Acquiring and Redeveloping Vacant Properties

Information | Resources | Best Practice Models

States, localities, nonprofit development agencies and for-profit developers have increased, or in some cases started, efforts at acquiring and rehabilitating vacant properties in response to the foreclosure crisis and glut of vacant foreclosed properties on the markets. While many have utilized the federal Neighborhood Stabilization Program, others have utilized a variety of innovative strategies to acquire and rehab foreclosed properties. Foreclosure-Response.org provides a Policy Guide with models for state and local acquisition and rehabilitation efforts whether the efforts are funded through NSP or other sources.

There is no single strategy for the acquisition and reuse of vacant, abandoned and foreclosed properties that will work in all communities. Just as markets and the impacts of foreclosures vary from place to place, so should the community response. That said, local governments do need to make a broad decision with regard to their general approach: whether to acquire and redevelop individual properties on a case-by-case basis, or to pursue a bulk acquisition strategy involving the negotiated purchase of part or all of the inventory of foreclosed properties owned by a single lender or servicer.

The appropriate choice will depend on several factors including local resource availability and capacity, whether a significant number of foreclosures have occurred within the jurisdiction, and, of course, the willingness of lending institutions to participate in a bulk sales transaction. Partnerships with local community development corporations, realtors, developers, and other stakeholders will likely be essential to ensuring the successful implementation of any publicly-administered or publicly-funded program. Some of these organizations may pursue their own acquisition and rehabilitation programs even without local government support.

Communities facing a very high volume of foreclosures may wish to consider use of a bulk sales procedure to acquire properties. Rather than making individual purchases on a case-by-case basis, this approach involves negotiating the sale of a large volume of REO homes owned by a single lending institution, a process that can help to reduce transaction time and costs. Because purchase prices are negotiated in advance of the actual transaction, bulk acquisition also ensures a lower risk and greater predictability compared to other acquisition methods, such as purchase at a foreclosure auction or via short sale.

Some larger U.S. cities have developed arrangements with large national lenders and/or Fannie Mae or Freddie Mac to engage in bulk purchases of foreclosed properties in a specific city or county.

The Asset Control Area (ACA) program, administered by the Department of Housing Urban Development (HUD), provides one model for the bulk acquisition of foreclosed properties. This program facilitates the transfer of FHA-foreclosed properties from HUD to local public or nonprofit partners for reuse as affordable housing, and has been successful in several communities. Since most foreclosed properties today are not FHA-insured, the ACA program itself is unlikely to represent the most useful avenue for acquiring foreclosed properties in the current crisis, but it nevertheless provides a useful set of experiences and precedents.

While many sources suggest that a bulk acquisition strategy will be required to achieve community stabilization on a large scale, there is also reason to believe that smaller-scale interventions can have a significant impact on the trajectory of a neighborhood or block, particularly in communities where the real estate market continues to be relatively strong. Communities that have limited resources and capacity to acquire and maintain REO homes may have greater success pursuing this more limited role in highly targeted areas. It is important to note, however, that acquiring properties on a case-by-case basis will likely require a greater commitment of time and resources per property, as each deal will need to be negotiated individually.

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