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Deadline looms to use foreclosure funds

With a use-it-or-lose-it deadline just months away, communities have spent less than half of $4 billion available under a federal program to redevelop abandoned and foreclosed properties.
Image: Foreclosure
A shopping center is available for lease in Lehigh Acres, Fla., in May 2009. Cities, counties and states are having trouble spending some of the $4 billion given to them by Congress to help buy up abandoned homes and properties.Wilfredo Lee / AP
/ Source: The Associated Press

With a use-it-or-lose-it deadline just months away, communities have spent less than half of $4 billion available under a federal program to redevelop abandoned and foreclosed properties.

Some city, state and county officials say they've been stymied by confusing and ever-changing federal rules for the money, awarded in the midst of the nation's foreclosure crisis.

A year after the Neighborhood Stabilization Program started, about a third of more than 300 local governments given the help have barely made a dent in their funds, according to a recent U.S. Department of Housing and Urban Development report.

As of March 16, only 38 percent of the grant money had been "obligated," meaning a municipality has a formal contract at a specific address in place — say, a contract to buy a foreclosed home. Governments must commit the money to projects by September or it's gone.

Some communities have used their money to buy, renovate and resell homes to low- and moderate-income families. Others demolished eyesores or bought multifamily apartment buildings and rented them out. Some used non-profits to manage the program.

Stymied by the rules
But local officials in other areas say they've been stymied by the rules, overwhelmed by starting a new program and, in many cases, outbid by cash investors when trying to buy foreclosures. Under HUD rules, grant recipients must pay 1 percent less than the appraised value of any property.

"We're competing with the marketplace for foreclosed properties," said Kurt Bressner, the city manager of Boynton Beach, Fla., which as of mid-March had only spent $11,000 of its $3 million grant. "By the time the properties end up in the listings, they're gone."

Boynton Beach was one of nearly 100 municipalities that had obligated less than 25 percent of its grant money as of mid-March. The state of Florida — which received $91 million — lags behind all but three other states in using the money.

"I'm not satisfied with the progress," said U.S. Rep. Kathy Castor, D-Tampa.

Castor's district is one of Florida's larger metropolitan areas and a place where home values have plummeted 42 percent since 2006. She said officials have run into problems not forming necessary relationships with banks that held mortgages on foreclosed properties.

The program has been so dismal in some areas, like Las Vegas, that HUD has "embedded" its workers to help use the money.

"These are people who are fluent in how to acquire property, rehabilitation, land banking and demolition," said spokesman Brian Sullivan.

In March, dozens of officials converged on Harvard University for a forum sponsored by Living Cities, a philanthropic collaborative of large foundations and financial institutions. The two-day session was all about how to spend NSP funds quickly.

"The problem is so much bigger than the effort we've been able to put up against it," said Ben Hecht, the CEO of Living Cities. "It's too early to tell whether the NSP program is going to fully achieve its promise because a lot of the work has just started."

Second wave of money
Indeed, the federal government issued a second wave of money in January 2010. But those awarded the latest money had to prove they had a track record of handling, and spending, large amounts of cash on foreclosure relief programs. Only 56 communities received those grants, and places like Las Vegas were not among them.

Congress mandated that all states receive the first wave of money. Even those less hit by foreclosures got at least $19.6 million. The harder-hit areas got more cash.

In Kane County, Ill. — which hasn't yet obligated a cent of its $2.5 million grant — officials are asking contractors, real estate agents and developers to submit proposals for spending the money.

"We're in the process of ramping up our program now," said Development and Community Services division manager Scott Berger. "We're not housing developers."

Many communities say they are not at risk of losing the money, even though they've lagged behind.

And others have found ways to make the NSP programs successful. In Lee County, Fla., where vast overbuilding on the edges of Florida's Everglades left entire communities awash in empty, foreclosed homes, many of which were never lived in.

Brian Bissell, an out-of-work luxury home contractor, was hired to be one of the county's two "rehabilitation specialists."

Bissell spends time cruising around Lehigh Acres in his white pickup, looking for deals. Because of the hard-earned relationships he's forged with local bankers and real estate agents, he's been able to find and buy foreclosures before investors.

So far, Lee County has obligated 67 percent of its $18.2 million grant.

Bissell even bought one tiny ranch for $1 — it had been infested with 100 cats — and then rehabbed it with $60,000 of grant money. The home is under now under contract.

"When you walk that person who is buying the house inside, it makes all the problems worth it," he said. "I get goose bumps every time I think about it."