate for vacant properties – $5 for every $100 of assessed value. That’s nearly six times higher than D.C.’s tax rate for residential properties and more than three times higher than the rate for commercial and industrial property.
There’s an even higher tax – $10 for every $100 of assessed value – on properties deemed blighted by the D.C. Department of Consumer and Regulatory Affairs.
The idea was to push property owners to act, thereby (hopefully) reducing the number of vacant houses or dormant commercial spaces.
The fellow who owned the corner brick at 10th and C apparently had hoped to avoid the penalty for leaving the 124-year-old house unoccupied.
For at least 16 years, says a report from D.C.’s Attorney General Brian Schwalb, the “property sat boarded up, overgrown, with crumbling masonry, a visibly decaying roof, and vacancy notices pasted on top of vacancy notices from previous years.”
The AG’s office went after the owner, and in April a judge in D.C. Superior Court ordered him to pay $1.8 million. That included the back taxes, interest, civil penalties and damages for the defendant’s violation of D.C.’s False Claims Act.
“Long vacant properties are a drag on the vibrancy and safety of a neighborhood and can present real and expensive problems for nextdoor neighbors when those vacant properties are allowed to deteriorate,” said Charles Allen, a member of the D.C. City Council, at the time of the judgment. He called it “a warning to any other landlords who aren’t acting responsibly with an empty home.”
While this all sounds good – heavy penalties for neglecting properties – how strong a warning emanates from a case that took more than a decade to resolve?
And while the case from 10th and C stands out because of the size of the penalty, it might not represent the level of D.C.’s tax code enforcement.
Three years ago, reporters at The Washington Post looked into the special tax rates and found that the city had lost out on millions of dollars in revenue by not imposing penalties on problem properties. The city flagged nearly 3,000 properties as blighted or empty, but only 189 were taxed at the blighted rate, the Post found. Another 359 properties were considered vacant but had tax exemptions.
So this amounts to a cautionary tale for Baltimore as the City Council takes up the possibility of imposing higher taxes on some of the thousands of vacant properties across the city.
In April, Gov. Wes Moore signed into law the General Assembly’s authorization for a higher tax on vacant properties in Baltimore or any Maryland jurisdiction that decides to impose one. (Del. Regina T. Boyce, a Baltimore Democrat, had pushed for the enabling legislation each of the last four years.)
The next step belongs to the City Council, where Councilwoman Odette Ramos intends to file a bill establishing the higher tax. She’s asked the nonprofit Enterprise Community Partners to study how this works elsewhere and make recommendations for a rate.
“Every property with a vacant building notice and every vacant lot would be subject to the tax,” Ramos says.
The intention, she emphasizes, is to get property owners to act, not to raise revenue for the city.
There’s a second motive, which is perhaps more important.
“The purpose of a higher property tax on vacant properties,” says Ramos, “is … to ensure that more properties with outstanding liens can go into the In Rem foreclosure system much quicker.”
Judicial In Rem allows the city to take titles to vacant properties that have liens (unpaid taxes or citations) in excess of their assessed values. Of the 13,379 vacant buildings in Baltimore, the city currently owns only 886, according to the Department of Housing and Community Development. Judicial In Rem allows DHCD to acquire more properties and get them redeveloped for the additional housing that’s badly needed in the city.
“The vacancy tax would not work without the In Rem foreclosure system,” Ramos says.
And none of this works without competent and vigilant management at DHCD – to enforce the new taxation, to deal with the inevitable requests for waivers from nonprofits and developers with building plans in the works.
But why not?
Given Baltimore’s chronic problem – Ramos calls it a crisis – of vacant houses and long-dormant commercial properties, the city can use every tool it can manage. Manage being the key word there.
