Land Bank Playbook: Office Set-Up, Start-Up and Operations

Land Bank Playbook Section XI

A. Introduction

Depending on the scope of operations and capacity, there are many practical priorities, systems and legal forms necessary to start-up a LRC. It is essential that a committed and focused working group meet frequently to discuss these things so that the LRC gets off to a healthy start.

The most important point here is that LRC set-up should not be rushed. All systems, pipelines and forms should be first tested and “debugged.” To help stay on task, a dynamic set-up “grid” which identifies virtually everything that needs to happen from LRC incorporation to the opening of its doors for business should be developed.

B. Office and Proximity to Court House/County Administrative Offices

Once a LRC is fully ramped up, it will interact with the various county offices, i.e., Sheriff, Clerk, Recorder, Prosecutor, Court, etc. Proximity to these government offices which touch upon tax foreclosure and property conveyance is a plus. In many counties, all are located in one building.

C. Internet Connections: Telephone Systems; Website

When selecting an office, it should obviously have robust telephone and IT connectivity. Having good internet connectivity, public property profile capacity and disaster back-up are important in order to keep the LRC as transparent as possible. All of the LRC’s board meetings, minutes, agenda and list of properties should be posted on the LRC Website. Stakeholders throughout the county should be able to easily see online well-developed property profile system (“PPS”) for all of the LRC properties. Manuals which document all information technology (IT) systems, procedures and administrator functions are crucial. Administrator functions, pass codes and access codes should be kept confidential in a sealed envelope, in the custody of the executive director/IT Director. It is money well-spent to retain an expert to formulate and periodically update such manuals.

Finally, to promote transparency and ongoing LRC branding, a website which identifies staff, the LRC mission, public documents, and all properties in its inventory (along with a basic property profile) is necessary. The PPS should allow the public to “click” on a particular property to find out some basic property information. Staff can determine how much more or less it wishes to add to the PPS. The PPS should also have far more detailed internal information for staff, authorized users, rehabbers or vendors such as spatial and proximity data, acquisition details, inquiries from third parties, disposition trajectories, and, most importantly, connectivity to the accounting software of the LRC.

D. Computers, Accounting and Software

LRC staff obviously needs high capacity computers to access and store all kinds of high storage information, graphics, photographs and other internal reports. This should be done before acquiring properties or conducting any significant activities. Additionally, before any activities occur, accounting software must be shopped, tested and debugged consistent with the LRC’s intended needs and capacity. Wrong accounting software could be disastrous. This accounting system should be capable of performing fund accounting across the spectrum of the LRC’s activities and must be tied to the PPS and outside field services expenses on a property-by-property basis. This will help the LRC track trends and costs related to particular activities such as field services, property insurance, permit costs, etc. An outside experienced accountant is needed to help set up the initial accounts, accounting procedures and initial account codes for data entry.

E. Staff

The technical and often sophisticated tasks necessary to transact properties from tax foreclosure to and from third parties require a skilled staff. Institutional knowledge about the community, government, and community development activity generally is highly desirable. An executive director will understand intimately government agencies that touch upon tax foreclosure and land acquisition and the functions between theses various agencies. Legal transactional expertise and documentation for the LRC’s activities is also a big plus It will save the LRC tens of thousands of outside legal counsel for new documents, transactions or agreements with other county agencies. Experienced transactional real estate and public administration lawyers should be solicited to provide pro bono services where available.

F. Training on Inter-Agency Practice

The activities of the LRC involve much interaction with several county agencies. Staff should therefore be trained in their respective tasks and how their particular activities fit within the larger picture. For example, educate the staff about the chronologies of a tax foreclosure, real estate acquisition/disposition and the importance of marketable title. Pre-opening staff meetings and trainings seminars along with visits to the Auditor’s, Treasurer’s, Prosecutor’s, Clerk’s and Sheriff’s offices to learn their administrative processes is very useful.

G. Job Descriptions

Each LRC will have many job descriptions. Smaller LRCs will blend job descriptions which would perhaps constitute separate job descriptions in a larger LRC. Job descriptions promote accountability and provide staff with what is minimally expected of them. Some important initial job descriptions include the Executive Director, Controller-Finance Director, Account Clerk, Acquisitions-Dispositions Director and Property Manager.

H. Health Insurance

If the LRC is staffed by the county or other W-2 governmental employer, staff health insurance and benefits are covered by such employer. Otherwise, health insurance benefits must be procured. Because the LRC is a separate private-public organization, it can contract with the county’s health insurance group to pool the LRC’s health benefits. This does not mean that the county provides health insurance or health insurance premiums. Rather, the LRC contracts with the county pursuant to R.C. 9.833 to be a part of the County’s group. This is akin to the pooling of health insurance by companies who are members of a chamber in order to obtain lower insurance rates. In this way, it is more likely the insurance premiums will be more favorably rated, and less expensive. It is likely that the county commissioners would need to approve this contract, but it is in everyone’s interest that it be done.

I. Employee Manual

The LRC Board will select and hire its executive director or president. Perhaps the Board will weigh in on subordinate senior staff. The Board should rarely get involved in lower level hires. Once staff is selected, the LRC should have an employee manual which governs the day-to-day expectations and rules of employment. This includes vacation time, sick time, code of conduct, and the host of other things that typically go into an employee manual. Sample employee manuals are available on line and through various agencies that provide forms.

J. Payroll Issues

If staff consists of governmental W-2 employees, then payroll will be handled by the governmental employer. If the LRC’s staff is independent, the LRC can provide the payroll service in-house or hire an outside payroll company. This publication recommends hiring an outside payroll service to handle all the withholding, sundry deductions and the annual W-2 process for tax purposes. A payroll service is well worth the cost.

K. Insurance

a. Insurance Forms

The LRC operations should not commence until all insurances relating to its operations are procured. If it is being operated and funded directly by the county, then perhaps most of the needed coverage would flow through the county. However, this should not be assumed. The LRC is a separate legal entity with separate legal exposure as indicated by several Ohio Attorney General Opinions and case law. The LRC needs coverage such as office and general liability coverage, property coverage, and coverage for non-office operations (environmental liability, privacy, automobile liability, and director/officer’s liability to name a few). Public officials who are also members of the organization must be insured as any directors of any corporation even though employed by the government to which they have been elected.

As to land acquisition, property operations, demolition, rehab, etc., the LRC should have the broadest possible coverage forms. In terms of a policy “form,” it is usually best to have an “All Risk” as opposed to a “Named Perils” form. The “All Risk” form covers all general activities unless expressly excluded while the “Named Perils” form, covers all “named” and excludes everything else.

b. Insuring Vacant/Distressed Assets

Initially, it may be difficult to find an underwriter for all the LRC activities. Typically, property insurance is designed to cover properties that are occupied, well kept, and contain value. The LRC’s typical “trade stock” is vacant and abandoned, low value properties– properties that underwriters typically seek to exclude from coverage. Never the less, underwriters will insure of the LRC’s property and operation once its operations, mission and systems are understood.

The Cuyahoga County LRC has insured vacant, distressed properties by negotiating an upfront minimum property premium based on a cost per $100.00 of valuation. For example, for 1 to 4-family dwellings, the insurance cost would be $.10 for every $100 in value for vacant residential properties; and $.20 for every $100 in value for vacant commercial properties. This is all negotiable. Vacant property insurance is the “trickiest” part of the insurance package. The rest of the coverage are more conventional and should be quickly procured.

Because of the diverse types of insurance required for a fully functioning LRC (i.e. office package, employers liability, vehicles, management liability, umbrella, land bank property, general liability, privacy, etc), it will not be unusual to end up with several underwriters as part of the entire coverage package.

c. Insurance Procurement and “Immunity” Status

How an underwriter classifies the unique risks of a LRC, could result in very disparate premium quotes. Therefore, a simplified request for proposal (“RFP”) should be submitted to several experienced insurance agencies to get quotes from their network of underwriters. It is unnecessary to send this RFP to numerous insurance agencies (three to five agencies is sufficient) because insurance agencies solicit most of the same underwriters. And, once an underwriter responds to the one soliciting agent, the underwriter is typically reluctant to quote anything differently to another soliciting agent.

Procuring insurance agencies should know that the LRC possesses immunity from environmental enforcement and liability under Ohio EPA laws (not federal law) so long as the LRC does not create or exacerbate an environmental condition. See: R.C. 5722.22. Likewise, when the Act was amended by H.B. 313, R.C. 5722.22 was amended as follows: “A county land reutilization corporation is not liable for damages, or subject to equitable remedies, for breach of a common law duty…” Thus, in addition to the Ohio EPA environmental “safe harbor” this amendment seems to immunize LRCs from general common law liabilities. Normally, such immunizing provisions would be found in Chapter 2744 of the Revised Code (Sovereign Immunity). The immunity language is broad, and unless challenged, it is Ohio law as of this writing. The procuring agent should inform its underwriters of this legal status to possibly reduce premium quotes.

d. Practice: Floating Inventories

With respect to the “practice” of insuring a “floating” inventory properties and activities conducted thereon, one method for making sure that all properties (and activities thereon) are covered is to have the policy automatically cover every acquisition, provided that such acquisition is reported to the insurer by a date certain in the following month (i.e., the 10th or 15th of the following month). In this way, all properties and activities thereon automatically become insured, and the premium cost for the “floating” nature of the inventory can be adjusted during routine periodic premium audits upward or downward based upon the flow of properties. The insurance policy will likely require a minimum premium covering property “up to” a certain threshold beyond which such premium adjustments will be made.

Lastly, every vendor contractor engaged in substantive activity with the LRC (demolition, inspection services, environmental review, repair and rehab, etc.) should have a very strong LRC indemnification contract clause indemnify the LRC (included herewith). The agreements should also require vendor certificates of insurance naming the LRC as an “Additional insured.”

Section XI Sample Forms

  • Form XI-1 – Office Set-Up Planning Grid
  • Form XI-2 – Manual of Sample IT Protocols
  • Form XI-3 – Manual of Sample Accounting Protocols
  • Form XI-4 – Anatomy of a BOR/Judicial Foreclosure
  • Form XI-5 – Job Descriptions
  • Form XI-6 – Sample Employee Manual
  • Form XI-7 – Sample Insurance Declaration Sheet/Summary of Coverage
  • Form XI-8 – RFP Solicitation Letter to Insurance Agency
  • Form XI-9 – Insurance Specification for RFP Solicitation
  • Form XI-10 – RFP Grant Award Letter
  • Form XI-11 – Standard Contractual Vendor Indemnity Language
  • Form XI-12 – Monthly Acquisition Notice to Carrier
  • Form XI-13 – Memo of OAG Opinions on Nature of R.C. 1724 Corporations