Neighborhood Stabilization Is the Goal of Foreclosure Purchases

Abandoned homes quickly lead to neighborhood and housing decline when there are more than one in a block.

We were about to take this page away when we found out about the third instance of funding. So now we won't predict deadlines or timeframes. Just get busy on monitoring what's happening with this program, because your neighborhoods need the help. Even if your community has spent all its funds, it may still be holding land acquired in this way.

A number of communities have set up land trusts owned by the municipal government to manage their new property acquisitions. So there's plenty for a neighborhood to watch, even if the money has been invested.



Recipients are supposed to use the funds in the areas of greatest need, which includes those with high foreclosure rates, high percentages of subprime mortgages, and likelihood of increased foreclosure rates in the near future.

Legally this program is named Title III of the Housing and Economic Recovery Act of 2008. Sometimes our learning curve in community development is years, and this time the program is history already in many of your communities.

Many communities signed up for the National Community Stabilization Trust, a major collaboration of large banks and community-oriented nonprofits. The Trust offered a First Look program to allow nonprofit housing developers advance notice of foreclosures that participating financial institutions are about to receive.

Unlike the regular CDBG program, funds that were awarded to states may be used anywhere in the state where need is greatest, including in communities that receive their own CDBG funds as well.

So some of these so-called entitlement communities, who receive CDBG funds without having to compete for them, also benefitted from state NSP funds as well as their own.

If you are accustomed to participating in the CDBG hearings, that process was abbreviated to 15 days for this program. However, be aware that new regulations can and will be written every time there is a reauthorization of this program.

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Why the Neighborhood Stabilization Program Is Needed

Probably very few of you will need an explanation why this money is important. When your neighborhood has several foreclosed and therefore probably abandoned homes, it can be a real blighting influence and cause your own property values to decline.

The last thing lenders want to do is own residential real estate and pay to cut the grass. And their maintenance is sporadic, only when necessary to cast the property in the best light.

Plus, when the foreclosed properties reach a certain critical mass, the neighborhood begins to feel unsafe. It there aren't enough lights in the evening and not enough activity on the street in the daytime, your community looks bleak.

It can be a swift spiral downward if quite a high proportion of homes are in foreclosure, which could happen due to subprime financing schemes offered by particular builders.

Permitted Uses of the Funds

In case some of you are in locations where not all the funds have been spent or even allocated, we'll continue with a brief rundown of eligible uses of these funds.

Homes that have been foreclosed upon can be purchased and then rehabbed, remodeled, demolished, re-sold, or rented under the wide leeway granted under the neighborhood stabilization program.

Some recipients used nonprofit housing developers or community development corporations as partners in recycling the buildings to good use.

For example, about 30 percent of the program funds in South Carolina went to CDCs.

Unlike almost all other government housing programs, there is no requirement that a housing unit that is demolished be replaced. In fact, demolished homes may be re-purposed into parks or other non-residential uses, including commercial or industrial, on the resulting land.

The purchasers or renters of the acquired homes were required to have incomes less than 120% of the area's median income. Median, as you might remember from school, is the middle value in the entire list of incomes from top to bottom. The federal Department of Housing and Urban Development (HUD) determines a median income for various household sizes in each community that receives funds.

Purchasers of homes acquired through NSP must undergo at least eight hours of housing counseling, lest they themselves fall behind on payments.

Governments may not re-sell the homes at a profit, but they may recover all costs. Governments were allowed to purchase homes below market value from lenders if the lender agreed.

At least a fourth of the money for purchase and redevelopment of neighborhood stabilization program homes was set aside to benefit those who earn less than 50% of the area's median income.

Government were held to the usual relocation requirements under the block grant program, which would include paying moving costs.

Land banking of foreclosed properties also is allowed, with a ten-year maximum period. In other words, the government may decide to "buy and hold" for as long as ten years. (This is why we're leaving this page in place, even though most communities with decent administration have spent their funds.)

Public facilities, such as street resurfacing or other needed repairs, also are allowable uses of the funding. This might help some areas that were marginal before the foreclosure crisis to become more marketable.

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The Opportunity for Neighborhoods

Your government has already decided how it will spend neighborhood stabilization funds. If you see a pressing need at a particular address, ask if that home or block can receive attention.

What may be happening now is that some of the original plans for the funds aren't working out, so your government could possibly have a little unspent money somewhere.

I hope your local government has been very wise, in how it has spent this money. The temptation was to make decisions and contracts as fast as possible, without being too thoughtful, when the money has strict deadlines.

But with your watchful eyes and a helpful rather than hostile attitude, you could improve the likelihood that your local government manages the properties it acquired for neighborhood stabilization in a useful manner.

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Other Organizations Addressing the Aftermath of Foreclosure

By the way, there are now many non-profits working on community solutions for communities devastated by this crisis. Investigate locally, because by now most of the leading community development organizations have a program or two in place to assist.

Non-governmental or quasi-governmental programs and research projects of various types about how to deal with the REO ("real estate owned" by a financial institution or mortgage company) situation. Don't overlook those, if your community is a victim of foreclosure.

For example, the National Community Reinvestment Coalition, one of a number of similar organizations of the very banks and financial institutions whose greediness or complacency created this mess, does some good work in encouraging its member banks to give back to underserved communities.

They released a report on how to deal with the REO problem and related neighborhood stabilization issues including community poverty.