Grandmont Rosedale Development Corporation: Acquiring Foreclosed Properties
The Grandmont Rosedale Development Corporation (GRDC) represents five neighborhood associations in Northwest Detroit. For over twenty years, the community-based organization has purchased foreclosed properties, rehabilitated homes, and reintroduced them into the general housing market. Currently, GRDC is acquiring properties with grant dollars awarded by the Kresge Foundation, and utilizing construction loans from a Detroit-based micro-lender to rehabilitate the houses. Properties are recovered by the National Community Stabilization Trust (NCST), a national clearinghouse that facilitates the transfer of foreclosed and abandoned properties, frequently referred to as real estate owned or REOs, from financial institutions to community-based housing organizations engaged in neighborhood stabilization.
The National Community Stabilization Trust First Look Program achieves its mission by providing community-based organizations – often through an intermediary – a listing of foreclosed properties from Wells Fargo, Bank of America, Chase, and Freddie Mac. Accordingly, community-based organizations are given the first right of refusal before properties are released onto the general real estate market. When an organization like GRDC is interested in viewing a property, NCST connects that organization with the local broker. The community-based organization can then view the house and, if interested, the nonprofit is given a “take it, or leave it” purchase price. Organizations with Neighborhood Stabilization Program funding receive special discounts and accommodations.
In 2011, GRDC acquired, rehabbed and sold over ten houses with an additional eight houses on the market at years end. On average, the organization invests $100,000 in each property and loses over $20,000 per house. For houses that present the possibility of a greater loss, the organization makes the difficult decision to relinquish the property.
The GRDC acknowledges that this work would not be possible without large awards from private foundations. However, there are ways in which the organization reduces the cost burden of acquiring properties.
- Donated properties have helped to reduce the high costs associated with property acquisition. In a few unusual cases, individuals in the community have donated homes to GRDC. Acquiring these properties, although not necessarily foreclosed on, helps GRDC to fund the acquisition and reconstruction of other foreclosed properties.
- The bargain sale helps to reduce the community-based organizations overall cost burden through a low purchase cost, preventing vacant properties from reducing neighborhood property values. A property owner can sell his/her home for 20% below market value as partly a sale and partly a charitable contribution and then receive a substantial tax deduction. For example, a home worth $25,000 can be sold for $5,000 and although the sale accounts for only a portion of the total value, the homeowner is eligible for a $20,000 tax deduction at year end.
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Southwest Detroit’s Southwest Housing Solutions: Acquiring Bad Loans
In Detroit, Southwest Housing Solutions and Towne Mortgage, a Michigan based lender, are working together on innovative strategies to preserve property values and neighborhoods while at the same time, keeping families housed. This partnership takes on several forms.
First, Southwest Solutions has a fee-for-service contract with Towne Mortgage to provide foreclosure mitigation counseling to their borrowers who make up their distressed loan portfolio. In instances where foreclosure is unavoidable, Towne Mortgage when possible works with the borrower and Southwest Housing to relocate the borrower to a different home via a “soft-landing” within its proprietary ‘bank-owned’ portfolio. The objective here is to keep these properties occupied and to give families an opportunity to rebuild their credit while renting a more affordable home.
For those whose homes go into foreclosure, Southwest Housing Solutions provides ‘post-purchase’ counseling, including homebuyer education, rental counseling, financial literacy, assistance in rebuilding the home owners credit, help developing a budget, etc. From a credit standpoint, Southwest Solutions knows that it will take at least 36 months to clean up a foreclosure from their credit report. The ultimate goal of this type of post-purchase is to help displaced homeowners become financially stable and to purchase a new home at such time when they qualify.
What’s more, as part of this initiative, Southwest Solutions is able to refer/include other non-Towne Mortgage borrowers who are facing a non-retention option with their current mortgage servicer to Towne Mortgage’s “soft-landing” program. The borrower must meet the following criteria:
- Owner can no longer afford his/her home and the mortgage company will not work with the owner (e.g. developing a payment plan); Denial letter from current servicer stating reason
- Owner must have a sustainable income;
- Owner must show that his/her inability to afford the current home is due to sincere hardship such as loss of job, a severe pay cut, a medical condition or disability; and
- Owner must show that he/she is not strategically defaulting/walking away on their mortgage obligation due to an inability to secure a principle reduction.
The collaboration between Southwest Solutions and Towne Mortgage highlights the powerful impact that comes when non-profits partner with the private sector to develop innovative solutions for homeowners and neighborhoods.
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