Garrett Augustine picked up a small, rundown house on Q Street in Richmond’s Church Hill neighborhood for $16,500 in February at a city-sponsored auction of tax delinquent properties.
He considered bulldozing it. “Old homes like this have no insulation, no air conditioning and all the systems are out of date. This one had roof leaks and needed major structural work.”
But it was in the middle of three identical houses, one still occupied and the other empty but recently occupied.
Demolishing this house, built in 1910, and replacing it would not have fit with the historic character of the block, said Augustine, owner of Augustine Construction.
He gutted the approximate 1,000-square-foot house, spent the next eight months rebuilding it, adding modern touches including an open floor plan and granite counter tops — and recently sold it for $159,000.
“These old properties take a lot of work,” he said. “I live in Church Hill and only do projects within a mile of my house.”
Over the past five or six years, Augustine has bought about 10 houses and empty lots at auctions of city-foreclosed properties with at least two years of unpaid property taxes.
“I’m not rich, but I am making a living off it,” Augustine said.
He also is reducing the city’s long list of neglected properties, repurposing dilapidated houses — in some cases, building new — and putting them back on the tax rolls.
He is among a growing group of entrepreneurs who see opportunity as more people choose to live in Richmond or move back to the city. The city, for the same reason, is gearing up to deal more effectively with these blighted properties and bring more revenue to its coffers.
The catalyst for private investments sprung from nonprofits like the Better Housing Coalition, generally the first one into neglected areas in Church Hill and other neighborhoods — where it took on not one house at a time, but whole city blocks to develop quality, affordable housing.
Richmond faces a backlog of nearly 5,800 properties whose owners have not paid real estate taxes. The total amount of outstanding delinquent real estate taxes was $27.7 million, according to the city’s monthly finance report as of Oct. 31.
Taxes on 45 percent are more than two years delinquent, said Nick Feucht, assistant to the deputy chief administrative officer for the city’s economic development and planning office. Virginia law requires that two years of property tax payments be in arrears before a locality can initiate a tax delinquent foreclosure and eventually sell a property at auction.
The city auctioned off 22 parcels — a mixture of houses and empty lots where crumbling houses once stood — last month. The auction was conducted by SVN/Motleys.
“Everything sold,” Feucht said about the Nov. 15 auction at the Richmond Auto Auction facility, 3600 Deepwater Terminal Road.
It’s too early to say how much the city will recoup in back taxes from the auction, since the final amount of revenue will not be known until the sales are confirmed by the Richmond District Court in January.
Buyers who fail to pay for the properties within 30 days of the auction forfeit their deposits — and those properties will be offered for sale at the next auction.
Winning bidders must provide a deposit of $2,500 or 20 percent of the winning bid plus 20 percent of a buyer’s premium, whichever is greater. Motley’s charges a buyer’s premium of 10 percent of the winning bid.
If a property sells for $50,000, the required deposit would be $11,000 (20 percent of $50,000 is $10,000 and 20 percent of the $5,000 buyer’s premium is $1,000).
The city is paid first, meaning the taxes, liens for grass cutting, securing the property and/or demolition and other expenses are recovered. Back taxes in some cases include market-based balances owed on a tax-relief program for the elderly and disabled once the property is vacated and later sold. A total of 2,344 residents participated in the program in 2016, according to the city. Any remaining money is distributed to other creditors and then to heirs of the property.
To deal more effectively with these properties and tap into rising demand for housing within the city limits, Richmond is holding quarterly auctions instead of annual auctions as it has in the past.
About 35 properties will be sold at each of the next two auctions — Feb. 8 and May 17, Feucht sad.
Many houses have sat empty for at least a decade, like the one on Q Street that Augustine bought and sold. It’s unclear how much was due in back taxes on this property.
At the high end of all tax-delinquent properties — with about $250,000 due in back taxes, interest and penalties — is a 5-acre parcel of undeveloped residential land, at 5323 Warwick Road in South Richmond. The owner hasn’t paid taxes for 19 years, Feucht said. The property is assessed for $349,000 by the city.
Any funds that the city spends to protect the health and safety of the surrounding residents, such as clearing brush, removing trash and mowing grass is owed as well.
“How a property came to be in this situation is an untold tale, and few clues are left to help piece the puzzle together,” Feucht said. The property is an unimproved wooded section of land, not an active nuisance like many other tax delinquent properties targeted by the city in recent years, he said.
As the city closes in on selling off the most threatening abandoned properties, it is starting to shift toward these long outstanding tax-delinquent properties, he said.
David Seibert, a real estate agent with Long and Foster who represented Augustine in the purchase of his tax-delinquent properties, has bought three or four houses for himself over the past six years.
“Almost all are good deals, but tax sales are not the place for first-time home buyers to find fixer-uppers,” Seibert said. “These are properties that need the maximum amount of work.”
In some cases, historic tax credits can be used to offset the cost of renovations.
However, using these credits requires expertise and working closely with the Virginia Department of Historic Resources, the administrator for the program.
Richmond is in the process of hiring two paralegals to work with a team of three others in the city attorney’s office to handle foreclosure proceedings.
The paperwork is an eight-step process, involving notices of late payments, referrals to collection agencies and eventual foreclosures. Once it forecloses on a property, the city can sell it with a clear title to people willing to take on the risk and task of renovation.
Up until about six years ago, it was hardly worth the effort. With demand for housing rising, the city is responding, Feucht said.
“It’s an opportunity for the city and the city is making strides,” he said. “The end game is people living in houses in safe neighborhoods.”