Set up a standardized formula for acquisition of foreclosed properties. Thousands of foreclosed properties sit in lender’s inventories. Setting up a set of criteria that each REO property the city acquires must satisfy, and then getting buy-in from elected officials on the criteria, will create a much more effective acquisition process. Examples of criteria include the following: the location is within a targeted area that is attractive to new buyers; the condition of the property is sufficient to keep down rehabilitation costs; or the property negatively influences the neighborhood housing market, such as by being adjacent to schools or transit or by being a nuisance or corner property.
Establish well-defined standards and specifications for rehabilitation. The goal for many municipalities is to buy, rehab and sell foreclosed properties, but it is unclear to what standard they will be rehabilitating the property. Knowing the selected standard will help inspectors choose houses to acquire and will define when demolition may be warranted. Minnesota has adopted a seven-year standard, meaning that rehabilitation is completed to a standard that assures the owner will not need to pay for significant repairs for seven years. Other cities set a funding maximum for rehabilitation such that no home will be rehabilitated if the total cost exceeds $20,000.
Create nonprofit capacity for Community Land Trust or other shared equity approach to ensure affordability for generations to come. If the volatile housing markets of the last few years demonstrated anything, it is that there is a risk associated with buying a home. Prices may go up, but they also may go down. The crisis has also shown that subsidized affordable housing can be lost to high property values seemingly overnight. Community Land Trusts provide permanent affordability and offer buyers a great deal of security from foreclosures. Communities with a nonprofit community land trust should consider protecting some of the foreclosed housing stock they acquire.
Regularly re-map areas to determine impact of acquiring and re-selling foreclosed properties. Once vacant foreclosed properties are mapped, continue to update the map to keep a relevant view of the housing market and neighborhood market values. Tracking real estate transfers and newly foreclosed properties regularly will offer a tremendously valuable view of neighborhood health and provide feedback on the success of the city’s programs.
Consider requiring lenders in the jurisdiction to register all foreclosed properties and provide an REO property distribution manager as a contact person. So many cities are scrambling to determine what properties have been foreclosed upon and spending thousands of dollars to collect and analyze data that is often imperfect. Then the city or its nonprofit partners is spending weeks trying to identify the lender and contact them about the property. Adding a registration requirement allows the city to avoid both of these time consuming steps for future foreclosures.
Take action to regulate and deter copper theft since it removes substantial value from empty homes. Vandals frequently destroy homes to obtain copper or aluminum to sell. According to a 2008 survey of agents for Inside Mortgage Finance by Geosegment Systems and Campbell Communications, 50 percent of foreclosed properties suffer significant property damage before becoming bank owned properties. The damage reduces a single property’s value by about 25 percent. The price for these commodities lowered significantly during 2008 but their value has still increased markedly over the last few years as the global market for metals increased. Consider strategies to deter gutting of empty properties by discouraging the stolen copper pipe market, with criminal penalties for house-stripping and for receiving the products of house-stripping. Half the states in the nation have attempted to address metal theft by passing laws that enforce stricter penalties for stealing copper as well as tightening the record-keeping requirements of scrap yards (see report here).Minnesota passed a law recently to prevent copper theft that requires dealers to keep records of all copper-selling transactions, including details about the sellers, and make the information available to the police. The reason is clear. According to an FBI report, as of April 2008, highly organized theft rings specializing in copper theft from houses and warehouses were operating in Minneapolis, Minnesota. These rings or gangs hit several houses per day, yielding more than $20,000 in profits per month. The targets were most often foreclosed homes.
Partner with employers to create employer-assisted housing. Employers across the country are offering assistance to employees buying homes near their workplace (see the Employer Assisted Housing tool). Providing assistance to employees buy or rent homes near work helps the employer to retain quality employees, improves employees’ performance that may be negatively impacted by at risk housing or over long commutes, and revitalizes the surrounding neighborhood. Cities can adopt a number of strategies to involve employers in foreclosed property recovery. First, they can sell foreclosed properties surrounding the workplace to employers for a nominal fee and in return obtain an agreement from the employer to rehabilitate the property and sell it or rent it to an employee who will maintain it. Second, the employer can contribute to the purchase price and repair costs for foreclosed homes in the immediate area and in return its employees will receive priority as purchasers. Third, the employer could offer financial incentives for employees to purchase foreclosed properties in the immediate area and to fix them up. Each of these options will guarantee the foreclosed properties will be reoccupied and will act as a stabilizing influence on the neighborhood.
Improve neighborhood infrastructure to ensure neighborhood is no longer at risk. Housing is a key neighborhood infrastructure, but so are roads, transit, parks, and other important pieces of the neighborhood fabric. Re-selling homes may not be sufficient to tip a neighborhood market up if assets like transit or parks are in poor condition and go largely unused because they are unsafe or poorly lit. An investment in neighborhood assets will ensure the housing investment has a significant impact on the market while improving quality of life for residents.
