What can localities do to fix derelict and/or blighted properties? This is a question that frequently plagues localities throughout Virginia, and is a problem that was successfully tackled and brought to a favorable outcome by Melisa Michelsen of Litten & Sipe on behalf of the City of Winchester using a statute with very little precedent or any known examples of prior usage – Virginia Code § 15.2-907.2. That statute provides that a locality may be appointed to act as a receiver to repair real property that contains residential dwelling units. Put another way, a locality may be appointed to oversee the repair of residential property that has fallen into very poor condition, sort of like a trustee overseeing the property.

Of course, there are a number of legal hoops to jump through in order to be appointed receiver, and here is a short summary:

• The locality must have in place a real estate tax abatement program pursuant to Virginia Code § 15.2-907.1, which allows for owners of derelict buildings to receive financial incentives by way of reduced fees and real estate tax abatements to offset the cost of renovation.
• Pursuant to Virginia Code § 15.2-907.1, the locality declares the property to be derelict, meaning “a residential or nonresidential building or structure, whether or not construction has been completed, that might endanger the public's health, safety, or welfare and for a continuous period in excess of six months, it has been (i) vacant, (ii) boarded up in accordance with the building code, and (iii) not lawfully connected to electric service from a utility service provider or not lawfully connected to any required water or sewer service from a utility service provider.”
• Pursuant to Virginia Code § 36-49.1:1, the locality, by ordinance, declares the property to be blighted, meaning, “any individual commercial, industrial, or residential structure or improvement that endangers the public's health, safety, or welfare because the structure or improvement upon the property is dilapidated, deteriorated, or violates minimum health and safety standards.”
• The locality provides an opportunity (90 days) for the property owner to submit to the locality a plan to address the items that need to be rectified, and the owner fails to do so.

Once the above are completed, the locality should simultaneously file a petition to be appointed receiver as well as record a memorandum of lis pendens. At the hearing of the matter, the locality will have to prove that the property is derelict and blighted and that the owner has failed to abate the property in accordance with the Va. Code.

Upon being appointed receiver, the locality may propose for the court’s approval a plan for how best to resolve the derelict/blighted property. The receivership statute provides that “the costs of the receivership, along with reasonable attorney fees, incurred by the locality or land bank entity as receiver shall constitute a lien in favor of the locality or land bank entity against the subject property in accordance with the provisions of Virginia Code § 58.1-3340, and shall be on par with and collectible in the same manner as delinquent real estate taxes owed to the locality.” Further, the locality appointed to be a receiver may apply to the court for enforcement of the receiver’s lien by a sale of the property at public auction, as is done for failure to pay real estate taxes.

In our particular case, there were a number of parcels and dwellings at issue. After the City was appointed receiver, the City proceeded to obtain quotes and reports from construction/renovation professionals, and submitted a comprehensive Abatement Plan to the court. A modified version of the plan was ultimately approved. Thereafter, third-party investors intervened in the lawsuit, and a global solution was worked out among the various parties, and approved by the court, in which the properties were sold, the City recovered its costs, and the original property owner retained one of the parcels, subject to a lien for the City’s costs.

In summary, the receivership statute provides a useful tool to localities that are dealing with blighted/derelict properties and are not receiving cooperation from the property owner. In this situation, through Ms. Michelsen’s efforts, a favorable outcome was achieved for all, including improved properties that will no longer be derelict and blighted, but instead will be put to a more productive use.