Home Foreclosure What can or should Cleveland do about predatory out-of-state homebuyers? Editorial Board Roundtable

What can or should Cleveland do about predatory out-of-state homebuyers? Editorial Board Roundtable


For Cleveland, the problem of predatory out-of-state investors who buy distressed properties, then ignore housing laws and citations when collecting rent and write down the value of surrounding properties before reselling them, is not new. Out-of-state buyers surged during the Great Recession, when Slavic Village became the epicenter of the Wall-Street-fueled foreclosure crisis that left many Cleveland homes on the market.

Now, in a post-pandemic era of high inflation, high rents, and a large inventory of substandard housing in Cleveland, the problem is back.

And this time it threatens again Cleveland Mayor Justin Bibb’s “housing for all” project – a plan greased by one-time money from the American Rescue Plan Act to provide much safer housing, both affordable and market-priced housing, in Cleveland.

The problem is particularly acute on the East Side where, in 2020, 45% of single-family, two-family or three-family home sales went to investors, up from just over 15% in 2004, according to a survey. There is also the domino effect amplified by buyers’ use of limited liability companies – limited liability companies – often formed for a single property, effectively shielding owners from liability, without any deep-pocketed parent company. to account, then selling to another similar LLC. if things get too hot.

Cleveland City Council President Blaine Griffin called the blatant exploitation of these investors and the damage they cause to city neighborhoods “criminal”, telling cleveland.com reporter Lucas Daprile that “this what they are doing is totally neglecting these properties once they get them and totally devastating our neighborhoods.

The best way to counter this problem is unclear.

Creating different housing enforcement rules for different types of landlords raises equity issues. The state could make it more difficult (and more expensive) to set up limited liability companies. Using the city’s tenancy registry to require designation of the beneficial owners of a property could be another.

The late Cleveland Housing Court Judge Ray Pianka drew attention a decade ago during the foreclosures crisis for its innovative solutionsincluding the imposition of fines on foreign investors millions of dollars for violations, including past violations. But these hefty fines were often imposed on large companies domiciled in the United States. Have today’s predatory landlords learned their lessons and found new ways to escape accountability?

So what can or should be done about today’s predatory investors in Cleveland? The round table of the editorial board offers its reflections.

Thomas Suddes, editorial writer:

State legislation is the most feasible solution – a statewide law to regulate LLCs organized to own a single home, for example.

Eric Foster, columnist:

There are tools available now, such as strong code enforcement, preventing non-compliant corporate investors from using the eviction process, and converting court fines into real estate liens to prevent sales. However, the long-term solution must involve developing the areas where these societies prey. Easier said than done, I know.

Lisa Garvin, Editorial Board Member:

It costs $99 to register an LLC with the Ohio Secretary of State’s office, and applicants can conceal their identity by registering through a third party. It’s time to close the loopholes and toughen up a registration process that allows slum dealers to operate with impunity and commercial landlords to avoid paying taxes on freight charges.

Victor Ruiz, member of the editorial board:

If Mayor Bibb wants to see his housing strategy come to fruition, then he will have to aggressively use legal action against these negligent landlords. Capitalism allows them to exist, but if they break and break the law, they must be held accountable.

Mary Cay Doherty, Editorial Board Member:

Cleveland may need policies to prevent unscrupulous people from taking advantage of LLC liability protections and anonymity. Urban Institute research analysts note that Minneapolis requires a natural name on rental licensesand that makes public the register of rental permits. Harvard sociologist Adam Travis’ suggestions include increasing fees and establishing minimum liability insurance.

Elizabeth Sullivan, opinion director:

Cleveland needs to come up with an aggressive plan of attack to counter this problem if they don’t want it to get worse. This could include mobilizing area nonprofits and foundations already supportive of Bibb’s housing goals to pressure the state and legislature to act against LLC abuses and/or new city ​​rules to require the appointment of the beneficial owner on every real estate transaction.

Do you have anything to say on this subject?

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* Send general questions about our Editorial Committee or comments on this Editorial Board Roundtable to Opinion Director Elizabeth Sullivan at [email protected].