Foreclosure Solution Proposal
By Kevin Jackson
The City's actions to date in gathering resources for
homeowners in crisis should be applauded.
The impact of this situation on our work in community
development cannot be overstated. We are
concerned that the assets we've built together are
now threatened and we should do all that we can to
mitigate this growing instability. The community
development field is well-positioned to contribute
capacity, commitment, and broad stakeholder
relationships to a unified effort.
As a key point of discussion and strategy at a very
recent board retreat, we established a set of
principles to guide our philosophy of stabilizing
neighborhoods:
- Nonprofits have the framework and
experience to put families back into these homes
given sufficient resources, with a careful eye towards
both family and community sustainability.
- Foreclosed properties should become
affordable dwellings and not be allowed into the
speculative market.
- A plethora of housing strategies including
full ownership, land trust, lease-to-purchase models,
and rental must be utilized.
- Units must be packaged to nonprofits in
such a way to make management and rehab cost-
efficient.
- Subsidy at several levels will be required
at amounts that are less than required for creating
new units.
Community development corporations can be
partners with the City to prevent the spread of
abandoned buildings while providing badly needed
affordable, quality housing. While we completely
understand that it is the servicers that need to be
negotiated with, we do believe that together we can
devise some solutions.
Foreclosure Solution Scenarios for Three
Segments of Households:
- EARLY FORECLOSURE: Homeowner can pay if
the
mortgage interest level does NOT reset and is made
fixed rate or other remediation is negotiated with
lender.
- LATE FORECLOSURE: Homeowner is in
imminent foreclosure = cannot pay mortgage payment
but still in home. Notices of default sent.
- FORECLOSED HOME: Homeowner
leaving/gone. Home is through foreclosure process.
Unit will be vacant.
Strategies per segment:
EARLY FORECLOSURE: City meets with banks
holding the majority of loans to keep loans from
resetting (or renegotiate terms) so family can stay in
home. City, financial institutions, counseling
agencies, and IHDA offering "expos" to provide
homeowners in crisis with information and linkage to
resources. Current federal policies and funds flowing
to increase massive demand for foreclosure
counseling. These homeowners are actively seeking
solutions. City might consider an escrow model
where household can continue to pay mortgage at pre-
reset level but forego paying increase while predatory
practices are investigated.
LATE FORECLOSURE: With goal being to keep
family housed and prevent negative impact on
community from unit being boarded up, process is
needed to identify these homes and offer
redevelopment options. Households can be
identified through Notice of Default postings and with
targeted marketing. Considerations:
- Pricing must be negotiated as appraisal
processes have resulted in overinflated values. A
three-appraisal process could be required to re-set
home values to the market.
- Lenders and servicers need incentives to
take losses and transfer properties which may require
city, state and/or federal legislation.
- Families may need relocation services as
gap may be too large in some markets.
This segment can be targeted to transferring
ownership of home via deed in lieu or other such
mechanism to CDC which would be responsible for
determining appropriate ownership, management,
and lease agreements. Subsidy would be provided to
the CDC and buyer with restrictions on the property.
FORECLOSED HOME: Homes already vacant
require a broad comprehensive purchase/rehab
strategy that would put the unit back into the
community as an affordable unit. Considerations:
- A systemic process is needed to intervene
in the foreclosure auction process that would allow for
either a) government bodies to take ownership and
transfer properties or b) to give nonprofits the ability to
purchase homes whether through an acquisition pool
or legal priority.
- Scattered site management and probable
rehab of some properties will require sufficient
number of units, capital, and operating funds to be
successful.
- Lenders/investors should be incentivized
to transfer pools of homes by geography.
Kevin Jackson is the executive director of the
Chicago Rehab Network.
