Appendices to the Foreclosed Properties Task Force Report
Appendix 1 – TASK FORCE OVERVIEW ...... 3 1.1 Steering and Subcommittee Membership...... 3 1.2 Notice/Invitation to Join Task Force ...... 4 1.3 Task Force Meeting Notes (First Meeting) – March 4, 2008...... 6 1.4 Task Force Meeting Notes – (Planning Session) – March 25, 2008 ...... 10 1.5 Task Force Meeting Notes (Third Meeting) – April 15, 2008 ...... 16 1.6 Task Force Agenda and Meeting Notes (Fourth Meeting) – May 29, 2008...... 19 1.7 Task Force Meeting Notes (Sixth Meeting) – July 10, 2008...... 24
Appendix 2 – FUNDING SUBCOMMITTEE...... 28 2.1 Funding Subcommittee – Meeting Notes (2/25/2008) ...... 28 2.2 Funding Subcommittee - Progress Report & Draft Proposal (3/25/2008) ...... 30 2.3 Massachusetts Neighborhood Stabilization Fund – Press Release (Excerpted)...... 32 2.4 Massachusetts Neighborhood Stabilization Fund – Term Sheet...... 34
Appendix 3 - ACQUISITION SUBCOMMITTEE...... 36 3.1 Acquisition Subcommittee Meeting Notes (March 20, 2008)...... 36 3.2 Living Cities Grant Solicitation ...... 39 3.3 Acquisition Subcommittee - Summary of Progress 3-24-08...... 42 3.4 Memo on Short Sales and REO Practices in Lawrence (3/24/2008 handout)...... 44 3.5 Report on Difficulties Acquiring Properties: Nancy Blueweiss memo (7/8/2008)...... 46 3.6 Community Approaches to Foreclosing Institutions (Consultant Report) ...... 63 3.7 Acquisition Experiences of Organizations Buying Foreclosed Properties (August 2008)...... 70 3.8 Challenges in the Renovation of Foreclosed Housing (Consultant Report)...... 75
Appendix 4: HOLDING PERIOD SUBCOMMITTEE ...... 81 4.1 Holding Period Subcommittee - Meeting Notes and Matrix (March 21, 2008)...... 81 4.2 Emergency Repair/ Life Safety Checklist ...... 84 4.3 Property Quick Assessment Example (Receivership): Worcester ...... 89 4.4 Holding Period Cost Models ...... 93 4.5 Property Tax Relief: Initial Legal Research and Relevant Statutes ...... 95 4.6 Property Tax - Legal Research Memo...... 100
Appendix 5 – EXIT STRATEGIES SUBCOMMITTEE ...... 103 5.1 Exit Strategies Subcommittee – Meeting Notes (2/19/2008) ...... 103 5.2 Exit Strategies Working Group – Progress Report (3/20/2008)...... 105 5.3 Exit Strategies Matrix (draft 3/20/2008) ...... 107 5.4 Exit Strategies Subcommittee: Links to Land Banking and Receivership Studies ...... 109 5.5 Exit Strategies Subcommittee: Matrix of Decision- Making Criteria ...... 110 5.6 Financial Models: Funding Requirements by Strategy, Project Size and Locations...... 112 5.7 Suggested Terms for “Other Bond Resources” Program ...... 118 5.8 Receivership Options Matrix...... 120 5.9 Draft Receivership Program Model (Distressed Housing Program) – June 2008...... 121
Appendix 6: MATCHING PROPERTIES WITH BUYERS SUBCOMMITTEE ...... 125 6.1 Matching Properties with Buyers Subcommittee – Meeting Notes (2/28/2008)...... 125 6.2 Matching Properties with Buyers Subcommittee – Progress Report (3/21/2008)...... 127 6.3 Matching Properties with Buyers Subcommittee: Proposed Deliverables (April 2008)...... 129
1 6.4.1 Matching Properties with Buyers: Draft Program Model (Facilitated Short Sale) ...... 131 6.4.2 Matching Properties with Buyers: Draft Program Model (Rent to Own) ...... 132 6.4.3 Matching Properties with Buyers: Draft Program Model (Buyer Incentive Program) ...... 133
Appendix 7: TEST COMMUNITY OVERVIEWS ...... 135 7.1 Test Community Overview: Chelsea (March 2008)...... 135 7.2 Test Community Overview: Lawrence (March 2008) ...... 137 7.3 Test Community Overview: Boston (Registration Ordinance) ...... 140 7.4 Test Community Overview: Brockton ...... 144 7.5 Test Community Overview: Worcester...... 146 7.6 Test Community Overview: Springfield/ Western Massachusetts...... 147
Appendix 8: Library...... 149 8.1 Foreclosure Data Sources...... 149 8.2 Understanding MERS...... 153 8.3 Managing Residential Short Sales (Amanda Zuretti, Esq.)...... 170 8.4 REO Donation Programs...... 206
Appendix 9: SURVEY OF TASK FORCE PARTICIPANTS...... 207 9.1 Survey Results -Foreclosed Properties Task Force...... 207
2 Appendix 1.1 – Task Force Overview
Appendix 1 – TASK FORCE OVERVIEW
1.1 Steering and Subcommittee Membership
Steering Committee Members and Consultants Ann Houston Chelsea Neighborhood Developers; President of CHAPA Board Judith Jacobson Deputy Director, Massachusetts Housing Partnership (MHP) Joseph Kriesberg Executive Director, Massachusetts Associations of Community Development Corporations (MACDC) Aaron Gornstein Executive Director, Citizens’ Housing and Planning Association (CHAPA) Janna Tetreault Senior Program Manager, CHAPA Alice Wong Staff Consultant Technical Consultants Douglas Smith Management Consultant
Subcommittee Chairs/Co-Chairs/Consultants Funding Susan Connelly, MHP Mat Thall, housing consultant
Acquisition Rebecca Regan, Loan Fund President and Acting CFO, Boston Community Capital Loan Fund (a CDFI) Kristen Harol, L.I.F.E. Initiative 1
Holding Marc Dohan, Executive Director, Twin Cities CDC (cities of Fitchburg and Leominster)
Exit Strategies Don Bianchi, Senior Policy Advocate, MACDC Charleen Regan, housing consultant
Matching Buyers & Properties Peter Gagliardi, Executive Director, HAP, Inc. (regional housing non-profit in Springfield/Western Mass.)
Meeting Dates Task Force March 4, March 25, April 15, May 29, July 10, September 25 Funding February 25, Acquisition February 21 Holding March 21 Exit Strategies February 19 Matching Buyers February 28, March 18
1 Community Investment Initiative established to help life insurance companies meet state community reinvestment obligations.
3 Appendix 1.2 – Task Force Invitation
1.2 Notice/Invitation to Join Task Force
From: Ann Houston & Judy Jacobson, Co-Chairs, Foreclosed Properties Task Force RE: Invitation to Join Foreclosure Task Force
ULI / MACDC / CHAPA Foreclosed Properties Task Force
On January 31, 2008 ULI and MACDC hosted a forum to explore ways to redevelop Foreclosed Properties in Massachusetts. This Task Force, with participation from State Agencies, Quasi- Public leaders, foundations, for- and non-profit developers, consultants, and municipal officials, emerged from the discussion as a way to join efforts to quickly create viable tools, resources and responses.
How the Task Force will work: We recognize that the mounting number of foreclosed properties poses an urgent threat to the vitality and health of our neighborhoods. Therefore, the Task Force is designed to work on a number of issues simultaneously, with subcommittees reporting back to the full Task Force every 6 weeks to coordinate issues and address overarching concerns that do not neatly fall within the purview of any single subcommittee.
We intend to complete the work of the Task Force within 6 months. However, given the urgency of the problem, we will move to implement proposals and solutions as quickly as they are developed.
Each subcommittee will address the issues in their charge, developing: • Programs: recommendations for state (or federal / local) implementation • Products: for example a capital pool • Policies / Legislation • Best practices or models
MHP has generously provided initial funding to hire a consultant to staff the Task Force. We will seek additional funding as needed to expand the consultant base. We are looking at creating a website where the subcommittees can post minutes and work collaboratively.
Charge/ Goal for Task Force: Within 6 months, create a network of programs, policies, products and best practices to enable local entities to implement local strategies to promote neighborhood stabilization and minimize displacement of existing occupants through the sound disposition of properties that are in foreclosure, or at-risk of foreclosure.
Sub Committees: 1. Funding – Iden tify an interest-free or low-interest, patient and readily accessible pool of funds for the acquisition of properties that are in foreclosure or at risk of foreclosure. Chair: Susan Connelly ([email protected]) & Mat Thall ([email protected]) First meeting: Monday, February 25, 9:00 @ MHP, 160 Federal Street, 2 nd floor.
2. Acquisition – Identify strategies to acquire properties in foreclosure or at risk of foreclosure including: a) a clearinghouse to broker relationships with servicers/lenders/owners; b)
4 Appendix 1.2 – Task Force Invitation
models of acquisition (i.e. loan portfolio acquisitions or standardized short sales); and c) best practices for efficient purchases (i.e. bring to scale the acquisition of small properties). Chair: Rebecca Regan ([email protected]); First meeting: Thursday, 2/21 at 3:00 at Boston Community Capital, 56 Warren Street, Roxbury.
3. Holding Period – Identify the costs of holding properties and management models that address issues such as: obtaining insurance, performing emergency repairs, minimizing displacement of occupants, obtaining local code and tax relief, and strategies for achieving economies of scale (i.e. production network/aggregation opportunities). Chair: Marc Dohan ([email protected]); First meeting: to be determined: email [email protected] to sign up for this committee and for meeting times.
4. Exit Strategies – Model best practices to develop foreclosed properties as affordable or mixed-income homeownership developments, bundled rental projects, or demolition of blighting buildings as part of revitalization plan; identify barriers and proposed solutions (e.g., suspending the low-income housing tax credit “10-year rule” to facilitate including acquisition in basis of tax credit deals). Chair: Don Bianchi ( [email protected] ) & Charleen Regan ([email protected]); First meeting: Tuesday, 2/19 at 10:00 at MACDC, 89 South Street, 4th floor, Boston, MA 02111; phone Don for details at 617- 426-0303 .
5. Matching Properties and Homebuyers – Develop a model for non-profits who wish to facilitate the transfer of properties from foreclosing lenders to new homeowners. Chair: Peter Gagliardi ([email protected]); First meeting: Thursday, 2/28/08 @ CHAPA, 18 Tremont Street, Boston.
How to Get Involved: Join a subcommittee & attend full Task Force meetings. Participation on the Task Force is open, and we encourage you to share this invitation with anyone who is interested in working on this issue. CHAPA will maintain the master contact list: anyone interested in being participating should email [email protected] ; feel free to also contact the chair of the subcommittee you wish to serve on.
Full Task Force Meetings: March 4, 9:30 am – 11 am @ Mass Housing Partnership, 160 Federal Street, 2 nd floor, Boston April 15, 9:30 am – 11 am @ CHAPA, 18 Tremont Street, Suite 401, Boston May 29, 9:30 am – 11 am @ CHAPA, 18 Tremont Street, Suite 401, Boston
Questions? Email Ann Houston at [email protected] .
5 Appendix 1.3 – Task Force Minutes (First Meeting)
1.3 Task Force Meeting Notes (First Meeting) – March 4, 2008
Foreclosed Properties Task Force Meeting Tuesday, March 4, 2008 9:30 – 11:00 a.m. – MHP, 160 Federal Street, Boston
Welcome • Alice Wong will be staffing this initiative. • 5 sub-committees have been formed • 6-month process envisioned.
Ann – This is an urgent problem. Initial focus was on individuals being foreclosed. Counseling, prevention, developing products. What we are focusing on is different – properties and impact on the communities. Within 6 months we will create policies and best practices to promote neighborhood stabilization. Sound disposition of properties. For Sale signs from unknown brokers, hand made signs, boarded buildings. “Broken Window” syndrome is starting…graffiti, etc.
Challenge –how do we evolve solutions quickly? Task Force structure has 5 separate pieces. Every 6 weeks, the whole group will reconvene to identify overlaps, etc.
We need to have one more longer planning session. March 25 (1-5 p.m.) at CHAPA. There will be in-depth look at issues. Important to RSVP!
Iterative model of “Design - Do”, then “refine”. Hope to be testing as it is designed. Coming out with solutions quickly. Tina Brooks has given 2 months for answers. Prioritizing is important.
Quick solution – lines of credit that allow for property purchase while a larger pool with good interest rate, security, etc. is put together. Each committee needs to come up with an agenda ranked by high, medium or low impact and time to trial, thereby prioritizing next steps.
Strategies – saving properties, revitalizing neighborhoods. This is an opportunity to emerge from the downturn. Prices are softer, time to buy.
Subcommittee Reports and Feedback:
Funding There is work already going on to put together acquisition funds (Brockton, Worcester, etc.). Don’t want to “reinvent the wheel”. Complement other efforts. Sources of possible capital: Homefunders (local/national foundations that have raised program-related loan money for very low income families), City of Boston (affordable housing trust fund, etc.). Governor and Secty O’Connell will want to know what is on the table. Bob Kantor (FannieMae) – Community Express program (low interest credit but this is a variable rate product. Protection needed against “resets”). Episcopal pension fund. PRIs becoming more understood by foundations. Some foundations want to serve as a “guarantor” of loan capital. Bringing National Foundation (Ford, Rockefeller, etc) probably limited. Foundations may be persuaded to fund neighborhoods as a compliment to other initiatives.
Cautions: How do we complement/support efforts already underway? Concern that lenders are wary of getting into “retail lending”. Don’t want to underwrite individual acquisitions.
6 Appendix 1.3 – Task Force Minutes (First Meeting)
Unsecured lines of credit are appealing, need to explore other forms of collateral. People already buying properties – don’t buy “at any price”. Bidding down is important.
Structure of the pool is related to the “holding period” issues, eg. time, rehab.cost and “takeout” strategy. Goal is to come up with term sheets and possibilities for consideration. Single family loan products have tightened in response to this crisis, eg. FNMA no longer @ 100% LTV; another example of the link between “Funding” and “Exit” strategies. Start working with the communities that are already doing something. Support their efforts.
Pool – don’t think about entire pool having “at risk” portion. Think about working with the state on a state-wide pool. Primary charge to come up with a pool.
Loan to value needs to be watched and the “gap” needs to be funded somehow.
There will be a new date for the next funding meeting (originally scheduled for March 12 th ) so that there’s sufficient time to put together a draft term sheet for the committee’s input and comments .
Acquisition 2 meetings held to date: other efforts going on…Overlap of subcommittees – do these subcommittees make sense? Themes: acquisition strategies must include “layers” of efforts: entrepreneurs and small developers; Strategic way of looking at acquisitions? Foreclosure.com has listings online. How is the market organizing itself? (realtors being hired by lenders to sell the properties).
Need for a clearinghouse for information and also the efforts. Two other groups putting together efforts. Quick access to information needed. CHAPA working on catalog of efforts, the Boston Foundation interested in helping out.
City is working on “nuisance” ordinances, receivership strategy to get control, enforcement of neighborhoods (police presence, etc.)
Bob Kantor talked about bulk sales of FNMA OREOs. MA does not currently meet the threshold for number of properties. Propose taking a cut of properties under $200k. Strategic “short sales” so that there is not abandoned properties.
Interested in looking back at the experience of property disposal in early 90s.
Joe Kriesberg asked about conflict of interest in counseling people in foreclosure and the desire to buy the property. Wells Fargo – try to match the person who is losing the home to the CDC/non-profit. Citibank is on the list. Contact name at the servicers are needed. Kristin asked that the working list be sent to Becky Regan.
Ann – Clearinghouse needs to have the contact with the lenders and servicers. This should be a priority. “Mapping” capabilities are helpful.
Becky noted that servicers are coming forward. Lawsuits are worrisome.
Next meeting TBD. Kristin will co-chair with Becky.
7 Appendix 1.3 – Task Force Minutes (First Meeting)
Holding Period Property management costs…how much does it cost to manage for a certain period of time. This is for acquisition AND exit strategy. Joe Flatley – prequalify property managers, joint ventures between CDCs and private managers.
Interested in looking back at the experience of Boston’s old 1-4 program.
“Super Land Trust” should be considered.
Dorchester Bay – looking at roles and systems of management.
Insurance and taxes should be considered. Models for tax abatement/deferment. Properties with tenants are not as desirable.
Marc is the Chair of this Sub-Committee. People interested in participating on this group should contact him.
Exit Strategies Charleen a Co-Chair. What are the pool of funds at the end and what we want to accomplish. What are the potential exit strategies and avenues? Different building types lend different paths. What do our neighborhoods need? Links between inventory and what the market will support.
What is the universe of public resources that are available? Products for small-scale rental production, aggregating for tax credits. What is the capacity? Management? What do you put in place for long-term stability at the end (future downturns)? Municipalities need to make sure that the private market is regulated, monitored, good code enforcement, etc.
Kevin Harriman (Brockton) has a good model.
Joe Flatley – understanding that the private market is a large part of the exit strategy, how can CDCs help to protect neighborhoods in the next downturn.
Next meeting TBD.
Each sub-committee needs to identify amounts and adjustment in structure that could make resources work.
Joe Kriesberg – we are desperate for funding sources. Subcommittees shouldn’t get stuck in the minutia.
Matching Properties/Buyers Peter Gagliardi. Encourage new buyers into the market. any buyers holding back to see what the market is going to do. Increased down-payment requirements. Credit-tightening hinders first-time home buyers. Consumer confidence issues. Neighborhood conditions are deteriorating. Pool of potential buyers has been depleted. Concerns about lack of subsidy $; accessing the REO.
8 Appendix 1.3 – Task Force Minutes (First Meeting)
Opportunities: Increase willingness for “short sales”. Buyers are still available in some markets. FHA program an opportunity. Purchase/rehab products.
Strategies: Buyer incentives (rehab grants, rent-to-own strategies) Encourage “short sales” Need for information clearinghouse. Specific home-buyer education re purchase of REO. Resources of additional down-payment funds, eg. CPA.
Next meeting: Tuesday, March 18 at MHIC, 1 p.m.
Other models will be explored. Syracuse, NY – model for insurance. Judith Liben – MA Law Reform Institute
Aaron Gornstein Legislative Update- 97 bills on foreclosure. National Neighborhood Stabilization Task Force that we can plug into.
CDBG funds. Foreclosure bill in the Senate wanted.
Barney Frank’s request for acquisition fund.
9 Appendix 1.4 – Task Force Minutes (3/25/2008)
1.4 Task Force Meeting Notes – (Planning Session) – March 25, 2008
Foreclosed Properties Task Force Meeting Tuesday, March 25, 2008 – 1:00 p.m. CHAPA Office
Agenda 1) Introduction 2) ProjectCenter training (1:15 pm) 3) How Will We Know If This Task Force Is Successful? (1:30 pm) 4) Test Communities Overview (1:50 pm)
--- There will be a 15 minute break at 2:30 pm—
5) Subcommittee Goals Setting (2:45 pm) 6) Next Steps (4:45 pm)
Introduction Ann – we are working to refine the goal of the task force. This is a short-term project…must be effective. Clear priorities need to be established.
4 test-communities introduced today. Different sub-committees will meet to re-establish their charge. Are other items needed to make these efforts successful?
Website training Project Center website update. Co-chairs are responsible for posting their own meetings/conference calls, etc.
What is the charge of the Task Force? Within 6 month, create a network of programs, policies, products & best practices to enable local entities to implement local strategies to promote neighborhood stabilization and minimize displacement of existing occupants through the sound disposition of properties that are in foreclosure, or at-risk of foreclosure.
Who are we serving? • Displaced homeowners • Properties (people who live in the properties)
Customers of Task Force deliverables: local planners, CDCs, practitioners, private entrepreneurs, neighborhoods, other homeowners, residents, tenants (people who live in the properties that have been foreclosed on). Agreement that the customer is local entities that are looking to stabilize neighborhoods.
Focus is neighborhood stabilization, i.e. getting properties into responsible hands. We are not focusing on foreclosure counseling.
If our goal is to support the practitioners who are looking to stabilize neighborhoods for the residents, we need to develop strategies/products.
10 Appendix 1.4 – Task Force Minutes (3/25/2008)
“4-P’s” : What are we trying to do? 1. Best Practices 2. Programs 3. Products 4. Policies/legislation
How will we know if this Task Force is successful? • Outcome of the committee is not a paper. These “4-P’s” need to make a difference in a broad way that can work in the range of communities impacted by foreclosure. We need to ask, “Is this useful to communities?”
• Intervention to prevent the abandonment cycle is important to recognize. We know we’re successful if we can intervene in this cycle.
• In some neighborhoods, home values are declining faster than others. If these focused neighborhoods can be closer in line with the state average, it would show that we had an impact.
• Increasing the stock of community-controlled stock. Supporting local efforts.
• Narrower measure goals, eg. properties are REO for shorter time; lower percentage of properties that are REO, etc.
• Making sure that properties are occupied – either by the owner or a tenant.
Question as to if there should be a measurement committee to help determine success rate. Should measurement be assigned to the sub-committee Chair?
Test Communities
Worcester (Scott Hayman) -Administers Federal Home Funds and Grants. Strong community development corps. Many products a little Boston-centric which is frustrating. -Increased home ownership last year. Counseling prior to purchase. Strong employer support for housing. -Older housing stock in Worcester. -Many petitions to foreclose but fewer that actually ended in foreclosure in 2007. 135 petitions last month, but 45 moving to foreclosure. City has had to boarding up properties Foreclosures are now single-family homes in nicer areas of town. - New software developed that allowed them to pull data on problem properties, utilities, etc. which gave scoring system to properties. Code enforcement important. If a building becomes vacant, homes are vandalized. - Receivership model introduced. A manageable tool for the City. Proper parties come to the table in a receivership. Who would reimburse for receivership? Looking at a central administrator/receivership entity. Needs help with small pool of funds to cover assessment costs, etc.
Wish list: Receivership loan fund; local flexible lending products (re-financing into lower rates).
11 Appendix 1.4 – Task Force Minutes (3/25/2008)
Springfield/Western Massachusetts (Peter Gagliardi) -Springfield has significant foreclosure issues. They are bringing together nonprofit agencies to put together a collaborative effort with Springfield and other cities to develop a 3-pronged effort: 1. Prevent as may foreclosures as possible. Foreclosure prevention center is part of the process of the Springfield strategy (which is then used in other communities). 2. Stimulating first-time homebuyer activity to live in the foreclosed properties. 3. Develop effective strategies, using the collective capacity of the region’s nonprofit housing developers, to address the challenges of dealing with those properties that may never the less become vacant and abandoned .
-Not sure if HAP will acquire the properties. -Cost of capital adds to the carrying costs.
Wish list: capitalizing a fund that would allow an entity to acquire, hold and keep buildings occupied.
Chelsea (Ann Houston) -Strategic acquisition of properties being done. Bundle scattered properties into tax credit properties. -Stimulate home-buying community – rehab properties and sell to homebuyers. Model needed to keep homeowners stable. -Some properties need to be strategically demo’d and housing redeveloped that meets the needs of today’s family. -Acquisition is the toughest. Wants to participate in bulk purchases, but not lead. Wants best practices on short sales/negotiations. -Exit strategies needed. Shorten holding period premium. Support Kerry’s bill that removes 10- year anti-churning piece.
Wish list: low rate acquisition pool that is non-recourse; gap period funding needed; encourage that legislature pass something that allows properties to come off the tax roles.
Lawrence ( Jess Andors ) -51 units renovated over the last few years. LCW has $20 million invested in the neighborhoods. -40 properties currently have petitions pending. Investor-owned properties are proportionately the problem. There is a “fragmented ownership situation.” Need to focus on clusters of homes. There are three clusters that are being focused on – all owned by the same bank. Acquisition strategy: intensive negotiation! Funds are still needed. $100k - $200k per unit needed to rehab many triple-deckers. -Lease buy-back strategy – negotiate the sale, keep the family in the home as a renter. Set up an account form them…family signs a lease-management agreement. The family would have the ability to re-purchase the house after 2 -3 years. If this model works, it could help stabilize neighborhoods.
Wish list: “In-kind” support of realtors would be helpful. The easing of deed restrictions would also help.
Boston -City is putting out a RFP soon for the Hendry Street buildings.
Sub-Committee Report-Outs
12 Appendix 1.4 – Task Force Minutes (3/25/2008)
Acquisition Funding (Sue Connolly, Mat Thall) Sue – “What does a pool of funds look like?” – depends on timing and recourse. There is currently a state effort to establish a pool of funds. The state is looking for larger portfolio acquisition. The task force product depends on the takeout strategy. Looser acquisition financing would be taken out by holding pool financing (more discipline) which has full recourse, 5% line of credit.
1. Is there a way to use grant/foundation money to share risk? 2. Can cities bring $ to the table (rehab $) 3. Can we look to the state for state funds to get these properties out of the holding pattern?
National Foundation Conference call: Working group looking to put together PRI around foreclosed properties. Living Cities looking to roll out a larger product.
Response by test communities/task force members: • Peter – managing risk is the hardest part. • Jess – a list of foundations should be put together. This list should be of likely funders. Who is best suited to make “the ask”? We need to gauge the right ask to the right organization. It is important to have a united voice regarding competing uses for CDBG funds, eg. new vs. rehab. • Ann – Full recourse is tough when non-profits being asked to acquire when there is large risk for continued falling values. Need a product with a top piece where there is not recourse – 5% holding and patient because 3 years before the properties can be resold. • Scott – exit strategy needs to match up with acquisition and holding. Rehab done, getting the house back on the market is very costly. Need to reposition homes. • Eleanor – many projects cannot go forward. Cost-cutting issues – where should the subsidy go? • Mossik – it is important to get the word out to national organizations to mobilize.
Next steps: Working through key issues of sources of funding, recourse, interest rate, and how funds are efficiently administered.
Acquisition (Becky Regan) -More funds are needed. - Reduction needs to happen on the lender side. -“Entrepreneur on the street” developers are out there – we should encourage this strategy. -Efficiency/speed crucial to the entrepreneur. Good information is important. CHAPA could be a clearinghouse for constituents – a place where we could look at initiatives underway – give clear information on national legislation, specific examples of what entrepreneurs are doing. -Idea to engage pro-bono legal services, eg. access to Wilmer Hale at Harvard law.
Response by test communities/task force members: • Jess – this is a retail strategy. We need to try a “wholesale” strategy with lenders. “Entrepreneurs” = “bottom-feeders” • Peter – Wholesale is important. It would be good if CHAPA got the information out – no need to reinvent the wheel.
13 Appendix 1.4 – Task Force Minutes (3/25/2008)
• Ann – Acquisition Committee should focus on how to get hold of these properties. A clearinghouse is a good idea – one entity that figures out how to contact the servicers/lenders. Entrepreneurs are now going under too. • Scott – Clearinghouse needed. Making connections is important. • Tom – contact person at the lenders is loss mitigation department, not the servicer. Frame the ask for REO, i.e. what would an agreement look like. • Don – aggressive code enforcement is crucial.
Next steps: 1. Work w/CHAPA on the clearinghouse to streamline access to the properties. 2. Work with legal groups, advocates, tenant organizers to get a hold of the troubled properties.
Holding (Marc Dohan) look at the cost of holding properties (insurance, repairs, economy of scale) • Long term vs. emergency repairs • Insurance • Tax relief • What are the basic operating costs
Is there a receivership model/best practice? Will produce a chart to show the costs of holding a property.
Response by test communities/task force members: • Joe – frame legislation to allow for change in real estate tax relief • Jess – hold lenders responsible for the condition of the properties • Mossik – holding strategy needs to be tied to the exit strategy.
Next steps: 1. Joe and Judy will help with the insurance questions. 2. A private property manager will review actual operating data across a range of portfolios (incl.MHP and MassHousing) to model the costs of holding a troubled property.
Exit Strategies (Don Bianchi) -Subcommittee prepared a chart showing the kinds of properties and the barriers/costs associated with each. -Look at public subsidy sources, rental production models, demo and land-taking strategies, long- term regulatory structure.
Response by test communities/task force members: • Jess – preliminary estimate of total development costs would help frame the ask. Deed- restriction question is important. • Ann – What are the incentives that encourage responsible ownership? We need to bring in “for profit” developers, too. • Eleanor – bring in representatives of home builders and GBREB. The next meeting is April 2 from 10 a.m. – 12 noon. • What is the “ask” of the state? • Organizations need the security of an exit strategy. What is the “worst case” exit strategy?
Next steps: 1. Define the elements of a pilot program; key components are $ and deed restrictions. 2. Work with the test communities to shape the asks.
14 Appendix 1.4 – Task Force Minutes (3/25/2008)
Matching homebuyers and properties (Peter Gagliardi) • Renewed attention needed • Create incentives to buyers in a weak market • Rehab loans and grants need to be available • “rent to own” scenarios (HUD 203b) • Negotiate a “short sale” using brokers
Response by test communities/task force members: • Jess – Looking at enterprise zones as a model, is there a way to get people to invest in targeted neighborhoods?
Next steps: 1. Develop best practices on “rent to own” programs, including assessing the HUD 203b program. 2. Creating incentives to buyers in weak markets.
Next full Task Force meeting scheduled for Tuesday, April 15, 2008, 9:30-11 am at MassHousing.
15 Appendix 1.5 – Task Force Minutes (4/15/2008)
1.5 Task Force Meeting Notes (Third Meeting) – April 15, 2008
Welcome – Joe Kriesberg • Reiterated the charge of the task force: Within 6 months, create a network of programs, policies, products & best practices to enable local entities to implement local strategies to promote neighborhood stabilization and minimize displacement of existing occupants through the sound disposition of properties that are in foreclosure, or at-risk of foreclosure.
• Customers of Task Force deliverables: local entities that are looking to stabilize neighborhoods, eg. local planners, CDCs, practitioners, private entrepreneurs, neighborhoods, other homeowners, residents, tenants (people who live in the properties that have been foreclosed on)
CHAPA – Aaron Gornstein • On April 3 rd the Senate (Dodd/Shelby) passed a foreclosure bill that includes $4 billion in new CDBG for the acquisition and rehab of foreclosed properties. The distribution formula would be based on the number and percent of homes financed with subprime loans and homes in default and delinquency in each state. • Congressman Frank has drafted a bill that would provide $10 billion for this purpose but it would be through the Treasury Dept not HUD. However, Cong. Waters’ proposed fund (which is similar to the Senate version) is likely to be incorporated into the financial services committee legislation. • CHAPA, MACDC, and MHP sent a joint letter to Cong. Frank with our recommendations for the bill. • The summaries of all of the federal foreclosure bills are on CHAPA’s website under “Federal Policy”. • The state Housing bond bill passed both the House and Senate but there were a few differences that the chambers are working to resolve. Both versions authorize DHCD to shorten deed restrictions and increase income eligibility for HSF projects in areas deemed “weak markets” so that provision will be included. • CHAPA’s Clearinghouse proposal, partially funded by the Boston Foundation and this task force, includes o Meeting w/Warren Group, to purchase data to be accessed through CHAPA, that will help the Customer track foreclosures in their communities. o Enlisting the help of the MA delegation to put together meetings w/top foreclosing servicers (includes Deutsche, Wells Fargo, US Bank, HSBC, and Bank of New York), to present an “ask” prepared by the Acquisition Committee
Acquisition Subcommittee – Becky Regan and Kristen Harol • Goal is to keep a clear path between the Customer and the information. • Committee member Prabal Chakrabarti is working on consolidating the various websites that track foreclosed properties, to streamline the information at the retail level, and linking it w/mapping. • The committee will also post “best practices” on acquiring properties at the wholesale level, on the task force web site. • It is not appropriate for the Committee to negotiate a bulk sale. The Committee will outline a
16 Appendix 1.5 – Task Force Minutes (4/15/2008)
framework of the “ask.” Components include: how information flows between seller and buyer; an agreement to sell; geographic bifurcation of the portfolio; strike price or price as a percentage of market value. Unlike the 1990’s, some of today’s lenders have not been through the drill. • The Committee will look at using civic engagement, for example enlisting the help of the legal services/advocacy community to use aggressive code enforcement/exercise of tenant protections, as an acquisition strategy. Possible pilot program with one of the test communities. Kathy Brown, Boston Tenant Coalition, added that faith-based groups are also engaged. She also mentioned potential resources for more legal services and the need to fund more organizers.
Matching – Peter Gagliardi (Committee’s 2 page hand-out is available on the website) • One of the Committee’s top priorities is to enhance homebuyer education for and access to foreclosed properties. Massachusetts Board of Realtors has a Loss Mitigation Certification course for its members. MBR is a large infrastructure; it makes sense to use this vehicle to connect these trained realtors with homeowners facing foreclosure to facilitate short sales, and get these properties to buyers as quickly as possible to avoid homes going vacant. Idea to work on a memorandum of understanding w/MBR; components could include a referral system for foreclosure counselors to access when a short sale is the preferred outcome for their clients; and an information system that will assist those completing first time homebuyer courses to access information on foreclosed properties. • The Committee’s researching the HUD/FHA 203(b) program, the Rent to Own (RTO) program. The program allows nonprofits to acquire these mortgages, keeping families in place until they create the financial strength and stability needed to purchase and afford their own home. Peter expects that there will be a need for additional equity to make the program viable to address foreclosed properties. • Peter outlined program models where there are financial incentives for buyers in weak markets, for example rebuilding New Orleans after Hurricane Katrina. His committee will work on such a program. He noted that it must reflect the proposed changes in deed restrictions described earlier by Aaron in order to work in hard hit markets.
Holding – Marc Dohan • The committee has put together a checklist for emergency repairs, and it will be posted on the task force website after the meeting. • It is also working with test communities and other task force members to estimate key costs and variables, with a focus on insurance. • Its next step is to look at real estate tax relief – how it works now, and developing a framework for proposed legislation.
Receivership model: Worcester – Scott Hayman • City rolled out its SAVE initiative in response to the rise in foreclosures. Detailed information is on the task force website, under Test community/Worcester folder. • City is focused on putting foreclosed properties under receivership, to avoid tenant displacement and to stabilize the property by making the needed repairs. • Additional resources are needed including city’s code enforcement staff and law department, as well as legal services to help identify troubled buildings. • Charleen Regan will help the City develop its receivership model, and share the information with the task force. Funding – Sue Connelly and Mat Thall • Posted on the website (under Funding subcommittee folder) are the key terms of a new $20
17 Appendix 1.5 – Task Force Minutes (4/15/2008)
million loan pool to fund the acquisition and holding of foreclosed properties. MHIC will administer the pool sourced by MHP, MHIC, DHCD and local lenders. In addition, DHCD has pledged a set-aside of $60K per unit for modest rehab and other costs. The Governor announced the pool on April 8, 2008. • The roll-out will be within 6-8 weeks, starting w/the target communities. • The program is intended for high capacity groups that have assessed the redevelopment of key buildings as part of a neighborhood stabilization plan. • A proposal has been submitted to Living Cities for additional loan capital and grant funds to further the loan pool. • Other funding needs to explore include funds to hire receivers to handle troubled properties, and raising equity for these deals using New Market tax credits.
Exit – Don Bianchi and Charleen Regan • The committee is working on an exit strategy, first for a small-scale rental project and then, a larger tax credit development. • To work toward a program design for the small-scale rental, Laurie Gould did some modeling based on buildings in Brockton, Chelsea, and Worcester (spreadsheet can be found under the Exit subcommittee folder). Based on this first run of numbers, the subsidy need ranges from $45K/du to $130k/du, which is largely a function of the number of Section 8 units. • In addition to program design, the committee will also put forth “best practices” to help insure long term stability of these redeveloped properties, for example establishing an operating reserve pool for nonprofits to share the risk of operating shortfalls. It will also look at land banking as another component of exit strategies for foreclosed properties not ready for redevelopment. • Deborah Goddard is working on a matrix that helps one evaluate a building, and then match it up with likely exit strategies. When completed, it will be posted o the website.
Wrap Up – Ann Houston • Much progress has been made in the first 10 weeks of the task force, thanks to the volunteer effort of the committee members. New task force members are encouraged to join committees to further the work. • MHP, MassHousing and Boston Foundation funding has enabled the task force to supplement the committee work with consultant time and support. • First “deliverables” of the task force are the acquisition loan pool and the CHAPA clearinghouse effort. Committees have identified and are working on funding needs/issues across the spectrum of troubled properties: legal services, code enforcement, real estate tax relief, removing the 10-yr. rule, public subsidy for redevelopment, incentives for homebuyers in distressed areas, and the softening of deed restrictions in weak markets. • We are building and improving on the task force website, ProjectCenter, to share the committees’ work with the entire task force. New website users should refer to the Quick Start-up Guide before using the site; troubleshooting questions can be emailed to Alice Wong, [email protected] . • Brockton is interested in hosting a meeting for task force members to see their on-the-ground efforts to respond to foreclosures. Next Task Force meeting is on Thursday, May 29, 9:30-11 am. New location: Sherin and Lodgen, 101 Federal St., Boston.
18 Appendix 1.6 – Task Force Minutes (5/29/2008)
1.6 Task Force Agenda and Meeting Notes (Fourth Meeting) – May 29, 2008
Agenda 1. Welcome 2. Federal and State Legislative Update 3. Local Strategy #1: Acquisition a. Updates from test communities b. Updates from subcommittees 4. Local Strategy #2: Matching Homebuyers to Properties 5. Local Strategy #3: Code Enforcement a. Updates from test communities b. Receivership model: Worcester 6. Wrap Up
Meeting Notes
I. Welcome and Focus of Meeting The focus of the Task Force meeting is on three of the strategies that the subcommittees have been working on: acquisition; matching homebuyers with properties; and, aggressive code enforcement. The Task Force co-chairs also asked members to identify issues or concerns that have not yet been addressed by the Task Force (see attached).
II. Legislative Updates Aaron Gornstein provided a brief update on the federal foreclosure legislation. There are two different bills:
1. Neighborhood Stabilization Act (has passed both the House and the Senate) 2. FHA refinancing bill with GSE reform passed the house and is expected to pass the Senate in 1-2 weeks. Senator Kerry included the Affordable Housing Trust Fund in the bill.
There is a possibility that the bills won’t go to conference committee. Congressman Frank has expressed interest in working out the differences before the July recess.
CHAPA has heard that there have not been many groups focusing on the stabilization fund – which is of particular interest to the Task Force – and the New England Housing Network is planning to weigh in with the New England delegation about the importance of the fund. President Bush has threatened to veto the bill with the neighborhood stabilization fund and the House may not have enough votes to override the veto.
CHAPA has developed several summaries and comparisons of the federal bills and they are posted on CHAPA’s website at www.chapa.org under ‘Federal Policy’.
Judith Liben added that some of the tenant protections in the federal bills were weakened but Senator Kerry filed a new tenant bill recently that would require a 90-day notice to quit to tenants and would include protections for Section 8 tenants that is similar to the Massachusetts law.
Judith also provided a legislative update on the three state bills recently filed on foreclosure: 1) 6-month moratorium on foreclosures for subprime and predatory loans; 2) judicial
19 Appendix 1.6 – Task Force Minutes (5/29/2008)
foreclosure; and 3) a temporary just-cause eviction law that would end in 2013. If anyone is interested in advocating on these bills, please contact Judith.
III. Feedback from Test Communities on Acquisition Strategies
A. Lawrence Deb Fox from Lawrence CommunityWorks updated the Task Force on some of the work LCW has been doing to try to acquire properties. LCW has been able to identify the properties in their neighborhood that are REO properties. LCW has done some evaluation of the rehab needs of the properties and have found that they are extensive. The properties are all vacant and many of them have pipes missing, mold issues and other needs.
LCW put in offers for eight 2-4 family properties of approximately $20,000 - $25,000 per unit but has not had a lot of response and none of the offers were accepted. LCW feels that there is a big gap between what the actual market value is for the properties given their rehab needs and what the lenders/owners are willing to sell them for. Most of LCW’s interactions have been with the listing real estate agents (not the lenders directly) and they have had some success with Fannie Mae, mostly due to the local office’s assistance.
B. Chelsea Chelsea’s experience has been similar to that of Lawrence. Meg Kiely from Chelsea Neighborhood Developers has also identified priority properties in priority neighborhoods but hasn’t had any success in acquiring them. In a couple cases, CND had put offers in on properties going through short sales but were ultimately unsuccessful and in one case, CND lost their deposit and the property was sold to someone else.
The properties in Chelsea also need substantial rehab, in some cases as much as $100,000.
Several Task Force members commented that City code enforcement is key in making it costly for the lenders to hold on to these properties. The City of Chelsea has done some code enforcement but, like many cities, it is costly for the City to manage an aggressive code enforcement strategy.
C. Worcester Scott Hayman from the City of Worcester and Matt Wally from Worcester Community Housing Resources represented Worcester at the Task Force meeting. They reported that they are seeing real estate listings dropping to approximately $20,000/unit and they have been working with MassHousing on a developing a short sale initiative that would, by working with the staff at the NeighborWorks Homeownership Center of Worcester, would match homeowners in default with realtors experienced in negotiating short sales to help the homeowners avoid foreclosure.
It’s been reported that short sales are working better in the suburbs, even with homes selling for $100,000 - $150,000 below the mortgage amount.
D. Boston Pat Canavan from the City of Boston and Sheila Dillon from the Boston Redevelopment Authority reported on the City’s acquisition strategy. The City of Boston started by targeting a specific neighborhood because of the number of vacant, foreclosed properties and acquired four 3-family properties for approximately 10-15 cents on the dollar ($19,000 - $23,000/unit). Mayor Menino has been able to obtain the contact information for the top people at the
20 Appendix 1.6 – Task Force Minutes (5/29/2008)
biggest servicing companies to facilitate these transactions. The City has selected two more neighborhoods to target.
Sheila explained that the City would like to sell the acquired properties to non-profits or other developers willing to rehab and sell or rent the properties. The City will issue an RFP once it has site control and hopes to sell the units at cost to another party. They would also like to issue an RFQ to have a list of non- and for-profit buyers that are ready to purchase units so that when the City has a property, they can choose from a list of entities ready to purchase and rehab the buildings. Boston has decided not to place deed restrictions on these units nor require that the units be resold to first-time homebuyers or low or moderate income households.
IV. Subcommittee Updates
A. Holding Subcommittee The Holding Committee has been working on trying to determine a way for non-profits acquiring foreclosed properties to get relief on paying real estate taxes while rehabbing the units.
There is an existing law (the “Tucker bill”) that communities can adopt if they want to abate back taxes for properties that will be used for affordable housing.
B. Funding Subcommittee The Funding Subcommittee has been actively involved in the new acquisition loan pool that was announced by Governor Patrick a few weeks ago. The acquisition pool will have 2 tiers: 1. The acquisition lines of credit will be full recourse 2. A holding pool that will provide longer term (2-3 years) interim financing that will then allow properties to be sold to homeowners or placed in a rental portfolio. DHCD has committed to provide up to 60,000/unit in subsidy funds to support properties acquired through the loan fund.
MHIC will manage the pool and is meeting with some non-profits to determine what the challenges are. It is also expected that non-profits will need to seek additional municipal support for additional subsidy dollars because the state will probably not put additional subsidy money towards the pool.
The Funding Subcommittee also updated the Task Force on the Living Cities proposal and reported that they have received a verbal confirmation that the proposal will be funded. The Subcommittee thanks Geeta Pradhan and The Boston Foundation for their support.
The Funding Subcommittee has decided that it is not necessary to continue meeting at this time.
C. Exit Strategies The Exit Strategy Subcommittee has been working on modeling some small scale, scattered site strategies as well as strategies for LIHTC bundling. They plan to meet with DHCD to talk about resource needs, specifically HOME and HSF.
D. Acquisition The Acquisition Subcommittee has been working on two initiatives: working with The Warren Group on accessing foreclosed property data and working on an initiative to facilitate
21 Appendix 1.6 – Task Force Minutes (5/29/2008)
REO sales to non-profits and municipalities.
1. Property Data The Subcommittee held a small focus meeting at the Federal Reserve Bank of Boston to discuss The Warren Group’s current website and a possible enhanced version that could be developed by a consultant. The enhanced version would allow users to download and manipulate property data, add additional fields and develop individual queries based on the needs of each organization. Several agencies currently subscribe to The Warren Group website. The Subcommittee will contact those agencies to better determine their use and their interest in an enhanced database.
2. Meetings with Top Servicers/Foreclosing Lenders CHAPA and the Acquisition Subcommittee met with staff from Congressman Frank and Senator Kennedy’s offices in April to ask their assistance in requesting meetings with the top 20 foreclosing servicers/lenders in Massachusetts to discuss ways to facilitate the sale of foreclosed properties to non-profits and municipalities and to encourage them to develop a better process for disposition of property that is easier to access.
Louise Elving has been hired by the Task Force to assist CHAPA and the Subcommittee in developing the “ask” for the meetings and will be contacting other members of the Task Force for feedback.
E. Matching Homebuyers with Properties The Matching Subcommittee has been working on three strategies:
1. Working with realtors to help owners sell properties in foreclosure before they become vacant: The Mass Association of Realtors has been providing training for its members on loss mitigation, short sales and negotiations. The Matching Subcommittee hopes to help match owners facing default with experienced realtors.
2. Revitalizing FHA’s 203(b) rent-to-own mortgage: This program allows non-profits to purchase a property, allow the tenant to participate in a rent-to-own program and the non- profit can transfer the property to the tenant when the program is complete. The Matching Subcommittee hopes that non-profits could utilize this program now to purchase homes via short sale from homeowners in default, allow current homeowners that have the capacity to remain in the homes, giving them more time to repair credit issues and keep up with the maintenance of the property, all while stabilizing the neighborhood by avoiding foreclosure.
3. Creating incentives for new homebuyers to enter market: Many buyers are continuing the wait for the market to go down and are hesitant to purchase. The Matching Subcommittee is working on packaging incentives for new homebuyers such as further reductions in price, funding upgrades or ways to minimize the “downside” of purchasing in a unpredictable market.
F. Worcester’s Receivership Model Worcester Community Housing Resources is serving as a receiver for the City for an 8-unit condo building. Five units were in foreclosure and 3 units were vacant. The City of Worcester’s code enforcement program and its ability to identify vacant and/or blighted properties has been a key component of Worcester’s receivership model. Worcester has also found that receivership, or the threat or receivership, has created leverage with some lenders
22 Appendix 1.6 – Task Force Minutes (5/29/2008)
that would otherwise not respond to requests to negotiate.
V. Next Meeting The next Task Force meeting will be on July 10 th from 9:30 – 11:00 a.m. Location is TBD and an email reminder will be sent out prior to the meeting.
Additional Issues, Concerns and Questions from Task Force Members
1. Conflict of interest between buyers and sellers of properties: policies and concerns 2. Lease/buy back strategies 3. Lead paint 4. Moderate rehab resources 5. Any successes with lenders donating properties 6. code enforcement 7. purchase and rehab programs for properties
23 Appendix 1.7 – Task Force Minutes (7/10/2008)
1.7 Task Force Meeting Notes (Sixth Meeting) – July 10, 2008
I. Welcome and Background of Task Force Joe Kriesberg provided a background for the Task Force and its goals and objectives. The Task Force is nearing its 6 month mark and plans to wrap up in the fall. A meeting notice will be sent out with the next meeting date and location.
II. Progress Made So Far Ann Houston explained that the Task Force has a membership of about 95 different organizations and about 185 members. The Task Force used a “design – do” organizing principle to design, test, and redesign ideas and initiatives. The Task Force has relied on cities and neighborhoods to be its “customers” and to test ideas on communities to ensure that recommendations made meet the needs of the Commonwealth.
A. Neighborhood Stabilization Fund The recently announced neighborhood stabilization fund for the acquisition of foreclosed property that will be managed by the Massachusetts Housing Investment Corporation and the Massachusetts Housing Partnership has the following components: • $17 million from MHIC and MHP • $1 million from the Affordable Housing Trust Fund • $3 million in Program Related Investment (PRI) loans from foundations ($2m from The Boston Foundation and $1m from the Hyams Foundation)
Additionally, DHCD will contribute $60,000/unit in subsidy from the Housing Stabilization Fund without going through funding rounds. HSF does require affordability restrictions but also includes provisions for weak market neighborhoods with higher income limits and shorter restrictions. DHCD has indicated that there may be more opportunities for additional subsidies out of round. DHCD’s support has been critical to the creation of this fund.
MHIC will be administering $620,000 in grant funds to help cities. A portion of the money ($500,000 grant from Living Cities) has been set-aside for three communities (Boston, Lawrence and Chelsea) and the remaining $120,000 from Fannie Mae can be used by other municipalities.
The fund is available now if non-profits and cities have properties that they are interested in. Term sheets are available from MHIC. The fund works as a two-step process: 1. Line of credit between $500,000 - $1 million for buyers to act quickly to purchase property; full recourse to borrower. 2. Holding period loans for owners to maintain property and/or address rehab needs; recourse limited to fees and overhead.
There may be additional resources available in the future for this fund. The HomeFunders are interested in being involved, though they target formerly homeless households which may not be an exact fit for this initiative. DHCD has also mentioned the potential availability of project-based Sections 8s.
B. The Warren Group Data and Foreclosure Clearinghouse CHAPA has been working on two initiatives on behalf of the Foreclosure Task Force. 1. As mentioned in previous meetings, CHAPA is working with The Warren Group and
24 Appendix 1.7 – Task Force Minutes (7/10/2008)
consultant Eric Segal to create an easier way for non-profits and municipalities to access Warren Group foreclosure data in an online database that agencies can easily manipulate, track and print reports from. The data will include foreclosure petitions, auctions, sales, REO data, tax lien data and data on adjustable-rate loans. CHAPA is close to signing a licensing agreement with The Warren Group and Eric Segal has already started working on the database. The database will be available as a monthly subscription and a demo will be ready in a couple weeks for agencies to view and give feedback on. CHAPA hopes to launch the new program in the fall. 2. CHAPA continues to work on the online Foreclosure Clearinghouse, which will be incorporated into a redesign of CHAPA’s website that is going on right now. CHAPA plans to launch its new website, with the Foreclosure Clearinghouse, in September.
C. Exit Strategy Committee The Exit Strategy Committee has been working with consultant Laurie Gould to develop some financial scenarios for Brockton, Chelsea and Worcester to determine rehab needs in both partially occupied and vacant units. The estimates are calculated per unit and do not assume Project-Based Section 8s.
BROCKTON Unit in Decent Condition Unit in Poor Condition Acquisition Prices: $93,000/unit $63,000/unit
Subsidy Estimates: 18 unit, scattered site $89,000/unit $135,000/unit 36 unit, scattered site w/ 9% tax $67,000/unit beyond tax $50,000/unit beyond tax credit credit credit
CHELSEA Unit in Decent Condition Unit in Poor Condition Acquisition Prices: $70,000/unit $45,000/unit
Subsidy Estimates: 18 unit, scattered site $115,000/unit $139,000/unit 36 unit, scattered site w/ 9% $67,000/unit beyond tax $36,000/unit beyond tax tax credit credit credit
WORCESTER Unit in Decent Condition Unit in Poor Condition Acquisition Prices: $60,000/unit $40,000/unit
Subsidy Estimates: 18 unit, scattered site $71,000/unit $120,000/unit 36 unit, scattered site w/ 9% $35,000/unit beyond tax $33,000/unit beyond tax tax credit credit credit
In all three cities when no tax credit is available, the rehab needs in occupied buildings are lower. The use of the acquisition fund would be a good match here because of the lower cost and the added benefit of protecting tenancies.
25 Appendix 1.7 – Task Force Minutes (7/10/2008)
D. Receivership Receivership pilot programs are currently going on in Worcester and Springfield. As discussed in previous meetings, the receivership model works well to send strong messages to servicers and protects the tenancies of households in foreclosed buildings.
DHCD has been authorized to establish a revolving loan fund for receiverships and the cities of Springfield and Worcester have asked DHCD to implement the fund.
III. Initiatives in Progress
A. Streamlining Access to Servicers/Owners Consultant Louise Elving has been working with Task Force members to determine the “ask” for mortgage servicers and owners regarding the disposition of foreclosed property. She has spoken to several members of the Task Force to hear about their experiences trying to purchase REO properties.
The Problem: • Difficult to find out who is responsible for the property and who can make decisions • Difficult to get access to the property to determine rehab needs • Cannot locate a person to negotiate the offer; many times the brokers hired by the servicers cannot help • There is no bulk ownership in any one community – multiple owners • Unethical sales – some offers are conveniently lost and properties are sold to other (sometimes related) entities
The “Asks”: • Effective contact person to access to property and negotiate deals and make decisions • Understand what the realistic value is of the property • Provide a list of properties by community • Ability to negotiate “bulk sales” scattered site in multiple communities • Vacant vs occupied units – different communities have different wants and needs
Agencies vary in terms of their scales of development. Most agencies indicated interest in purchasing properties for rental properties. Agencies expressed concern that accessing new resources may adversely affect their ability to continue other projects already underway – they do not want to compete with themselves.
Louise is looking for information on the following: • Examples of unethical sales, lost offers, etc. • Examples of success including who the property was purchased from • Anyone with success with Chase and Wells Fargo
Contact Louise via email at [email protected] .
B. Political Action Bob Van Meter and others are meeting on July 18 th to discuss ways to put pressure on the mortgage servicers to work closer with non-profits and municipalities on acquisition efforts. This group is working on developing a report that details the difficulties groups are having acquiring properties with a list of demands and/or requests for the servicers.
26 Appendix 1.7 – Task Force Minutes (7/10/2008)
C. Holding Committee The Holding Committee has been working on how much it costs to hold onto a property before selling or renting it and on tax abatement.
With assistance from MassHousing and MHP the Committee has compiled data on over 600 properties and looked at the cost for administration, maintenance and utilities. The Committee has updated this data with data from 2008 and has added in a factor for distressed properties. Numbers will be available by region and will be posted on Project Center.
The Committee has also been looking at ways for groups to get tax abatements while rehabbing properties. Could these units qualify to be tax exempt because of charitable purposes? Any information compiled by the Committee will be posted on Project Center.
D. Matching Committee The Matching Committee has been working on four tasks:
• Working with real estate brokers in Western MA that specialize in short sales. So far, about 60 brokers have received training and the Western MA foreclosure center has asked them to share their contact information to clients coming to the Center that need to sell their homes to avoid foreclosure. • A rent-to-own program • A buyer incentive to encourage buyers to purchase properties in targeted neighborhoods (Worcester has started a Buy Worcester now initiative). • Deed restriction modifications for weak markets.
IV. MassHousing’s Purchase and Rehab Mortgage Programs Kathy Burns from MassHousing gave the Task Force a brief overview of MassHousing’s Purchase and Rehab mortgages that could be used by borrowers purchasing foreclosed properties in need of rehab.
MassHousing has offered this mortgage program for several years and it is available through their lender network. There are purchase price and income limits. For Boston, the purchase price limits are $428,000 for a single-family and $547,000 for a two-family. Typical MassHousing interest rates apply. The loan amount is calculated as the lesser of 97% of the purchase and rehab costs or 97% of the estimated appraised value after the rehab is done.
Borrowers must use licensed contractors to complete the work and the rehab funds are escrowed by either the lender or a local rehab agency. More information is available on MassHousing’s website at www.masshousing.com .
V. Boston Community Capital Boston Community Capital received a grant from The Boston Foundation to look at pre- foreclosure solutions to keep households in their homes. BCC has held three focus group meetings, two in Boston and one in New Bedford, to find out what has been the experience of people in foreclosure, what they knew about their loans prior to purchasing and whether they have been successful at getting their loans modified.
The focus group has identified that there has been evidence of fraud by the lender (changes in the structure and cost of the loan at closing, promises of ability to refinance, etc) and the difficultly that homeowners are having connecting with their servicers for modifications. BCC will keep the Task Force updated on its work on this subject.
27 Appendix 2.1 – Funding Subcommittee Meeting Notes (2/25/2008)
Appendix 2 – FUNDING SUBCOMMITTEE
2.1 Funding Subcommittee – Meeting Notes (2/25/2008)
Notes from Acquisition Funding Committee of Foreclosed Properties Task Force 2/25/08 meeting.
• Several communities are already working on assembling acquisition funds: Boston, Brockton, Worcester, Lawrence were mentioned. There is a sense of urgency from the local officials. They feel they need funds yesterday. A lot of interest in what Boston is doing on this.
• Home Funders may be able to secure some additional PRI funds ( which would likely need to be used for housing for extremely low income families; They have discussed targeting some of this to Brockton
• Boston is expecting to use IDP (inclusionary zoning) funds for acquisition on a short term basis. It can’t be a long term source. This is likely the source that will be used to acquire the properties on Hendrie Street reported in media. Boston will be targeting neighborhoods most at risk: Dorchester, Roxbury, Mattapan, Hyde Park City needs to be open to all ownership forms and re-development options: including rentals and co-ops as well as fee simple ownership.
• Boston Fed has a good deal of data and can provide research capacity. Fed has very good data on delinquencies and rate resets
• DHCD is also trying to identify resources that could match/complement local and private sources. Governor and Sec. O’Connell will want to know who else is at the table. State resources are very stretched now, especially Affordable Housing Trust Fund. HOME funds might be put in the mix with the expectation that ultimately the HOME funds would need to be targeted to HOME eligible projects.
• NeighborWorks America is working with a collaborative of agencies in Providence on an acquisition strategy similar to one led by the Chicago Fed.
• PRIs: local foundations serving as guarantors may be especially promising route. May also be able to interest some local foundations that have big investments in education and youth services, since deterioration of neighborhoods threatens those philanthropic investments. National foundations not likely to be a major source, as they are likely to target PRIs to cities where they are headquartered.
• Large institutional pension funds and endowments. Episcopal Church (national) reported to have a $9 billion pension fund… with some excess investment capacity. Episcopal City Mission could potentially serve as a communication conduit to the Church’s pension fund.
• FannieMae’s Community Express product could provide a working capital LOC to public, quasi-public borrower. With credit enhancement the initial rate could be very low… but this is a variable rate product; Fannie is interested in doing bulk REO sales… but do not have a huge inventory in Mass: about 365 properties statewide.
28 Appendix 2.1 – Funding Subcommittee Meeting Notes (2/25/2008)
• MHP interested in using its unsecured working capital line of credit product also. MHP will draft a sample term sheet for WC LOC funds.
• More conventional financing might be readily available for strategies that include receivership of foreclosed properties… since receiver gets a super- lien on the property (Life Initiative has explored this and may be able to put capital toward this purpose)
• Concern among the lenders, intermediaries about doing “retail lending” Need to create a fund that would be managed and that communities or large borrowers would be able to access, with underwriting and servicing done buy a responsible party.
• Boston also concerned about being able to buy properties “in bulk” Retail purchases will be difficult, ineffective. Need to build relationships with servicers for large players in the market. Bulk purchasing will be a failure unless prices can be reduced significantly.
• Think about separate term sheets: vacant properties, occupied properties;
• Think about setting something up geared to communities that are already poised to acquire properties and modify the fund as others come forth with plans and strategies.
29 Appendix 2.2 – Funding Subcommittee Meeting Notes and Draft Proposal (3/25/2008)
2.2 Funding Subcommittee - Progress Report & Draft Proposal (3/25/2008)
March 25, 2008 – The sub-committees of the ULI/MACDC/CHAPA Foreclosure group met to report on their progress and test their progress with 4 test communities; Chelsea, Lawrence, Springfield and Worcester. The test communities had the opportunity to give the sub-committees specific feedback on their work.
Below is progress to date, elements that have been discussed for a successful program, the proposed acquisition financing program, which reflects feedback from the test communities, and areas of need for participation from funders.
Progress to Date: • The State is pursuing a separate state wide pool of funds possibly for bulk purchases that may include Fannie Mae debt. • The challenges in creating a single source of financing for acquisition of foreclosed properties by developers are that, the holding and take out pieces are so linked to the structure of the financing and will differ for each group (see Exit Strategy chart). Also the strength, financial and organizational, of the borrowers will vary as well. • Lenders are concerned that debt be secured and that good underwriting practices are in place to ensure success. • The immediate goal is to structure a lending program that meets the needs of the specific groups that are forging ahead and have specific plans. The hope is that by getting something going on a smaller scale, it can be expanded.
Program Elements: The following have been identified as necessary elements to a successful program. • Acquisition financing that is readily available to take advantage of market opportunities and of sufficient scale to meet the financing needs of different organizations to have a significant impact. • Shallow subsidy funds available to cover short-term carrying costs until properties are rehabbed and re-sold or rented up (6 months to 3 years). • Subsidy for rehabilitation costs o If State sources are used they would work best if they are: prioritized for this program available on a rolling basis some unit specifications requirements (square footage, etc.) are modified or waived no or modified deed restrictions (imperative for low income urban areas) priority for light and moderate rehab (dollar cap could be structured as per unit to create the total dollar cap for project allowing for bundling of units with varying needs of rehab, example: 6 units at $20,000 per unit rehab = $120,000 for the ‘project’ may be used to support $10,000 needs in one unit and $30,000 needs in another) • Subsidy for the final take out strategy is identified early on and reserved (State). • Acquisitions are part of a larger neighborhood strategy • Municipal support (money for rehab, lower carrying costs, etc.)
30 Appendix 2.2 – Funding Subcommittee Meeting Notes and Draft Proposal (3/25/2008)
• Acquisitions include occupied units or units with the potential to be occupied quickly to ensure some income to support operating and carrying costs
Draft Financing Program Two tiered acquisition and holding program: • Acquisition o Revolving line of credit of $250,000 to $1,000,000 per organization o Full recourse o Low to mid 5% range o Very flexible, low oversight – made on the strength of the borrower, their plan and team
• Holding Pool o The goal is to structure the pool so that the risk is shared by pool participants with the borrower and not solely held by the borrower o Limited recourse o Secured by properties o Provides construction financing (light to moderate rehab) o Size; to be determined. Based on the most fleshed out acquisition plan that we know of from Chelsea Neighborhood Developers it looks like they would need about $15MM, revolving pool to start.
The borrower can move ‘bundles’ of properties out of the acquisition line into the holding pool (freeing up the acquisition line) once the ‘normal’ due diligence for the buildings has been completed and a viable real estate deal is structured identifying take out sources. These bundles can be part of a larger strategy/project, they do not have to be all of the properties that are part of a deal.
Opportunities for Participation by lenders, foundations, DHCD and municipalities: • Low interest debt for both acquisition and holding • Funds to buy down interest for holding pool • Limited guarantees to share risk between borrower and the pool of funds • Rehab grants
*Reduced Interest Rate There has been a lot of discussion about having a below market interest rate for the holding pool of funds. Discussions have included using grant and/or subsidy dollars to buy down the interest rate. The cost for every 50 basis point ‘buy down’ per year per $1 million is $5,000, so the cost to bring a 5.0% rate to 2.0% for a pool of funds with an average outstanding balance of $15,000,000 for 3 years is $1,350,000.
31 Appendix 2.3 – Massachusetts Neighborhood Stabilization Fund (Press Release)
2.3 Massachusetts Neighborhood Stabilization Fund – Press Release (Excerpted)
MHIC supports new loan fund to buy, stabilize foreclosed properties
BOSTON, July 1, 2008 --- Governor Deval Patrick has announced details of a unique state- sponsored, low-interest loan fund for developers to buy abandoned and at-risk properties, and get them quickly reoccupied with new homeowners or renters.
MHIC and the Massachusetts Housing Partnership Fund (MHP) are each providing $8.5 million from their bank-funded loan pools. Another $3 million is being provided by non-profit foundations.
“This rich blend of private and non-profit resources will help us stabilize neighborhoods hard hit by foreclosure, and turn troubled properties into brand new affordable family housing opportunities,” said Patrick at a July 1 press conference in Chelsea.
The $20 million program is available to non-profit and for-profit developers, and targets communities with a high concentration of vacant properties including Boston, Brockton, Chelsea, Lawrence, New Bedford, Springfield and Worcester. For more information and a term sheet, go to www.mhp.net/neighborhoodloan .
"We will be making loans based on what we think can be reasonably repaid, based on the long- term plan for the property," said MHIC President Joseph Flatley. "The benefit of this loan fund is to go to the borrowers and the neighborhood – and is not intended in any way to generate higher prices for the lenders who foreclosed on these properties."
"This fund evolved from a collaborative process between an ad hoc group of people from all sectors with a focus on what would work at the local level," said Judy Jacobson, MHP's deputy director and co-chair of the state's foreclosure task force. "The fund will continue to evolve as local strategies are pursued and we see what works and what doesn’t."
Key support from private non-profit foundations
The Boston Foundation will contribute $2 million to the fund, and the Boston-based Hyams Foundation will add another $1 million, which will be targeted specifically to the purchase of foreclosed properties in the city of Chelsea. MHIC will implement and administer the funds and the state Department of Housing and Community Development (DHCD) will oversee the program.
“Neighborhoods that took decades to revive can unravel overnight as a result of the foreclosure crisis," said Paul S. Grogan, President and CEO of the Boston Foundation. "This targeted intervention can limit the damage and contain what could otherwise spread, causing blight and disorder.”
“Many vulnerable people are being affected by the current mortgage foreclosure crisis, including scores of unsuspecting renters. This is an especially critical time to preserve rental housing while also protecting the significant investments we have all made in revitalizing low-income communities," said Beth Smith, Executive Director, The Hyams Foundation, Inc. ***
32 Appendix 2.3 – Massachusetts Neighborhood Stabilization Fund (Press Release)
Facts About Neighborhood Stabilization Loan Fund
The Neighborhood Stabilization Loan Fund targets $17 million from private lenders and $3 million from private, non-profit foundations to support the acquisition of properties in neighborhoods hard-hit by foreclosures.
The Patrick Administration and the state Department of Housing and Community Development are supporting this initiative with $1 million, which will serve as a loan loss reserve, a crucial safety net for the loan fund. The financing is available to non-profit and for-profit developers who are investing in lower- income neighborhoods that are part of a targeted municipal stabilization effort. The loan fund is designed to help qualified buyers quickly purchase and hold properties while financing is obtained to stabilize properties long-term. To achieve this, the loan fund has been has been structured in two tiers: • Acquisition fund: Revolving lines of credit of $250,000 to $1 million to each organization, based on the borrower's strength and stabilization plan. This will enable borrowers to move quickly in the marketplace to purchase qualified properties. • Holding pool fund: Once acquired, loans will be moved into this holding pool, where they will be reviewed and considered for loans to support rehabilitation and long-term stabilization. • To review the Neighborhood Stabilization Loan Fund term sheet, click here.
The Massachusetts Housing Partnership and the Massachusetts Housing Investment Corp. are combining to provide $17 million from their bank-funded loan pools. An additional $3 million is being provided by the Boston Foundation and the Hyams Foundation. Living Cities, a New York- based non-profit, is providing a $500,000 grant. The loan fund is being administered by the Massachusetts Housing Investment Corp. For more information, contact Bruce Ehrlich at 617-850-1040 or [email protected] .
33 Appendix 2.4 – Massachusetts Neighborhood Stabilization Fund (Term Sheet)
2.4 Massachusetts Neighborhood Stabilization Fund – Term Sheet
34 Appendix 2.4 – Massachusetts Neighborhood Stabilization Fund (Term Sheet)
The following are highlights of the major terms of each program component:
Acquisition Line of Credit: The Acquisition Line provides developers with a short-term revolving financing facility allowing quick access to funds that can be used to acquire properties in targeted neighborhoods, with very limited underwriting and with full recourse to the developer. Amount available: $250,000 to $1 million per organization Recourse: Full recourse to borrowers, with appropriate sponsor guaranties Interest rate: Floating rate based on the 30-day LIBOR rate plus 2.75% (as of June 27th, that would yield a rate of 5.22%). Maturity date: One year from the closing date. All funds are expected to be repaid on or before the Maturity Date. Security: First mortgages on each acquired property Minimum draw: $50,000
Interim Financing Facility: The Interim Financing Facility provides developers with first mortgage financing plus up to $60,000 per unit in subsidy funds to cover rehab and soft costs, with full underwriting and limited recourse to the developer. The Interim Financing Facility will typically be used to pay off the Acquisition Line, allowing those funds to be available for additional acquisitions. Amount available: $1 million to $5 million in first mortgage financing per organization, plus up to $60,000 per eligible unit in subsidy funds. Recourse: Limited to fees and overhead paid to borrower. Interest rate: Floating rate based on the 30-day LIBOR rate plus 2.75% (as of June 27, would yield a rate of 5.22%).
Maturity date: 3 years from the closing date. All funds are expected to be repaid on or before the maturity date. Loan-to-value: The loan shall not exceed 100% of the anticipated proceeds from the exit strategy. In the case of rental properties, this would be equal to the anticipated mortgage (up to 90% of the value of the property after rehabilitation) plus up to $60,000 per unit (based on the subsidy amount). Security: Loans must be secured by a first mortgage on the property, a first lien by assignment of all leases, rents, contracts, and profits (including rental subsidies, if any, with the consent of or notice to the administering agency, as appropriate), and a first security interest in all personal property, equipment, and fixtures used in connection with the property. Environmental indemnifications and title insurance will be required.
35 Appendix 3.1 – Acquisition Subcommittee Meeting Notes (3/20/2008)
Appendix 3 - ACQUISITION SUBCOMMITTEE
3.1 Acquisition Subcommittee Meeting Notes (March 20, 2008)
Agenda - March 20, 2008
BY PHONE. Subcommittee members are also welcome to join Becky for the call at Boston Community Capital offices: 56 Warren Street, Roxbury (Dudley Square, Palladio Hall building)
1. Mission: Clarify mission of the sub-committee
Identify different acquisition strategies and provide as much information and guidance to make the process as efficient as possible for the developers/communities that are considering making acquisitions.
2. Best Practices: Discuss best practice research, and assign further research
Review/report on ongoing research: assign ‘homework’ to committee members for further research. Attached memo from Becky shows what we know so far. Some of these initiatives have been researched by committee members- others need to be investigated further.
3. New Model: Discuss creation of a new model for wholesale acquisition; assign members to draft proposal/framework
The creation of viable models for wholesale acquisition has been frustrated by numerous roadblocks such as the lack of access to lender/servicers, lack of adequate subsidy, market volatility and uncertainty, asset management challenges, etc. Without a model, however, it is difficult to move forward on any front. For instance, the funding committee is struggling with the question of ‘‘what are we funding”. Is it worth this committee’s time/effort to put pen to paper on what a program would look like, presuming that both financing and access to lenders/servicers was available, how many properties, what geography, how much funding, what kind of timeline, etc.
Attachments: Action items for the committee. Review memo before call if you can. Other research: • Chelsea Test Community (see Appendix 7.1) • DHCD Neighborhood Stabililization (see following pages) • Foreclosure Clearinghouse (see Appendix 10) • Rochester ACA Program (see Appendix 10) • Living Cities Subprime Description Request (see following pages)
36 Appendix 3.1 – Acquisition Subcommittee Meeting Notes (3/20/2008)
DHCD Concept: Neighborhood Stabilization – Program Description
Despite significant efforts to prevent foreclosures and help borrowers retain their homes, a substantial number of homeowners will lose them. These borrowers are likely to have insufficient income to support a restructured or new mortgage, their credit is severely impaired or the value of their home is significantly below the outstanding debt. Foreclosure is the painful result.
Several of Massachusetts’s urban neighborhoods are vulnerable to economic and social destabilization as a result of geographically concentrated foreclosure activity. The market value of nearby property is negatively affected by the abrupt vacancy and exacerbated further by multiple foreclosures in any given community of neighbors. In addition, neighborhoods can become destabilized if foreclosed properties remain vacant for months or years. A suggested public/private response to this situation is outlined below and consists of a cooperative effort between foreclosing lenders, state and local government, and qualified non-profit organizations in the local community.
The state of Massachusetts will identify by zip code at-risk neighborhoods and ask participating lenders to participate pre-foreclosure and post-foreclosure as outlined below. The targeted neighborhoods will be small, representing areas defined by a zip code. As a part of identifying the priority neighborhoods, the state will obtain the agreement of the relevant municipalities to the terms of the release of tax liens as part of creating clear title on targeted properties. The state expects to identify up to 6 initial participating localities.
The state also is working to make available pro bono legal services for the borrower that is facing foreclosure. Lawyers Clearinghouse for Affordable Housing and Homelessness has committed to assisting in assembling and training such a panel of lawyers. As part of their participation, localities will be expected to augment these efforts by soliciting the participation of local attorneys.
The state also expects that its targeted program will be but one avenue to address the risk of destabilization that the foreclosure crisis poses to impacted neighborhoods. Local nonprofits already are working creatively with lenders, local government and foundations to create local responses. The Commonwealth expects to leverage these efforts to encourage broad coverage.
Pre-foreclosure Within the zip code areas identified by the Commonwealth as participating neighborhoods, the threshold for determining a borrower’s eligibility for the Neighborhood Stabilization Program is the lender’s determination that (a) it is not able to reach loan modification terms sufficient to keep the borrower in their home, and (b) any applicable investor agreements permit consideration of a short sale without penalty to the lender. This determination by the lender triggers the following sequence:
1. The lender will alert the eligible at-risk borrower of the state program (as one of the options available to the borrower) and refer the borrower to the appropriate counseling agency if the borrower indicates interest in this program.
2. The Borrower will formally apply for entry into the program through the appropriate participating counseling agency. The application will serve to: a) formalize borrower’s agreement to sell to a qualified new buyer for a price to be determined by appraisal of the property;
37 Appendix 3.1 – Acquisition Subcommittee Meeting Notes (3/20/2008)
b) provide borrower’s consent for forwarding relevant information to the area’s non-profit organization and to the state; and c) create borrower’s agreement to maintain the property in good condition so long as they continue to occupy the property.
3. The non-profit organization will notify the pro bono legal panel of the case.
4. The lender will work with the borrower and the housing counseling agency to cease collections and loss mitigation activity once an offer has been approved per the investors acceptance of the offer
5. The lender will determine current value through an interior Broker’s Price Opinion or an appraisal.
6. The lender will negotiate with any junior lien holders in order to facilitate the sale.
7. The lender will continue to maintain the property per its fiduciary responsibility to the investor until the completion of the short sale.
State and local government will work with the organizations to provide funds for minor repairs and to enroll the qualified buyer in first-time homebuyer down payment and closing cost assistance programs. Long term affordability restrictions will apply to these properties.
Post-foreclosure In a situation where the lender does foreclose on a property in a participating neighborhood and is managing the REO sale, it will notify the state as soon it obtains title to the property, triggering the following sequence: 1. At the lender’s discretion, the lender will (a) forebear in contracting with a broker for the sale of the property for a period of 30 days, or, (b) create a “carve-out” in the broker’s agreement providing that if the property may be sold pursuant to this program. 2. The state and appropriate housing counseling agency(ies) must agree to pursue a post- foreclosure sale to a pre-qualified homebuyer within 30 days of receiving the lender’s notice. 3. Once the property enters the program, the non-profit organization will assume responsibility for presenting a pre-qualified buyer to the lender and, upon sale to the buyer, of overseeing minor repairs to the property.
As with the pre-foreclosure situation, state and local government will work with the non-profit organizations to provide funds for minor repairs, acquisition financing, and to enroll the qualified buyer in first-time homebuyer down payment and closing cost assistance programs. Long term affordability restrictions will apply to these properties.
38 Appendix 3.2 – Living Cities Grant Solicitation
3.2 Living Cities Grant Soli citation
Request for Initiative Descriptions
Summary Living Cities is seeking information on pilot initiatives focused on preventing foreclosures or on mitigating the effects of concentrated foreclosures on urban neighborhoods. We are looking to identify 2-4 such pilots for possible future funding. Should funding become available, we would hope to be able to provide up to $1 million in grant funding, and possible concessionary financing, to each project. This funding would be meant to help make these pilots operational within the next two to four months and able to demonstrate results within a year.
Background Living Cities is a collaborative of foundations and financial institutions with a fifteen-year track record of high-impact investment in community development. Its $543 million in grants and loans have leveraged nearly $16 billion in 23 cities and built over 140,000 homes, schools, day care centers and other vital community institutions, helping disinvested neighborhoods to flourish.
Recognizing the threat presented to these neighborhoods by the current subprime mortgage crisis, the Living Cities Board has created a Working Group charged with developing recommendations on how Living Cities can best respond. The Working Group has decided that Living Cities should focus primarily on ways to mitigate the effects of concentrated foreclosures on neighborhoods. The Working Group is seeking to identify neighborhoods in 2-4 cities in which it can support initiatives that can have a significant impact on the foreclosure problem. These initiatives would ideally be part of a larger, more comprehensive program that includes homeownership education, counseling, legal services, and the purchase, rehabilitation and sale of foreclosed properties. However, they may also be stand-alone programs. The cities chosen will reflect urban housing market conditions ranging from strong to weak.
Investment Program Living Cities is seeking to identify initiatives that focus on neighborhoods, and that target interventions mitigating the effects of foreclosure and short sales on neighborhoods and borrowers. While no funds have been raised for the effort, we hope to be able to provide up to $1 million in grants, and possible concessionary capital, for each initiative.
39 Appendix 3.2 – Living Cities Grant Solicitation
The immediate goal of the Living Cities investment is to enable promising initiatives to become operational, expand their activities and to get into full implementation more rapidly. The long-term goal of the investment is to provide useful information to decision-makers at the city, state and federal levels about the effectiveness of particular intervention strategies, and the cost and subsidy required for both operations and capital for these strategies.
Criteria In this round of funding, the Working Group is most interested in supporting programs that can rapidly demonstrate the effectiveness of specific intervention strategies. The criteria that the Working Group will use to judge the attractiveness of potential sites for funding are as follows: • Readiness. We are looking to help grow programs that will already be up and running by April or May. The speed with which the program can be implemented will be a critical criterion in the Working Group’s decision making. • Impact. Programs should be able to have a significant impact on addressing the consequences of foreclosures in their neighborhoods. We are looking for programs that can work with hundreds of foreclosures or REO properties this year. • Resources. Programs should demonstrate that an adequate level of resources is already in place to enable them to implement quickly. This includes capital, organization, leadership and data resources. Relationships with an engaged and robust local/ state response will also be considered. • Scalability. We are interested in whether the program has a strategy for scaling up its operations and impact. If the program achieves its goals this year, how might it be scaled up rapidly next year? What would be the sources of financing, and the organizational structure/partnerships required? • Role for LC Funding. Finally, we want to put our investment where it will make a noticeable difference. We want to know how much grant funding and patient capital would be required, and the difference that the investment will make this year.
Description Guidelines Ideally, information would be submitted in the form of a written proposal, which should be no more than 5-6 pages in length. However, we recognize that the urgency and scale of the foreclosure crisis may make this an impossible task in the time frame specified. Alternatively, LC staff and consultants can interview program staff to develop an interactive proposal. The proposal or interview should cover:
• Initiative Strategy: The focus, activities, and anticipated outcomes of the initiative that LC will help support. • Rationale: The assumptions built into the program that, if correct, will lead to the outcomes specified. • Timeline: The timeline for implementing the initiative this year. • Budget: A one-year budget and narrative for the initiative, describing the grant funding and patient capital requested from Living Cities, and the total funding sources for this year’s operations of the initiative. Rough estimates of funding requests through 2010 would also help to facilitate Working Group discussions. • Criteria: How Initiative fulfills the criteria specified above.
40 Appendix 3.2 – Living Cities Grant Solicitation
We will also need the name, address and contact information of the person requesting the funds.
Timeline Proposals and reports will be reviewed by the Working Group at their meeting on February 25. Thus, proposals must be received and interviews must be completed by Friday, February 15. Proposals can be submitted by email to Tamir Novotny of Living Cities at [email protected] . Tamir will also be the point person for scheduling interviews and answering questions – he can be reached via email or at 646-442-2206. Finalists will be contacted shortly thereafter. Finalists may be asked to make presentations of their proposals as part of developing the final support for their program.
41 Appendix 3.3 – Acquisition Subcommittee Progress Report (3/24/2008)
3.3 Acquisition Subcommittee - Summary of Progress 3-24-08
Co-Chairs: Becky Regan (Boston Community Capital), Kristen Harol (The Life Initiative)
Mission: Identify different acquisition strategies and provide as much information and guidance to make the process as efficient as possible for the developers/communities that are considering making acquisitions.
The subcommittee is proceeding by researching and determining existing best practices for acquiring properties which have been foreclosed upon or are in queue for foreclosure and providing access to information related to these practices.
Tools • Clearinghouse of information to be used by all participants in the foreclosed properties market—tenants, buyers, sellers, funders. CHAPA is working on establishing this site.
• Initiatives related to practices, research underway to identify which of these efforts have merit, timing of each and target market. Second step is to summarize the research for each and make it available on the clearinghouse:
a. City of Boston Hendry Street negotiations—servicer agreeing to sell and city purchase. Pilot program. b. NACA efforts- scale, reach? c. National legislation—FHA programs, other proposals (Dodd, Frank, Reid) d. Examples of entrepreneurial developers purchasing properties post-foreclosure— identifying actual costs for purchases— all-in costs and turn-around plan (rental/for-sale). Are sales taking place via brokers or direct negotiation with lenders? What is the experience of successful bidders? e. Six city initiative- state goals/effort f. Receivership model (Worcester, Chelsea, Malden) g. Charleen Regan’s “Back on the Roll”—putting vacant and abandoned properties back into use—what methods still hold? h. Pro-Bono legal services available, including—WilmerHale Harvard Law School, Lawyers’ Clearinghouse for Affordable Housing and Homelessness/Friends of Lawyers Clearinghouse, Boston Real Estate Bar Association i. Neighborhood Stabilization proposal put forth by the state for lenders to utilize to match buyers j. Direct negotiation with lenders— finding the decision-maker, negotiating the purchase. Any recent experiences to learn from? Mortgage insurers—where do they fit into this picture? k. HUD’s ACA Program—set formula for discounted acquisitions l. Tenant’s rights—access to the mortgagee post foreclosure for negotiating a sale while also keeping the tenant (from investor properties) in the property. m. Mortgage insurers—MGIC, Genworth, AIG— what is their role?
Issues Subcommittee overlap: Does the separate committee structure make sense given how acquisition, holding and exit strategies are inter-related?
42 Appendix 3.3 – Acquisition Subcommittee Progress Report (3/24/2008)
Reach of information: Who is our audience? What about the entrepreneurs and small developers? Is there a difference between a non-profit approach and a for-profit developer approach to providing solutions to foreclosed properties and what is transferable from one to the other?
Market efficiency is our goal. How can we be helpful in streamlining efforts to bring foreclosed, vacant properties back on line to provide safe, decent, affordable housing?: Making contact with the decision-makers- it appears there are handful of attorneys that are handling the majority of the foreclosures in the state who can be helpful in identifying the proper person with whom to negotiate with, both pre and post-foreclosure. Access to this information may streamline the process.
Identify the potential risks of our “success”: There is some concern that ‘bottom feeders’ who will not perform the necessary repairs will begin to buy properties, creating competition for cities and other developers who need to get these properties at a low enough price to be able to renovate them. City of Boston folks pointed out that the City therefore needs to aggressively fine the properties that are neglected. The more you can eat into perceived profit the less incentive speculators will have. Chelsea has focused on this and as a result there are many ‘bad’ landlords who won’t buy buildings in the city.
Create new models: The creation of viable models for wholesale acquisition has been frustrated by numerous roadblocks such as the lack of access to lender/servicers, lack of adequate subsidy, market volatility and uncertainty, asset management challenges, etc. Without a model, however, it is difficult to move forward on any front. For instance, the funding committee is struggling with the question of ‘‘what are we funding”. Is it worth this committee’s time/effort to put pen to paper on what a program would look like, presuming that both financing and access to lenders/servicers was available, how many properties, what geography, how much funding, what kind of timeline, etc.
Title issues: Examining title and confirming it is clean is key. Foreclosures have taken place but somehow title has not been “cleaned” and sale is chilled.
Programs/products/policies/best practices
Program: Setting up a clearinghouse of properties and sources of properties at CHAPA Impact: low – med; Time to trial: start now – ongoing
Program : Work with Fannie Mae local office to work toward bulk sales of FNMA OREO Impact: low; Time to trial: start now
Best practice: Using municipal enforcement of health and safety codes to stabilize properties, or move them into a redevelopment path. Critical for ISD and related regulatory entities to be brought in to ensure the condition of the property is maintained.
Impact: high; Time to trial: long, varies by community
43 Appendix 3.4 – Memo on Short Sales and REO Practices in Lawrence
3.4 Memo on Short Sales and REO Practices in Lawrence (3/24/2008 handout)
Short Sales in Lawrence Deb Fox has interviewed several realtors who specialize in ‘short sales’ in Lawrence: Realtors are doing brisk business in short sales in Lawrence. Businesss has picked up significantly in the last few months.
Pricing : Prices have started to drop significantly, but realtors predict that it will not hit bottom until this summer. Right now there is still pent up demand of homeowners who were waiting out the market.
Bank-owned REOs .
• Banks are listing their REO’s with real estate brokers typically. Sometimes it is with individual brokers, sometimes with a brokerage firm. The banks generally have the listing broker do a Brokers Price Opinion (BPO) to determine the initial offering price.
• Banks with REO’s are probably willing to accept only 5-10% off what they are currently listing the properties on the MLS. The contact person at the bank is the asset manager.
Short Sales
• In a short sale, the lender allows the sale of a home for less than it is worth and forgives the rest of the note. The lender gets more value than in foreclosure, minimizing its loss without waiting through a foreclosure and dealing with an REO. The seller gets out of debt without foreclosure or bankruptcy, and the new buyer gets a good price on a house. The seller’s credit rating is diminished but not as much as in a foreclosure or bankruptcy.
• Negotiating a short sale is difficult process, largely because lenders are not (yet) set up for this crisis, and it is difficult to find a bank officer who (1) has the authority to negotiate a discount and (2) will deal with you. Short sales are almost always brokered by a mortgage broker or realtor, since the negotiation is between the seller and the bank, and the bank won’t enter the negotiation unless there is a good offer on the table from a new buyer.
• Mortgage brokers and realtors are specializing in short sales, especially in hard hit cities like Lawrence. They already have many relationships with the lenders, and understand the process. They sometimes charge an upfront fee to the seller, and points on the loan if the deal closes. The points are part of the negotiation with the lender, and are paid by the lender not the homeowner. Because the short sale negotiation can be such a time consuming process most real estate brokers do not do the negotiations themselves but have specialists they hire to do it for them. Process with a broker: Homeowner/seller hires real estate broker or short sale specialist to represent the seller. Homeowner lists property with a real estate broker. Once there is an offer, the broker or their short sale specialist tries to negotiate down any tax liens, utility liens, realtor fee, etc, puts together a net sheet that shows what the net to the lender will be (Sales price, less all liens, realtor fee, mortgage broker fee (1-3%) of total outstanding loan balance. Then they work to negotiate the deal with the loss mitigation department of the lender.
Negotiating with the lender: Approach the loss mitigation dept. of the lender with:
• An offer to purchase the property
• Document the need of the seller, including a hardship letter, pay stubs, bank statements, tax
44 Appendix 3.4 – Memo on Short Sales and REO Practices in Lawrence
returns, an appraisal and documentation of debts.
• Show that the borrower is unable to afford this mortgage. This includes at least as much paperwork as the original loan application.
• Document the deteriorating condition of the neighborhood, educate the lender about how low values are getting.
• Include contractors bid for repairs if you can.
• Get agreement in writing that the short sale will absolve all debts.
• Get agreement in writing that the lender doesn’t report it to credit agencies as’ settled for less than the full balance’
• Be prepared to make innumerable phone calls to loss mitigation department. Realtors specializing in this have phone banks working all day to get through to mitigators—totally overwhelmed.
• Demonstrate that the seller is not walking away with any cash from the deal.
The lender will get a Broker’s Price Opinion (BPO) from an independent broker and will generally accept the deal only if the net is as much as the market value based on the BPO.
45 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
3.5 Report on Difficulties Acquiring Properties: Nancy Blueweiss memo (7/8/2008)
46 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
47 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
48 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
49 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
50 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
51 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
52 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
53 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
54 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
55 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
56 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
57 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
58 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
59 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
60 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
61 Appendix 3.5 – Memo on Difficulties Acquiring Properties (Blueweiss - 7/8/2008)
62 Appendix 3.6 – Community Approaches to Foreclosing Institutions (Consultant Report)
3.6 Community Approaches to Foreclosing Institutions (Consultant Report)
To: The Acquisitions Committee of the MA Foreclosure Task Force From: Louise Elving, VIVA Consulting Date: July 15, 2008 RE: Research on Community Approaches to Foreclosing Institutions ______
This memo summarizes key information from VIVA Consulting’s research on how CDCs and cities are approaching foreclosing institutions from which they want to acquire housing. It is based on phone interviews (and, in two cases, meetings) with the following individuals: • Boston: Sheila Dillon, Boston Redevelopment Authority • Brockton: Charleen Regan (consultant) and Kevin Harriman, at both Brockton Housing Authority and Southern MA Affordable Housing Corporation • Chelsea: Ann Houston and Meg Keily, Chelsea Neighborhood Developers • Lawrence: Deb Fox, Lawrence Community Works • Lowell: Madeline Nash, Coalition for a Better Acre • New Bedford: Pat Sullivan, Community Development Director for the City • Worcester: Mat Wally, Worcester Community Housing Resources • Nancy Blueweiss, Massachusetts Housing Partnership, who also provided a very informative memo about research undertaken for Chelsea Neighborhood Developers seeking to track the mortgagees, loan servicers and asset managers with responsibility or authority to address inquiries on REO properties or properties in the process of foreclosure. • Prabal Chakrabarti, Boston Federal Reserve Bank • Zoe Gross, Gross Consulting Services, Chicago
The major two sections of this memo are: 1. Recommendations regarding the “ask” of major foreclosing institutions 2. CDC and cities’ experience with foreclosing institutions a. Strategies for identifying foreclosed property or property in the process of being foreclosed; acquisitions strategies b. “Who’s in charge?” c. Potential scale of redevelopment of foreclosed properties
1. Recommendations regarding the “Ask” of Major Foreclosing Institutions
One objective of this work was to identify what help CDCs and cities would most like to get from institutions that control foreclosed properties in their communities through the meetings that CHAPA is trying to arrange with them.
The two major requests would be:
• An effective contact person who can get them access to inspect properties and who can expeditiously negotiate acquisitions. It is extraordinarily difficult to find people who can do either of these at most of institutions. Without ready access to such individuals, CDCs and cities are spending inordinate amounts of time chasing people, rather than making deals and redeveloping property.
63 Appendix 3.6 – Community Approaches to Foreclosing Institutions (Consultant Report)
• Willingness to sell properties quickly at prices consistent with their current fair market value and condition. This will almost always mean prices that are (significantly) below the value of the foreclosed debt. But institutions typically aren’t represented in sales negotiations by people who recognize either the current poor condition of the buildings or how much values have fallen since the time of loan origination. The result is that reasonable offers are rejected, and buildings continue to deteriorate.
o Agreement to establish a program to sell properties at fair prices to credible nonprofit community groups and local government agencies would be invaluable. All the cities and CDCs thought this would be very helpful and would like to participate in such a program. The goal would be to speed their acquisition of housing at workable prices, so that the organizations can effectively plan to redevelop a pipeline of foreclosed properties. The foreclosing institutions would be assured of capable buyers who would return the housing to productive use, in good condition.
A third major request would be:
• List of the institution’s REO properties in specific communities, including both those on which a notice of foreclosure has been sent and those which are foreclosed. It takes both CDCs and cities enormous effort and, therefore, cost to research various data sources to identify properties. If the institutions would collate and circulate this information, it would save much time and expense.
Two other potential “asks” are:
• Bulk acquisitions. From property research reported through the interviews, there does not appear to be a concentration of ownership by a single institution in any individual community or neighborhood that CDCs and cities are investigating. Rather, many institutions own property in any given target neighborhood or community. Therefore, there isn’t a simple bulk acquisition request to be made. Moreover, at least one CDC, Lawrence Community Works, said that it might not want to acquire all the property in its community owned by one institution because this might be more properties than it could handle. In addition, not all foreclosed properties represent a sensible acquisition opportunity for a CDC or city— individual condominium units, for example.
The closest that we might now get to a bulk acquisition request is to ask one institution for a number of properties in each of multiple communities. Most of the CDCs and cities interviewed said that they would be able to provide a list of properties they would like to acquire from one or more specific institutions, if this information becomes useful.
• Keep tenants in place in small multi-family buildings going through foreclosure. The CDCs and cities want tenants to be dealt with fairly as buildings go through foreclosure, not arbitrarily evicted. The perception is that many foreclosing institutions habitually vacate buildings, regardless of whether tenants are in good standing. This practice may not only displace residents but also lead to empty buildings which can become targets for vandalism and further deterioration. The City of Boston has worked pro-actively to try to maintain tenancies by having the Rental Housing Resource Center distribute fliers to tenants in areas with high foreclosures to explain their rights, and encourage them to fight evictions in Housing Court (rather than other courts) where the issue is more recognized. City staff have
64 Appendix 3.6 – Community Approaches to Foreclosing Institutions (Consultant Report)
also met with Judge Winnick from the Housing Court to express concern about the need to leave tenants in place when buildings are going through foreclosure.
When organizations are assessing foreclosed property for redevelopment, some are prepared to acquire either occupied or vacant properties, while others focus on vacant buildings due to the costs of relocation and dealing with residents in deteriorated property.
2. CDC and City Experience with Foreclosing Institutions
It is impossible to overstate the difficulty, time and cost of identifying foreclosed property, identifying what organization really controls it, and finding individuals who can provide access to properties and negotiate its sale to CDCs, cities or other organizations. All the CDCs and city officials interviewed lamented this and said it was preventing them from moving more quickly to acquire and redevelop foreclosed housing.
a. Strategies for identifying foreclosed property or property in the process of being foreclosed; acquisitions strategies. Different strategies are being used by different organizations.
o Chelsea Neighborhood Developers is using several approaches simultaneously to identify property in specific targeted neighborhood areas: staff are tracking Warren Group real estate reports to identify notices of foreclosure, foreclosure auctions, etc. Staff and Board members regularly drive or walk through targeted areas to identify properties with for-sale signs and/or significant physical changes such as having become vacant, boarded up or under rehab. Then, CND staff or Nancy Blueweiss at MHP, who is assisting CND at this stage, begin calling and/or emailing the listed brokers, owners, servicers, or other contacts. The first request is to get access to a property in order to evaluate preliminary rehab costs, followed by an attempt to make an offer if the property seems worth pursuing. The initial contact frequently leads to a chase through multiple individuals who may or may not be responsive and who not infrequently refer the inquiry to someone else. This chase is reported by everyone interviewed.
CND is prepared to buy property in a wide range of conditions in its targeted neighborhoods, from those in good shape to those requiring gut rehabs, and it is even considering properties which are so deteriorated that it would be advisable to demolish and replace them with new housing, perhaps at lower density. The great majority of properties are small multi-family buildings, with two to six units. CND is considering not only foreclosed properties but also those that might be purchased at short sales or on the market. Although CND expects that the majority are likely to be redeveloped as rental property, it will consider sales to individual home buyers when the building and financing suggest this. It is also prepared to work with tenants in place, as well as with vacant buildings.
CND is now in the process of trying to acquire its first foreclosed property, but at the last minute has encountered legal title impediments which have slowed the acquisition.
o The City of Boston brought together a wide range of City agencies to focus on one largely vacated street with multiple foreclosed buildings, Hendry Street. The Mayor called in senior officials at foreclosing institutions which controlled these buildings and asked them to sell to the City, which they agreed to do at modest prices. Staff reported prices as low as ten to fifteen cents per dollar of outstanding mortgage, or $19-23,000 per
65 Appendix 3.6 – Community Approaches to Foreclosing Institutions (Consultant Report)
unit. Even after the Mayor met with senior officials, it took a great effort for City staff to close the deals and acquire the property. The City is issuing an RFP to dispose of the Hendry Street buildings to CDCs or other developers which want to acquire and restore them.
City staff are hoping to replicate this success by calling financial institutions which control other foreclosed property in Boston, but they have found the process time consuming and frustrating. For example, they researched rehab costs and current neighborhood values for multiple properties owned by one large institution and, based upon this data, offered 25% of the outstanding mortgages. But the institution rejected the offer, and it’s unclear whether it will consider it further. On another building in bad condition, the City requested the deed; the owner institution took a long time to consider the request, and then sold the property for cash to another buyer. Nonetheless, City staff are continuing to chase property. They hope that by invoking the Mayor’s support and interest, they can generate positive responses. The City’s goal is to acquire buildings, then quickly turn them over to CDCs (or perhaps other developers) to restore and manage them.
o In Brockton, the Southeastern MA Affordable Housing Corporation (an off-shoot of the Brockton Housing Authority) is working with a buyer’s broker to identify and pursue property which has already gone through foreclosure after finding other approaches – or approaches earlier in the legal process -- too time consuming. Other approaches had included calling listing brokers directly, from whom SMAHC felt it got a run-around or incomplete information. SMAHC reports that by the time local property is foreclosed, it has frequently been vacated and vandalized, with copper and other materials stripped out.
SMAHC has already purchased two buildings that are now being renovated and is waiting to close on two more on which its purchase offers have been accepted. It is finding the closing process difficult because legal impediments seem to arise such as discovering that legal foreclosure documents were filed incorrectly or other title issues. Its perception is that the sellers don’t care about working expeditiously to resolve such problems.
SMAHC’s acquisition strategy focuses on small multi-family buildings, typically triple- deckers, that it will hold as rental housing. It could comfortably redevelop 30-40 units/year or 10-12 triple-deckers, so long as the financial resources to redevelop them could be found. It would also consider much larger buildings and is now examining a 65- unit building in Brockton which a bank just bought back at auction. SMAHC is also exploring a re-sale program for single family homes to first-time homebuyers and has begun working with HUD (using its Good Neighbor Program), along with other lenders.
o Lawrence Community Works generally pursues properties only after they have been listed for sale with an identified broker, which typically means the properties have already gone through the foreclosure process. LCW also uses a buyer’s broker to chase listing brokers due to the extensive time needed to pursue them. The listing brokers may or may not be local and seem to have enormous numbers of properties which means they are not readily responsive to requests for information, inspections, or even purchase offers. LCW has made offers on eight properties and has purchased one four-unit building. It hasn’t received timely replies on most of its offers. One listing broker reported to LCW that the mortgagees in possession took months to report back once a purchase offer was forwarded to them.
66 Appendix 3.6 – Community Approaches to Foreclosing Institutions (Consultant Report)
LCW staff also check the Registry of Deeds list of transactions in Lawrence on a daily basis in order to identify foreclosure activity, a feasible task given that there are typically only about ten transactions in the city each day. If interested in a property with a mortgage sale listed, LCW may then contact the bank directly, but the organization has frequently found that no one at the bank knows about the property and so the inquiry cannot proceed.
LCW’s acquisition strategy focuses on vacant properties in poor condition clustered around its current portfolio since buildings in better shape, needing only modest rehab, are frequently being purchased by others active in the market. These buyers include both homeowners and investors whose long-term intentions may vary. LCW is focusing on deteriorated multi-family buildings no one else will address. If funding resources were available, it could redevelop about 20-30 units per year. It is seeing increasing numbers of vacated buildings, which then are frequently stripped, deteriorate over the winter, and so further lose value.
o Coalition for a Better Acre in Lowell is in the initial stages of pursuing the acquisition of foreclosed housing. Until now, its foreclosure-related work has focused on a partnership with Lawrence Community Works and Community Teamwork to open and operate a foreclosure counseling center for existing homeowners.
Recently, CBA has begun the process of gathering data on multi-family foreclosed buildings in Lowell, to identify areas of concentration, determine vacancy rates and assess building conditions. CBA has begun using information on foreclosures from the Middlesex County Registry of Deeds website. CBA then intends to identify properties of interest and begin the process of identifying who controls them, so it can gain access to the buildings for a rehab assessment.
CBA will be working to identify who is in control of foreclosed properties and who is ready to make decisions on sales. CBA staff have been frustrated with attempts at pursuing a boarded-up 12-unit building across from its office which had been converted into condominiums. Only two of the units in it are listed for sale, and the listing broker has been discouraging about the timing of when the remaining ten units will be listed for sale.
CBA expects its redevelopment strategy for foreclosed property to focus on multi-family properties that would likely remain rental properties, rather than individual buildings that might be sold to homebuyers, because it sees the small multi-family buildings as more consistent with its own development expertise. Currently, CBA is aware of thirty multi- family properties that it will be assessing over the next month.
o The City of New Bedford, like Coalition for a Better Acre, has been focusing on foreclosure prevention, in partnership with Fall River and several local banks. It is using part of a foreclosure intervention grant from the State to pay for counseling and education/prevention workshops, and part to help resolve individual cases, such as paying for closing costs on replacement loans or other immediate expenses.
There are growing numbers of foreclosures, vacancies and incidents of arson – 15 in the past three months -- in New Bedford, and the City is starting assess how to intervene. New Bedford has had 700-800 foreclosures over the past few years. Perhaps half of these
67 Appendix 3.6 – Community Approaches to Foreclosing Institutions (Consultant Report)
were in the hands of investors, not owner-occupants, compounding the difficulty of figuring out who actually controls the property.
The City has begun an aggressive board-up program for vacant buildings to prevent them from being stripped and, hopefully, prevent arson. It has compiled a list of foreclosed property by tracking reports in Banker and Tradesman. A few efforts to buy properties at low prices have not been successful and, as in other communities, the Community Development Department has found it very difficult to find a person at servicers or foreclosing institutions who will engage in a sales negotiation or who can say when a property will be available for purchase. It has also found that there is little recognition of how dramatically property values have fallen recently.
o Worcester Community Housing Resources is focusing on a receivership program in partnership with the City, rather than seeking to acquire foreclosed housing directly. In this program, City staff use Warren Group data to identify foreclosed properties. It then makes an appointment with the tenants to inspect the property. If, upon inspection, the City’s Property Review Team (including its Fire, Police and Code Enforcement Departments) finds code violations, the City sends violation notices to the owner of record, with a finite time period to remedy them, typically seven to thirty days. After this period, the City re-inspects. If the problems have not been addressed, the City Law Department notifies the mortgagees that the City will take further legal action if they are not remedied. If again there is no improvement, the City files a case in Housing Court, asking the Court to appoint WCHR as receiver for the building.
As receiver, WCHR collects rents, makes repairs, and either stabilizes tenancies or, if that it not possible, moves to evict nonpaying tenants. The City provides CDBG funds for repairs, and WCHR places a lien on the property to recover the funds at time of sale. The next step could be for the bank owner to sell the building and pay off the lien. Alternatively, WCHR could foreclose upon the property, based upon its priority lien. This is a new program, so WCHR does not know yet which end-game may become prevalent.
b. “Who’s in charge?”
As noted above, it is often very difficult to find out who can really make decisions about access to or sale of foreclosed properties. Once a property has been foreclosed, it may be turned over to a real estate broker. This individual may have little incentive to respond to inquiries since s/he may have many listed properties with such modest prices that his or her fees will be small; s/he may not even be local, so s/he has little sense of the Massachusetts market. The broker may also have little authority to negotiate a sale: s/he may be able only to pass along an offer to a servicer or owning institution, where the broker may have no effective contacts. If a purchase offer is made directly to an institution that is the servicer for the mortgage holder – rather than itself being the mortgagee – then that servicer institution, too, may lack authority to close a deal. For example, Lawrence Community Works reported making an offer on a building for which Chase is the trustee and, despite having a direct contact person at Chase, being told that as trustee, Chase couldn’t tell LCW the name of the owner. Some institutions are both servicers and mortgage holders for different properties, so potential buyers may not know which role or authority the institution has with regard to a specific building.
On some properties, the chain of title and responsibility are even more opaque. For example, as reported by Nancy Blueweiss, attorney at Massachusetts Housing Partnership, some mortgages
68 Appendix 3.6 – Community Approaches to Foreclosing Institutions (Consultant Report)
that are securitized and held in “Trust” pose great difficulty. Though the Trustee and Master Servicer can be identified from a title run-down at the Registry of Deeds for a specific property and by reference to the Pooling and Servicing Agreement governing it (if one has the time and skill to download it from the SEC and review it), identifying decision-makers at any given time in the loan administrative process is difficult to impossible. Different sub-servicers may be hired by the Master Servicer for different roles with regard to a single property -- e.g., to deal with the defaulting borrower, to handle the foreclosure process or handle its disposition after foreclosure -- and their identity is not publicly available.
Foreclosed properties are typically not listed for sale on the Multiple Listing Service, and therefore there may be no way to identify the broker who will handle the sale until after they are vacated, since sellers typically think it will be easier to sell empty properties. This means that CDCs or others who would like to maintain current residents in the community find it difficult to acquire this housing before tenants are evicted or otherwise pushed out. c. Potential scale of redevelopment of foreclosed properties
Several CDCs interviewed found it difficult to say how many foreclosed properties they would, ideally, like to develop in a year. While this is partly a result of the difficulties gaining control of properties, it is also due to the uncertainty about how much subsidy might be available to cover large gaps between development costs and the size mortgages which can be carried by these properties. At least a couple of the nonprofits could foresee doing as many as 50 units annually if state, local or other subsidy resources were available. However, at least one organization cautioned that it wouldn’t want to discover that redeveloping foreclosed property closed it out of getting state resources for new development due to being seen as requesting too much state money in a single year. In summary, it is also worth noting that almost all the CDCs interviewed foresee redeveloping foreclosed housing as rental property, not for homeownership. This is due to a combination of factors: 1) the declining market for homeownership; 2) the focus on multi-family buildings which pose difficulties for new owner-occupants who must learn to be landlords as well as homeowners; 3) in a few communities, a perception that homeowners themselves (or other organizations assisting home buyers) are purchasing foreclosed properties on the market, so there is a greater need for the CDCs to do rental housing; and 4) some CDCs’ definition of their own skills and focus.
69 Appendix 3.7 – “Acquisition Stories” - Notes from Organizations Buying Foreclosed Property
3.7 Acquisition Experiences of Organizations Buying Foreclosed Properties (August 2008)
To: Aaron Gornstein, CHAPA; Ann Houston, Chelsea Neighborhood Developers; Judy Jacobson, MHP; Joe Kreisberg, MA Association of CDCs cc: Laurie Gould, VIVA Consulting From: Louise Elving, VIVA Consulting Date: August 30, 2008 RE: “Acquisition Stories” - Notes from Organizations Buying Foreclosed Property ______
This memo complements and updates my report of July 8 on “Community Approaches to Foreclosing Institutions.” It contains current reports, as of this week, from most of the organizations interviewed earlier on their efforts to buy specific buildings.2 It has tales of both successful and unsuccessful purchases, with more details on specific properties than in the July 8 report. In case you would like any of the groups to present their experiences at the September 25 Foreclosure Task Force meeting, I’ve included names and contact information. My sense is that Chelsea Neighborhood Developers, Lawrence Community Works and SMAHC are the groups, among those interviewed, which have already been most active in trying to acquire foreclosed properties.
Overview
• The efforts to buy specific buildings described here reinforce the conclusion in the July 8 report that it is almost always very time consuming to purchase a foreclosed property. Finding the right person with which to negotiate a sale, finding someone who will address seller problems such as title defects, and finding someone who recognizes current market value is usually a long process and sometimes not possible. Buying property is, therefore, costly in terms of staff time (and sometimes also legal or consultant time) for CDCs, public agencies and others. • The importance of finding someone at a foreclosing institution who will promote the sale is underlined by the success of several groups buying Fannie Mae property due to the assistance and intervention provided by Fran Pheeny. Even with her help, buying a building can require a number of months. • In several communities, CDCs report competing with private investors to buy foreclosed property. Both Chelsea Neighborhood Developers and Lawrence Community Works have lost property to local investors who outbid them. • Foreclosed properties’ condition typically ranges from fair to deplorable, often having sat empty for months and sometimes stripped of salvageable materials. When CDCs and public agencies purchase foreclosed housing, they intend to restore it to good condition and remediate hazardous materials. Several people said they think some local buyers are willing to flip the property with only modest repairs. When this is the case, CDCs and public agencies will face higher total redevelopment costs and so find it harder to compete on price. It also means that market purchase prices may be set by buyers who don’t have comparable total project costs.
2 Worcester Community Housing Resources is focusing on a receivership program described in the July 8 report, rather than direct purchase of foreclosed buildings, so I didn’t contact it again for this update.
70 Appendix 3.7 – “Acquisition Stories” - Notes from Organizations Buying Foreclosed Property
Chelsea Neighborhood Developers Contacts: Ann Houston, Executive Director. Phone (617) 889-1375m x19. Email: [email protected] Meg Kiely. Phone (617) 889-1375, x 12. Email: [email protected]
CND has both a couple of successes and many more frustrating outcomes to report.
Successful purchases. CND is in the process of completing its first two acquisitions of foreclosed properties after a number of months chasing deals.
• Short-sale. CND hopes to close today on a triple-decker at 75 Essex Street that is buying on a short-sale, with the concurrence of the lender, Aurora Bank. The sales price is $210,000 and the building needs moderate rehab of approximately $60,000/unit. CND had hoped to purchase the building at the beginning of the summer but the bank took an extended period of time to approve the sale and so the acquisition has been delayed for months. • Fannie Mae owned properties . 40 Cottage Street is a single-family house on which CND is this week signing a purchase and sale agreement for $157,000. It needs moderate rehab. The local Fannie Mae representative has been helpful in pushing the institution to clear up title issues that were known by early June and took over two months to resolve. CND has also made an offer on another Fannie Mae triple-decker at 90 Grove Street, but it too has title issues that must be cleared. A third Fannie Mae building is a single-family at 85 Marlborough Street which is in poor condition, needing over $200,000 in renovations. Fannie Mae has reduced its asking price twice from $150,000 to $134,900, then to $123,000. In light of the building’s costly repairs, CND made an initial offer of $50,000 that was rejected. CND is now evaluating whether it can increase this modestly but a revised offer will likely still be significantly lower than the asking price.
Frustrating outcomes. CND has chased many properties on which it either hasn’t been able to reach someone with which to negotiate a purchase. Here are two examples, out of many.
• Delayed decision making by a seller. In the spring, CND offered $180,000 for a two-family at 98 Crescent Street that had an asking price of $215,000. For three or four months, CND heard nothing. The seller then asked for $190,000, but CND decided not to pursue the building because it is outside the area on which CND’s had, in the interim, decided to focus acquisitions. • Wells Fargo . CND wanted to buy a triple-decker at 46 Cottage Street, a street on which it hopes to acquire and restore several buildings. It offered close to the asking price, $190,000 compared to $194,000. CND also tried to use the intervention of the Wells Fargo Foundation’s community-oriented sales program, but this building wasn’t controlled by the Foundation. Foundation staff, after some time, gave CND the name of someone to talk to at the bank, but this individual never replied to CND’s phone call. The building was sold to another buyer.
Lawrence Community Works Contacts: Tamar Kotelchuck. Phone: (978) 722-2619 direct line. Email: [email protected] Deb Fox. Phone: (978) 685-3115. email: [email protected]
Successful purchases. LCW’s now has two adjacent two-family properties under agreement to purchase, but both have taken long, frustrating times to get under site control. They have different sellers. For both these and other properties, LCW has faced competing bids from large or small local
71 Appendix 3.7 – “Acquisition Stories” - Notes from Organizations Buying Foreclosed Property property investors.
• Purchase from HUD. 119 Garden Street was purchased through a bid process, going thru a broker retained by HUD. The asking price had been $78,500, and LCW bid $65,000. After the bid was submitted, LWC asked HUD to close the bidding process and accept its price, but the broker didn’t seem to have the authority to do this and it seemed that HUD was keeping the bid period open in the hope of getting a higher offer. Hoping to reach closure, LCW asked the local state and Congressional delegations to call HUD on its behalf. The bid was submitted in May, and it was only in late July, after political pressure, that it was accepted. The vacant two-family house needs gut rehab, estimated at $117,000 per unit. • Purchase from Deutsche Bank. 121 Garden Street is identical to #119 and has similar rehab costs. Its asking price was $74,900. LCW bid $54,000 which it thinks was the high bid. As with the adjacent property, LCW could get no response to its bid for a long time so, again, asked for help from its state and federal legislative delegations which called publicity and government relations staff at Deutsche Bank on LCW’s behalf. The bank eventually asked for a revised broker’s opinion on the fair market price. After five months and the outside pressure, LCW’s bid was accepted and LCW has a closing date of September 15, 2008.
Frustrating outcomes. LCW has made offers on at least five other foreclosed buildings that were sold to other buyers. In at least three instances – buildings held by Bank of New York, US Bank and Wachovia – it was outbid by local investors which offered between $13,000 and $25,000 more than LCW. In most situations, many months passed after LCW made a bid before it learned the outcome.
Southeastern MA Affordable Housing Corporation (an off-shoot of the Brockton Housing Authority) Contact: Kevin Harriman, Brockton Housing Authority. Cell phone (508) 989-7128. Email: [email protected]
SMAHC (and the allied Brockton Housing Authority) report both successful purchases and frustrating outcomes.
Successful purchases. Note: Kevin has also purchased two additional foreclosed triple-deckers on Menlow Street and Forest Avenue in Brockton.
• Fannie Mae owned properties: benefits of a local representative . Kevin reports success buying properties from Fannie Mae, whose Boston representative has been very helpful, a comment echoed by other organizations. Having a pro active contact has been essential to resolving deals with a large institution where not everyone understands the local market. SMAHC is closing today on a triple-decker with five-room apartments at 65/67 Wyman Street for $91,000, a reduction from Fannie Mae’s original asking price of $109,000. The building is deteriorated, and so the modest price seems appropriate. It is in a neighborhood where SMAHC has made other investments, which it complements. • Wells Fargo Bank: benefits of bank that has a disposition program . SMAHC bought a triple- decker on Tremont Street for $220,000, a large building that had once been a six-family. It competed successfully against other offers. While the final price was slightly above the asking price of $215,000, this seemed fair in light of the building’s size. (Coalition for a Better Acre also reports a helpful contact at Wells Fargo, described below, while Chelsea Neighborhood Developers was unable to buy a Wells Fargo property that wasn’t controlled by the Wells Fargo Foundation but by other actors at the bank, also reported below.)
72 Appendix 3.7 – “Acquisition Stories” - Notes from Organizations Buying Foreclosed Property
• Good luck with HUD’s municipal sales program . HUD has a program called The Good Neighbor Program in which it will gift foreclosed buildings to a municipality if they haven’t sold for a long period of time. Property is being marketed for HUD in the Brockton area by a group based in New Hampshire called Citywide. Kevin said that Citywide has been responsive and quick to move on closing deals. Brockton Housing Authority is in the process of acquiring a single-family and a three-family through this program. Both need significant work: the second floor of the single-family is so deteriorated it will be demolished.
Frustrating outcomes. • Properties deteriorate while the lenders deal with legal problems. About six months ago, SMAHC made an offer on a three-family on Hunt Street that was of interest to the seller but it had to clear title issues. In February, SMAHC saw that the building was deteriorating badly due to roof leaks and got the seller’s permission to put a tarp over the roof at SMAHC’s expense. But the process of clearing title dragged on, more water entered the building, mold began growing, and so in June SMAHC withdrew its offer. • Slow responses. SMAHC has been trying without success to buy a triple-decker in Nye Square. The original asking price was $198,000, then dropped to $178,000. SMAHC first offered $120,000, then increased its offer to $132,000 in mid-July. As of now, six weeks later, it has heard nothing in response. The building is empty, has been vandalized, and needs extensive lead paint and asbestos remediation. SMAHC has worked through a buyer’s broker, who has spoken to the listing broker; but they can’t find out the identity of the owning institution, having learned only that it is in California.
Coalition for a Better Acre, Lowell Contact: Madeline Nash, Director of Real Estate. Phone (978) 452-7523, x805. Email: [email protected]
• The hunt to control a multi-family building . CBA wants to acquire a 12-unit vacant condominium that is across the street from its office and so of great interest to the organization, as well as having a large community impact. The building has deteriorated and been stripped over the past winter, so current estimated gut rehab costs are as high as $200,000 per unit. A great obstacle to acquisition is that the units are “owned” now by multiple funders: Wells Fargo with 3 units, 2 units apiece in the hands of Fannie Mae, Freddie Mac and Bank of New York, and one unit held by each of GMAC Mortgage, Countrywide Home Loans and either Indy Mac or Deutsche Bank.
CBA has had productive conversations with representatives of both Fannie Mae and Wells Fargo, is currently chasing someone at Freddie Mac, but hasn’t been able to find contact people at the other three institutions. CBA is concerned that an investor might buy one (or more) units and thereby block its acquisition and restoration of the entire building.
City of New Bedford Contact: Patrick Sullivan, Director, Office of Housing and Community Development Phone: Direct line (508) 979-1505. Email: [email protected]
• Potential for a “bulk” purchase from Fannie Mae . OHCD has identified seven properties in New Bedford controlled by Fannie Mae which it would like to purchase (or acquire on behalf of local nonprofits) and has begun talking with the Boston Fannie Mae representative about what it thinks are fair prices for them. Earlier discussions with a realtor representing Fannie Mae were unproductive because the realtor rejected the City’s initial offers that were below
73 Appendix 3.7 – “Acquisition Stories” - Notes from Organizations Buying Foreclosed Property
the asking prices and said the prices were fixed. OHCD thinks the posted asking prices are too high, that they don’t account for the deteriorated condition of the buildings or the weak market. The City is hoping for a better outcome by negotiating directly with Fannie Mae. It’s worth noting that no other organizations have mentioned the possibility of buying numerous properties from one foreclosing institutions. This is likely because most of the CDCs focus upon specific neighborhoods, while OHCD is looking at the entire city of New Bedford.
74 Appendix 3.8 – Challenges in the Renovation of Foreclosed Housing (Consultant Report)
3.8 Challenges in the Renovation of Foreclosed Housing (Consultant Report)
To: Acquisitions Committee of the Foreclosure Task Force From: Louise Elving, VIVA Consulting Date: July 11, 2008 RE: Challenges in the Renovation of Foreclosed Housing ______
Many organizations working to redevelop foreclosed housing are finding that organizing and managing renovation presents unique challenges that do not arise in new construction or typical gut rehab projects. This report summarizes important issues that occur when CDCs or other developers seek to tackle multiple buildings, often including multiple small multi-family structures such as triple- deckers. Foreclosed properties that need moderate, rather than full gut rehabilitation, increase the challenges.
The report is based upon interviews VIVA Consulting has done for the Acquisitions Committee with seven CDCs and cities, as well as other conversations and work with other CDCs seeking to acquire and restore distressed properties. The organizations include City of Boston, Brockton Housing Authority/Southern MA Affordable Housing Corporation, Coalition for a Better Acre in Lowell, Chelsea Neighborhood Developers, Homeowners Rehab, Inc. in Cambridge, Lawrence Community Works, City of New Bedford, Worcester Community Housing Resources and Greater Elmwood Neighborhood Services in Providence, Rhode Island.
The three major sections of this report are: • Challenging Project Conditions • Design and Construction Implementation Challenges • Resulting Challenges for Project Funders
Challenging Project Conditions
• Continually evolving project definition: It usually takes a very long time to track the responsible owner of foreclosed housing (or housing in the process of foreclosure) and to negotiate its acquisition. This means that a CDC or other prospective owner seeking to restore more than a couple of buildings cannot know at the outset of project planning how large a project will be or the location of buildings that may become part of it. The developer will typically need to start buying buildings before knowing how large a project will become. This means it must figure out how to restore one or two buildings initially, while having the flexibility to tackle many more structures if and when they become available.
• Scope of rehab : Some foreclosed properties are very deteriorated and clearly need gut rehabilitation, and the acquisition prices of such structures should reflect their condition. Other properties are less deteriorated and so have higher prices. For them, funding resources will almost certainly not be sufficient to replace all systems or upgrade all kitchens & baths or finishes, so tough choices may need to be made about priorities, with some items deferred into the future. E.g., roofs that have 5-10 years remaining life may not be replaced; older kitchens in fair condition may be left as is rather than modernized.
Preliminary construction cost estimates, per unit, from several CDCs range from $35-50,000 per unit for moderate rehab to around $100,000 per unit for gut renovation, all in small multi-
75 Appendix 3.8 – Challenges in the Renovation of Foreclosed Housing (Consultant Report)
family buildings such as triple-deckers. One CDC is hoping to find at least some buildings in very good condition where per unit rehab might be even less, closer to $10-20,000.
• Diverse building conditions: Building conditions in a single project may vary substantially from fairly good to very deteriorated. Some CDCs have decided to undertake only vacant properties that require gut rehabilitation. Others are acquiring buildings in diverse condition, including some occupied buildings. In these projects, the architect (or other person defining the rehab scope) and construction contractor must be able to respond to building-specific work scope, rather than doing the same items repeatedly in multiple buildings.
• Timing : Properties are likely to be acquired over a period of time, and it may not be possible to hold properties so that all are rehabbed simultaneously. Instead, it may be necessary to rehab buildings sequentially. In addition, some buildings may need essential repairs as soon as they are purchased such as repairing leaks.
Design and Construction Implementation Challenges
Developers of foreclosed housing may confront all or many of the following issues in determining the most cost efficient way to renovate the property. These issues grow out of the challenging project conditions noted above.
1. Defining rehab scope, preparing design documents, and cost estimating
a. Defining scope. Who is inspecting the properties to determine their rehab needs and prepare work write-ups? This need to be done by someone who understands old building systems and can evaluate quickly whether existing equipment (such as HVAC, plumbing, electrical) can remain or needs upgrading or replacement. Not all architects have this experience. A handful of CDCs and public agencies have in-house staff who can do this, but most need to rely on third party professionals. Thoughtful discrimination in each building is key for moderate rehab projects since costs can be controlled only by judicious retention of workable systems, equipment and finishes.
b. Defining rehab standards. The developer needs to work with its project designer to define the level and types of finishes (e.g., types of flooring, ceramic tile versus one-piece tub surrounds) and types of equipment (e.g., brands of appliances) that are required post-rehab. It is recommended that they be reviewed with the property management agent or staff to gain their perspective on how well they work long-term.
c. Design documents. Will it be sufficient to prepare written work write- ups, along with sketch plans of unit and building lay-outs, rather than preparing full-scale architectural plans (although plans will be needed for unit reconfiguration or structural work)? This type of work write-up is sometimes paired with a matrix defining work scope, by unit. Several CDCs have reported that this approach has been cost effective in completed projects, particularly in the case of moderate rehabilitation. Its merit is that it is less expensive, faster to prepare and may be more readily useable by small contractors.
76 Appendix 3.8 – Challenges in the Renovation of Foreclosed Housing (Consultant Report)
i. Will funders, investors and City agencies accept this type of documentation, without requiring full architectural plans? Will it provide sufficient guidance for contractors?
d. Cost estimating. Who is providing preliminary cost estimates? This needs to be someone with experience in the proposed level of rehab, whether moderate or gut. Several successful strategies are reported by various organizations. i. On at least one CDC project, this task is being done by the project architect who has experience doing other moderate rehab projects with the sponsor. ii. One CDC and one public agency have in-house staff who can do this. iii. Another CDC reported that it has brought one or two local contractors to its initial building walk-throughs and they have provided cost estimates.
2. Contractor selection
Since project size and rehab scope (that is, whether all gut or moderate rehab or a mix of the two) will evolve over time as buildings are acquired, selecting the best contractor or contractors is more challenging than picking a builder for a project whose scope is fully known at the outset.
a. Single versus multiple contractors. Is it best to select a single general contractor which will rehab all the buildings that a developer hopes to acquire over time? Or is it better to select a contractor to do the building(s) which are rehabbed initially, and then to revisit contractor selection as a project proceeds and more buildings are acquired, based upon performance and scope of work? E.g., if one building requires gut and another moderate rehab, would it be appropriate to give them to separate contractors, each with appropriate skills for the specific building? One CDC with experienced in-house construction management staff reports that this approach works well for it.
b. Small versus large contractors. What kinds of general contractors will undertake this work? If buildings will be renovated one at a time or in small groups, large contractors may not be a good fit because their overhead may overwhelm the budget. Smaller, perhaps local firms may be a better match in terms of their costs and scale of operation. For moderate rehab, it is important to select contractors with relevant experience that are prepared to do selective work, rather than assuming more easily defined and managed full-scale replacement of systems and equipment.
c. Managing repairs, as well as renovation. Two other issues are related to the fragmentation in time and scope of renovation work in foreclosed housing. One is how to handle any critical repairs required immediately after acquisition to meet basic life safety standards (e.g., fixing broken stairs, installing smoke detectors), while the bulk of rehab needs to occur later once financing is assembled. This means managing two waves of work in a building and having resources for immediate repairs along with acquisition funding. While the scope of initial repairs is generally larger in occupied buildings that must be made safe for residents, even vacant properties can need urgent work such as boarding up and exterior life/safety work. A second issue is how to manage specific individual repairs that are identified while major renovation work is underway such as
77 Appendix 3.8 – Challenges in the Renovation of Foreclosed Housing (Consultant Report)
replacing one door, one window or one kitchen cabinet or repairing a small section of deteriorated wall.
Three different strategies for managing these two stages of repairs have been identified, and various CDCs have reported success with each.
i. The contractor which is expected to do the entire project does the work. ii. The property manager for the owner does it, as it would other repairs needed during housing operation. The management agent might have in- house staff who can do repairs or might hire small contractors. iii. The owner’s construction representative, who may be an in-house staff person or a third party consultant, manages the repairs, hiring specific trade contractors as needed.
3. Relocation
If buildings are occupied, can renovation be done with residents in place or will they need to be temporarily or permanent relocated? Relocation work flow is uneven over time. For example, when rehab is about to begin, the demand may be great as families are relocated, then slows down while rehab is underway, and accelerates again near project completion when residents will be moving back.
a. Who will manage relocation , notifying residents, assisting them with packing and moving, and utility change-overs if relevant, etc. Three strategies for this have been reported.
i. The management company does it. ii. A separate specialist or firm hired by the owner takes care of relocation. iii. Staff of the owner such as community organizers or social service personnel manage it. One CDC reported that it has hired a community resident to manage relocation in consultation with the development project manager.
4. Construction over-sight/management
Who oversees renovations and represents the owner in solving day-to-day problems? While a project architect will typically be involved, will anyone additional represent the owner, such as a third-party owner’s construction representative? A handful of CDCs and agencies report having in-house staff with construction expertise who can do this, but many rely on third-party professionals. It is important to have someone who can be available quickly to respond to immediate problems, so the contractor is not delayed. Moreover, if multiple contractors will be used, construction over-sight becomes more extensive.
Resulting Challenges with Project Funders
The nature of foreclosed housing redevelopment projects mean that many of the usual lender standards for design and contractors may not be met, especially in the case of moderate rehabilitation. The usual standards bring costs that will overwhelm project budgets and may be inconsistent with the sequential acquisition/renovation process.
1. Design-related challenges
78 Appendix 3.8 – Challenges in the Renovation of Foreclosed Housing (Consultant Report)
a. Scope of renovations. Will funders accept moderate rehabilitation that leaves in place some existing systems, equipment and finishes which are not fully modernized and whose remaining useful life is modest?
b. Design documentation. Will funders accept less than full architectural plans and specifications, such as the documents described earlier (work write-ups, building sketch plans, architectural plans only for structural work, etc.)?
2. Contractor and construction related challenges
As discussed earlier, it may be more appropriate and cost-effective to use small rather than large contractors for these projects. In addition, it may be necessary to retain contractors on a building-by- building basis (or perhaps for two or three buildings at a time) as acquisitions occur. Both drive the need to keep down costs, giving rise to the following issues.
a. Contractor selection process. On larger-scale projects, funders often want evidence that the developer has competitively priced the project with at least several contractors to be sure that the lowest reasonable price has been obtained. However, the small scale of foreclosure projects or the need to retain a contractor which will work on multiple buildings as they are identified make this difficult. Will funders accept a flexible approach, consistent with an evolving project definition and the potential use of multiple small contractors or the engagement of a contractor to work on sequential buildings?
b. Contractor bonds or letters of credit may not be obtainable from small, efficient contractors. Even larger contractors may have difficulty providing them if their contracts are organized in small bites, that is, for only one or a few buildings at a time. Will funders proceed without either of them?
c. Monthly versus more frequent payment. Conventionally, lenders in the housing industry process requisitions once a month. But small contractors may need to be paid more frequently because they don’t have the cash flow to carry payroll and materials for thirty days or more. Will funders process payment twice a month? If not and developers need to find other resources to make interim payments, will the funders repay the developers for funds advanced to contractors?
d. Funders’ construction inspections. Typically funders send their own inspectors to construction sites monthly and charge projects for this work, often around $500-750 per inspection. But these charges cannot be afforded by projects whose total development budget, for rehab of a triple-decker, may be under $500,000. Will funders absorb these costs?
e. Short form construction contracts. The extent of contracts should match the scale of the work. Will funders accept short form contracts for projects (or phases of projects, contracted for separately) that are under, say, one million dollars?
f. Short form change orders and quick approvals. As in all rehab projects, change orders are inevitable since unknown conditions will be uncovered in the course of the work. As with construction contracts, the documentation needs to match the scale of the work, and so needs to be simple with quick approvals. For example, the moderate rehab of a single triple-decker may be scheduled over four months; if change order documentation and
79 Appendix 3.8 – Challenges in the Renovation of Foreclosed Housing (Consultant Report)
approvals take sixty days, the project will be unreasonably delayed. How will lenders work with owners to simplify and accelerate the process?
g. Labor and MBE/WBE requirements and reporting. Small contractors do not have the wherewithal to meet specified goals for minority, local or women’s employment or MBE/WBE utilization. They don’t have the skill or overhead to undertake this or to report on it. Even larger contractors that might do this on multi-million dollar projects cannot afford its time and overhead on sequential buildings where a single rehab contract might be for hundreds of thousands of dollars. Will lenders proceed without it?
h. Prevailing wage requirements. Small and mid-sized contractors which generally appear to be the best match for foreclosed property rehabilitation projects are not organized to pay prevailing wages, nor are their networks of sub-contractors. Developers will be asking funders to work with them to structure financing so these requirements are not triggered.
80 Appendix 4.1 – Holding Period Subcommittee Meeting Notes
Appendix 4: HOLDING PERIOD SUBCOMMITTEE
4.1 Holding Period Subcommittee - Meeting Notes and Matrix (March 21, 2008)
Foreclosures Task Force -Holding Period Committee Meeting March 21, 2008 - 12:00 to 2:00 at MHP. Meeting Notes
Present: Marc Dohan (Twin Cities CDC), Scott Hayman (City of Worcester), Meg Kiely (Chelsea Neighborhood Developers), Charlie Maneikis (Cornu Property Management), Judith Liben (Mass Law Reform Inc.), Judy Weber (Viva Consulting)
The Committee reviewed its charge: Identify the costs of holding properties and management models that address issues such as: obtaining insurance, performing emergency repairs, minimizing displacement of occupants, obtaining local code and tax relief and strategies for achieving economies of scale.
After discussing the differences between receiverships and acquisitions (summarized at the end of these notes), it was concluded that there was little to be gained from creating separate cost items for each. Rather, the focus would be on creating a “universal” holding period cost analysis to guide any intervention and exit strategy.
The Committee brainstormed cost items, elements that effect projecting costs, additional strategies and assignments that are summarized below. Where next steps were identified, they are noted.
Cost Item Cost Projection Discussion Strategies Next Steps/ Assignment Initial • $400/unit for capital needs • Bundle units to achieve • Review project Assessment assessment cost economies Scott has posted (based on • $500/unit for a pro forma • Requires a skilled on ProjectCenter Worcester • $500/unit for legal work administrator model) • Get costs from other locales Insurance • Vacant unit(s) doubles or triples cost • Identify insurance • Meg to discuss • Physical condition likely to prohibit expert to join with Ann participation in “good” insurance Committee (this came different ideas pools and force into surplus lines up after several on who to pool members had left) approach - • Neighbors (what’s next door and • Benchmark costs of report back to across the street) will negatively similar properties Marc impact cost Initial Baseline Initial baseline repairs would include: • Create checklist of • Charlie and Meg Repairs • Emergency repairs to mitigate initial baseline items to to share imminent risk to life address in first two checklist they • Housing and sanitary code weeks are developing compliance for Chelsea • Fire safety compliance Smoke/heat detectors, sprinklers • Locks • Risks associated with tenancy (e.g. lead paint)
81 Appendix 4.1 – Holding Period Subcommittee Meeting Notes
Cost Item Cost Projection Discussion Strategies Next Steps/ Assignment Holding Period • These are costs that are beyond • Holding period repairs Repairs those in normal operating costs but will align with the do not need to be addressed in the acquisition and exit first two weeks strategies Minimizing The following influence costs related • Use of public money Tenant to maintaining existing tenancy: (HOME, CDBG, etc) Displacement • Household size triggers relocation laws • Physical condition of unit and/or • Consider property recommending a tenant • Exit strategy evaluation approach • State and federal relocation laws (review of police logs in addition to traditional screening) Real Estate Tax • Could “the administrator” do this? • Two approaches: Relief • Does an attorney need to be Forgiveness identified? (Chapter 5 of 58) - may occur where assessment is too high Forbearance - for current period going forward
Operating Costs Costs quite variable across the state • Don’t expect mgmt Charlie M to get -Routine and in categories companies to be the data from • Negotiable (not fixed) Management bank - if rents don’t Masshousing and Fee cover costs need others to • Term upfront working capital determine costs • Scale access • Difficulty • Get comp data from • Look at costs by categories and MassHousing or CDCs regions of state with comparable • Mgmt Fee properties (small • Administrative scattered site) • • Maintenance Acquisition strategies/choices • Utilities influence routine costs • Real Estate Taxes • Get Section 8 project- • Insurance based subsidy, even if
temporary.
• Those participating in foreclosure strategies should keep good track of costs to get leverage with banks on the acquisition side
A question for the Acquisitions Committee: Is there legislation to sponsor that would help create scale?
The meeting started with a discussion of the pros and cons of receivership vs acquisition to help the Committee understand where underlying holding period costs might lie.
82 Appendix 4.1 – Holding Period Subcommittee Meeting Notes
Receivership Acquisition Less liability More liability Better chance of borrowing Harder chance of borrowing Shaped by judge (“get the heat on,” Shaped by purchaser/lender/funder “manage it,” “operate and dispose of it” Can a Receiver acquire the same property and could be potentially less costly) for which it is acting as the receiver? Can get super lien (not meaningful in low rent markets) Some more limited than others Receivers can resign Can be lever to get action from owner Can last for 2 years or more; duration quite variable Receiver forecloses on lien Broader receiverships similar to acquisitions for holding period issues/strategies
Next meeting: Conference call at 11:00 am Tuesday April 1, 2008. Marc Dohan will distribute call- in information. Purpose: Feedback on March 25 general meeting AND to shape agenda and set date for next committee meeting.
Homework: Review MHP’s DRAFT Distressed Housing Program for Smaller Residential Properties, March 2008 (distributed previously electronically and at meeting).
83 Appendix 4.2 – Emergency Repair/Life Safety Checklist
4.2 Emergency Repair/ Life Safety Checklist
Life Safety Checklist Comments Date Address of Unit Apartment #
Weather Resident at Home Did Resident Exhibit any Obvious Signs of Major Distress Client Prepared By
Purpose: To highlight potentially imminent life safety risks in order to establish work plan for very early ownership period in order to preserve life, reduce liability, and fulfill the mandate of providing decent, safe and sanitary housing even during the period of very early ownership of distressed housing.
Category Apartment Comments ADA If Grab Bars are in Place are They Secure ADA If Handrails are in Place are They Secure Appliances Stove - gas or electric Appliances Dryer - gas or electric Carpentry Are Closet Shelves Secure Carpentry Are Kitchen Cabinets Secure and Not Sagging CO Safety CO Detector #1 Operational (battery or hard- wired) CO Safety Co Detector #2 Operational (battery or hard- wired) Egress Any Restrictions to Emergency Egress Electrical Extension Chords Present Electrical Circuit Breaker Panel - All Breaker Slots Covered Electrical Evidence lose or hanging electrical outlets Electrical GFI's In Place and Operational Emergency Emergency Lighting Present and Operational Lighting Extermination Infestations Present Fire Safety Space Heaters Present Fire Safety Candles Present Fire Safety Smoke Detector #1 Operational (battery, hard- wired, intercon)
84 Appendix 4.2 – Emergency Repair/Life Safety Checklist
Category Apartment Comments Fire Safety Smoke Detector #2 Operational (battery, hard- wired, intercon) Fire Safety Smoke Detector #3 Operational (battery, hard- wired, intercon) Fire Safety Heat Detector Present Fire Safety Fire Sprinklers Present Fire Safety Evidence of improper handling of smoking material Fire Safety Evidence of Oxygen in Use Flooring Any Evidence of Warping or Sagging of Floors Flooring Any Evidence of Trip Hazards Haz Mat Evidence of any hazardous material being stored Haz Mat Floors tiles likely to be ACM vs. VCT (9" vs. 12") Housekeeping Evidence of excessive hoarding HQS Evidence of Flaking Paint of any Kind HQS Visual Evidence of Mold HQS Smell Evidence of Mold Laundry Unvented Laundry Equipment Leaks Evidence of water leaks of any kind Lease Evidence of over-crowded conditions Medical Emergency Medical Chord Present and Operational Public Safety Front Door Peep Hole Present and Working Public Safety Locks Operational on Apartment Entry Doors Public Safety Any Signs of Prior Forced Entry Stove Evidence that Stove is Being Used for Heating Stove Excessive Grease Build-up on Stove or Stove Fan Unit Windows Indicate # of missing window screens Windows Are Child guards in place at all windows Windows Indicate any broken window panes
Category Common Areas Comments CO Safety CO Detectors Present and Operational and How Many Egress Confirm that all Stairs are properly illuminated Egress Is access to roof restricted Egress Is roof an emergency egress and if so are handrails present
85 Appendix 4.2 – Emergency Repair/Life Safety Checklist
Category Common Areas Comments Egress Basement Egress Unobstructed Egress Safety of Basement Stairs Egress Illumination of Basement Stairs Electrical Electrical Hazards Electrical Electrical Panel Secure with Full Protective Coverage Electrical Electrical Junction Boxes Properly Secured Electrical Electrical Wiring Intact Emergency Emergency Lighting Present and Operational Lighting Emergency Emergency Generator Present/Other Observation Lighting about EG. Extermination Evidence of Infestation of Any Kind Fire Safety Improper storage Fire Safety Smoke Detectors Present and Operational - How Many Fire Safety Fire Blocking Intact throughout Fire Safety Fire Panel Present/Other Observations About Panel Condition Fire Safety Fire Pump Present/Other Observations About Fire Pump Ground Water Sump Pumps Present for Ground Water Haz Mat Oil Tanks Present/Condition HVAC Evidence of Flue Pipe Sag that Might Indicate Excessive Soot HVAC Is Basement Laundry Equipment Property Vented HVAC Inspection Service Tags in Place for Heating System Public Safety Are Locks to Enter the Property Secure (Front and Rear) Roof General Condition of Roof Sewer Ejector Sump Pumps Present for Sewer Ejection Structural Evidence structural deficiencies esp. porch/deck structures
Gas Leaks (data from Blink)
Gas Range Installs
Window Air Conditioner Installs
86 Appendix 4.2 – Emergency Repair/Life Safety Checklist
Fire Sprinkler System
Fire Alarm System
Fire Alarm Monitoring
Fire Pump Testing
Burglar Alarms
Emergency Generator
Emergency Lighting
Fire Extinguishers
Security Cameras
Medical Alarms
Intercom Systems
Master Keys
Contractor Safety
Evacuation Plan
Evauation Training
Special Automatic Stove Turn-offs
Floor Sanding
Mold and Health
Trip Hazards
Boiler Inspections
Elevator Inspections
Roof Walkway Access
Role of Resident Orientation
Totlot Safety
Snow Emergencies
87 Appendix 4.2 – Emergency Repair/Life Safety Checklist
Hurricane Emergencies
Heat Emergencies
On-Call Redundancy
Electrical Hazards
Sewer Back-ups
Environmental Hazards
Bio-Hazards
Lead Paint Certifications
Equipment Lock-out Procedures
Child Guards
Hepatitis Program
ID Badges
Oxygen in Use
City of Boston Elderly Ordinance
Child Guards
88 Appendix 4.3 – Quick Property Assessment Example (Receivership)
4.3 Property Quick Assessment Example (Receivership): Worcester
PILOT RECEIVER CASE – Quick Assessment: 12-14 LaGrange Completed by Worcester Community Housing Resources, Inc. on behalf of City of Worcester (March 2008) Budget – separate attachment
This property is a condominium building originally built as rental housing in 1986 by developer John Sabbey. It was purchased in 2006 and “condoverted” by Worcester entrepreneur Roland Sapong. All but one of the eight total units were sold by Sapong, but all seem currently to be bank-owned or somewhere in the foreclosure process.
The units consist of two four-unit modular buildings, erected on a double foundation. Each unit consists of 623 square feet in two-bedroom, one-bathroom units.
The units have been the subject of numerous health and housing code complaints for the past several years. The most serious complaints at the moment concern the rear porches and stairs, which provide the second means of egress for the upstairs units. These stairways appear to be undersized and under built for the purpose. The front porches, although of minimal size, are also shaky and present tripping hazards. The work on these structures is the most expensive part of the proposed work, since they must be demolished and reconstructed to conform to current building codes. This work will entail removal of the old structures and undersized/inadequate concrete supports, pouring of new concrete supports, building of new decks and stairways, and roofing of the second floor deck structures to prevent snow and ice buildup.
89 Appendix 4.3 – Quick Property Assessment Example (Receivership)
Construction of new roof structures may have to be done in the form of shed roof extensions and tied into the existing 5-inch-pitch roof. Flashing must also be installed on both the roofs and the new decks, which have suffered some significant deterioration at the joints with the main structure, due to the lack of flashing and the lack of proper joist hangers and connections. The second floor decks are presently protected only by aluminum “awning” structures, which are poorly attached and presently failing. Soffits and vents must also be repaired and replaced to prevent the entrance of rodents and vermin. I have reviewed all of the proposed work with both the chief of the housing inspection division and the building inspector who would be responsible for reviewing building permit applications for any new work. Input from both has been considered in estimating the scope and cost of work. The budgeted amount assumes that we can come up with an alternative to full gable roofs on all porches, but should be sufficient.
Other major common area items presenting serious dangers to occupancy include analysis and repair of the fire and smoke detection systems, which are presently non-functional, and replacement of the basement exit doors, which are also non-functional. New unit locks, hallway stair treads/landings, hallway lighting fixtures, main door locks, and main closers should also be installed for safety.
Presently five of the eight units are occupied, and according to the tenants, all are paying rents of $750 monthly, plus utilities. I have spoken with three of the five occupants who report no significant problems within their units, and that heat, hot water, electrical, and plumbing systems are functioning properly. Nevertheless, the interior surfaces, fixtures, and other features show evidence of hard wear and some allowance must be made for repairs on an ongoing basis. I was able to gain access to two of the five occupied units and saw only minimal repair needs.
90 Appendix 4.3 – Quick Property Assessment Example (Receivership)
I was able to obtain access to only one of the three vacant units – the city housing inspector stated that it was fairly representative of the condition of the other units he had inspected. If these vacant units are to be rented out they will need, at a minimum, new appliances, some new interior finishes (carpets in particular are in generally poor conditions and present tripping hazards, while sheet vinyl flooring in kitchen and baths seem to be in slightly better condition). Looking at the operating pro forma for the project, it would seem worthwhile to make these investments if they are not high as many of the building costs will continue whether or not the unit is occupied. Other items that must be improved immediately:
• Cellar windows do not allow adequate combustion air intake for the water heaters or for sufficient ventilation as all have been boarded up. Sufficient ventilation can probably be obtained by restoring 2-3 windows in each of the two separate basements. • The dumpster on the property was removed sometime during the fall and residents have been either piling trash bags on the rear of the property or hauling city trash bags to the street for municipal pickup. A major cleanup of debris and trash is needed, in addition to the installation of a new 8-10 cubic yard dumpster. • There is moisture entering the basements along the perimeter, apparently caused by poor grading, which pitches surface water toward the building, causing ice/snow buildup and creating a hazard. The building inspector has recommended machine grading of three sides of the building, but this may be deferred for the time being unless water problems worsen.. • The condition of the paved parking area and driveway was impossible to ascertain due to ice and snow buildup (it has not been plowed yet this winter). Some patching and repair may be
91 Appendix 4.3 – Quick Property Assessment Example (Receivership)
urgently needed after the snow season is over. • All water heaters seem to be original and have developed numerous areas of rust or corrosion. Two appear to have failed completely (presumably on the vacant units). All should be replaced as catastrophic failure can be anticipated within approximately a year.
In addition to the physical capital improvements, it may be necessary to bring tax payments up to date – the current combined amount on all units is $15.112 - the assessment amount of $167,000 per unit seems well beyond the market.
The immediate capital investment needed is estimated at just under $100,000, including legal fees, construction management and administration but not including the $15,112 in taxes owed. Note that two units’ electricity seem to have been shut off for non-payment and we do not know the status of other current or past due utility bills as the utilities are not allowed to shut off service during heating season.
At current rent levels (which seem to be about right for the market), the income from only five units would produce a small deficit of approximately $4,500 annually, based on normally expected vacancy/collection, management, and operating costs. If all units are restored to the point where they can be occupied, the building would produce a positive cash flow of about $12,000 annually.
In looking at these numbers it should be noted that the city property taxes of nearly $28,000 annually represent a staggering 60% of the operating budget if only five units are occupied, still more than 50% if the building is fully occupied. These figures are far out of line with the actual value of the building, whether “condoverted” or not, and abatements or reassessments should be sought. Under Mass General Law the property taxes are the last item in payment priority for the receiver as they may be added to the priority municipal lien(s).
92 Appendix 4.4 – Holding Period Cost Models
4.4 Holding Period Cost Models
Estimated Cost per Unit per Year to Own a Property (by Massachusetts Region) 2007
Notes and Assumptions (1) Includes Management Fee as well. (2) Assumes all emergency safety repairs made at closing, pursuant to check list posted by committee previously. (3) All Other includes: Resident Services, Security and other Taxes. (4) Most of our projects appear to include Heat and Hot Water in Utilities. We have estimated approximately $700 per unit if the landlord only pays for Water/Sewer and common electricity. Of course, rent increases if utilities are included. (5) Insurance for vacant properties can be three times as expensive as for occupied property. Insurance costs for vacant properties are vastly reduced if it is for liability purposes only. (6) Total assumes project is not vacant and includes utilities listed under All Utilities (7) Weighted Average
I. Information Based on all Data
Admin Maint All Other Tenant Expenses Expenses Expenses All Utilities Real Estate Insurance Insurance Utilities Region (1) (2) (3) (4) Taxes Occupied Vacant (5) (4) Total (6) Boston 2,394 2,528 764 2,384 1,176 457 1,370 700 9,703 Cape 2,551 2,316 1,571 1,280 370 532 1,596 700 8,619 Central 2,048 2,068 717 1,657 541 425 1,276 700 7,456 Metro West 2,410 2,398 955 1,656 932 416 1,248 700 8,767 North 2,389 2,244 1,761 1,757 813 442 1,325 700 9,405 South 2,094 2,202 858 1,678 617 417 1,250 700 7,866 West 1,663 1,886 163 1,629 656 350 1,050 700 6,347 Total (7) 2,233 2,289 909 1,887 856 428 1,285 700 8,602 % of Total Cost 26% 27% 11% 22% 10% 5% N/A N/A
II. Costs After Eliminating ~20 projects which had costs that were outliers (approx. $14,500 per unit )
Admin Maint Real Insurance Tenant Costs Prior Expenses Expenses All Other All Utilities Estate Insurance Vacant Utilities to Deleting Region (1) (2) Expenses (3) (4) Taxes Occupied (5) (4) Total (6) Outliers Boston 2,286 2,469 469 2,383 1,160 444 1,331 700 9,212 9,703 Cape 1,923 2,397 240 1,177 345 549 1,646 700 6,630 8,619 Central 1,772 2,094 197 1,655 549 361 1,083 700 6,629 7,456 Metro West 2,109 2,399 224 1,604 909 378 1,135 700 7,623 8,767 North 1,959 2,139 238 1,706 806 373 1,119 700 7,221 9,405 South 1,875 2,185 212 1,660 615 395 1,184 700 6,941 7,866 West 1,663 1,886 163 1,629 656 350 1,050 700 6,347 6,347 Total (7) 2,013 2,255 290 1,868 847 399 1,196 700 7,671 8,602 % of Total Cost 23% 26% 3% 22% 10% 5% N/A
93 Appendix 4.4 – Holding Period Cost Models
III. Concluding Data for Distressed Housing in 2008-2009
Admin Maint All Other All Real Insurance Tenant Costs Prior Expenses Expenses Expenses Utilities Estate Insurance Vacant Utilities to Deleting Region (1) (2) (3) (4) Taxes Occupied (5) (4) Total (6) Outliers Boston 2,514 3,037 483 3,456 1,160 457 1,371 700 11,108 9,703 Cape 2,115 2,948 247 1,706 345 565 1,696 700 7,927 8,619 Central 1,949 2,588 203 2,176 549 372 1,116 700 7,838 7,456 Metro West 2,320 2,965 231 2,109 909 390 1,169 700 8,923 8,767 North 2,155 2,644 245 2,242 806 384 1,153 700 8,477 9,405 South 2,062 2,701 218 2,182 615 407 1,220 700 8,185 7,866 West 1,829 2,331 168 2,141 656 361 1,082 700 7,486 6,347 Total (7) 2,218 2,787 299 2,455 847 411 1,232 700 9,016 8,602 % of Total 25% 31% 3% 27% 9% 5% N/A N/A
Notes and Assumptions (1) Includes Management Fee as well. (2) Assumes all emergency safety repairs made at closing, pursuant to checklist posted by committee previously. (3) All Other includes: Resident Services, Security and other Taxes. (4) Most of our projects appear to include Heat and Hot Water in Utilities. We have estimated approximately $700 per unit if the landlord only pays for Water/Sewer and common electricity. Of course, rent increases if utilities are included. (5) Insurance for vacant properties can be three times as expensive as for occupied property. Insurance costs for vacant properties are vastly reduced if it is for liability purposes only. (6) Total assumes project is not vacant and includes utilities listed under All Utilities (7) Weighted Average
Inflation and Distress Factors Distress Total Inflation Factor Increase Admin Expenses (1) 3.00% 7.00% 10.00% Maint Expenses (2) 3.00% 20.00% 23.00%
All Other Expenses (3) 3.00% - 3.00% All Utilities (4) 30.00% 15.00% 45.00% Real Estate Taxes - - - Insurance Occupied 3.00% - 3.00% Insurance Vacant (5) 3.00% - 3.00% Utilities: Water 9.00% - Electricity 25.00% 10.00% Oil 50.00% 20.00% Gas 50.00% 20.00% Average Utility (Approx) 30.00% 15.00% 45.00%
We are grateful to MassHousing and Massachusetts Housing Partnership for providing us with the underlying data that allowed us to compute these costs. The figures contained in this chart come from over 600 projects around the Commonwealth.
94 Appendix 4.5 – Property Tax Relief: Initial Legal Research and Relevant Statutes
4.5 Property Tax Relief: Initial Legal Research and Relevant Statutes
To: Foreclosure Task Force From: Marc Dohan Re: Real Estate Taxes Date: July 1, 2008
As you know one of our charges was to examine the impact of real estate taxes on the holding period. There are two issues related to real estate taxes: 1. Back Taxes; and 2. Taxes that are assessed during the holding period (future taxes).
Back Taxes: In general back taxes on a property will be dealt with at the time of sale. No buyer will purchase a property without paying off the taxes to the municipality at the time of the foreclosure. If the taxes are relatively small, they will simply be paid off at the closing.
If the taxes owed are large, then Under Chapter 58, Section 8C, if adopted under Home Rule, the municipality can abate the taxes provided that the property will meet certain restriction related to affordable housing in the future. CHAPA has completed much work on this. I have attached the statute and the critical definition below. We have concluded that there is no reason at this point to revisit this question, given that the question was recently addressed by the Legislature.
Future Taxes: The controlling statute for tax exemptions for non profit organizations in the Commonwealth is Chapter 59 Section 5, Clause 3. This statute states that in order for a property to be exempt, it must be owned by a charitable organization and occupied by a charitable organization. Residential real estate generally does not qualify for an exemption even if the non profit organization is creating affordable housing.
We have concluded that the only way to seek an exemption of future taxes is to pass special legislation. One potential model for such an exemption is actually contained in Chapter 59. The law provides that if a charitable organization purchases the property but does not occupy it immediately, the property might be exempt from property taxes if the organization intends to use this property for a charitable use within two years.
As noted in the statute and emphasized in the Department of Revenue’s “Taxpayer Guide to Property Tax Exemptions in Massachusetts: Religious and Charitable Organizations”
Qualifying Property -- A charitable organization is exempt from local taxation on: … Real estate bought by the organization with the intention of future charitable use. The property need not be occupied immediately. However, if it is not occupied for charitable use within two years of the acquisition, it becomes taxable until put to such use.
We have considered using this idea as a basis to create an analogous special law that will allow us to create a property tax exemption for a similar short period of time: two years. That is, we would draft special legislation that provides for an exemption for “foreclosed property” bought by a non profit with the intention of future residential use. As Chapter 59 Section 5 Clause 3 limits
95 Appendix 4.5 – Property Tax Relief: Initial Legal Research and Relevant Statutes the exemption for two years, so too we would limit the exemption for two years. The advantage of using this formula is that the legislature and the administering authorities have already created a system based on similar provisions.
There are at least three critical issues that we must consider prior to pursing this idea.
First: The amount of savings . This will be addressed by our work on the cost analysis. At this point in time we can expect that roughly 10% of the annual cost per year is related to Real Estate Property Taxes.
Second: The difficulty in obtaining this exemption . Unless we created different rules in the special legislation, non profits would either receive the exemption immediately, or could be forced to wait for up to one year to receive the exemption. Given that the exemption period is only two years, this is not a small variable, and may severely limit the financial usefulness of any special legislation.
Third: Impact on municipal finances. Depending upon the timing of the acquisition and filing, receiving an exemption has one of two impacts on a municipality.
If the property is removed from the tax rolls prior to setting the tax rate, the taxes that would have been paid on the recently acquired parcel are paid by the remaining taxpayers in the municipality. The municipality is made whole, but other taxpayers pay more.
If the property is removed from the tax rolls after the tax rate is set, the taxes that would have been paid on the recently acquired parcel are simply lost to the municipalities. Other tax payers do not see a corresponding rise in their taxes until the following year.
Certainly we do not wish to have local municipalities opposing any special legislation that we might choose to introduce into the legislature. Before introducing any special legislation, we should carefully consider the costs and benefits related to the special legislation. If we do introduce special legislation, we should also consider whether to make this a home rule petition or not.
There might be additional options in addition to filing special legislation. A recent case decided by the Supreme Judicial Court New Habitat, inc. vs. Tax Collector of Cambridge , SJC -1033 July 3, 2008, raised interesting questions regarding whether Chapter 59 Section 5 Clause 3 might already provide the basis for a charitable exemption given that the nature of this project involves foreclosure. We should also remember that non profits, like any developer can apply for an abatement on property. There has also been some talk of trying to use clause 46 of Chapter 59 Section 5 as well, which says that if we “expand and retain job opportunities,” we would qualify for an exemption.
I have asked to have a summer intern consider this matter as a pro bono project.
96 Appendix 4.5 – Property Tax Relief: Initial Legal Research and Relevant Statutes
Property Tax Relief – Current Statutes
Relevant Statutory Authority :
Chapter 58: Section 8C. Affordable housing sites; abatement of real estate tax obligations
Section 8C. A city or town may establish, relative to sites or portions of sites that will be used as affordable housing, as defined in section 1 of chapter 60, or affordable housing and commercial, an agreement between the city or town and the developer of said sites or portions of sites, regarding the abatement of up to 75 per cent of the real estate tax obligations and up to 100 per cent of the outstanding interest and penalties on said sites or portions of sites, if the commissioner has approved in writing the request of the city or town to grant the abatement. Upon the written request of a city or town to grant such abatement, the commissioner shall make a determination within 30 days from the date of the receipt of the request or the request shall be deemed approved. The agreement, for the purpose of developing affordable housing on such sites and redevelopment in such communities, shall include, but shall not be limited to, the amount outstanding, the per cent of interest to accrue if determined applicable by the parties, the description of quantifiable monthly payments, the inception date of such payments, the date of the final payment, late penalties, the number of affordable units, and any other contractual obligations arranged between the parties. The terms of repayment shall be set at the discretion of the municipality and shall be included in the agreement between the parties. A city or town that accepts this section shall adopt an ordinance or by-law specifying the method for negotiating and approving agreements under this section. Copies of each such agreement shall be signed by the municipal officer required by the ordinance or by-law and by the owner of the property in question, notarized, attested to by the city or town clerk, and provided to the department of housing and community development, the commissioner, the city council or board of selectmen, and the owners of the property in question. An abatement under this paragraph may be granted only for a new owner of a parcel who is not liable for any of the outstanding charges secured by the municipality’s lien. This section shall take effect in any city or town only upon its acceptance by such city or town. The commissioner, in consultation with the department of housing and community development, may make, and from time to time revise, such reasonable rules and regulations that are consistent with provisions of the preceding paragraph as he deems necessary to carry out the provisions of this paragraph.
From Chapter 60 Section 1:
“Affordable housing”, housing with an affordable housing restriction recorded with the registry of deeds in the county where the property is located that requires the housing, for not less than 45 years, to be rented or owned by families and individuals whose income at initial occupancy is no more than 120 per cent of the area median income as determined by the federal department of housing and urban development guidelines and adjusted for family size and that thereafter such units shall be rented or sold, subject to such restrictions on appreciation as determined by the municipality to be reasonable and necessary to maintain long term affordability, to families or individuals at incomes of no more than 120 per cent of the area median income.
Chapter 59 Section 5, Clause 3.
Third, Personal property of a charitable organization, which term, as used in this clause, shall mean (1) a literary, benevolent, charitable or scientific institution or temperance society incorporated in the commonwealth, and (2) a trust for literary, benevolent, charitable, scientific or
97 Appendix 4.5 – Property Tax Relief: Initial Legal Research and Relevant Statutes temperance purposes if it is established by a declaration of trust executed in the commonwealth or all its trustees are appointed by a court or courts in the commonwealth and if its principal literary, benevolent, charitable, scientific or temperance purposes are solely carried out within the commonwealth or its literary, benevolent, charitable, scientific or temperance purposes are principally and usually carried out within the commonwealth; and real estate owned by or held in trust for a charitable organization and occupied by it or its officers for the purposes for which it is organized or by another charitable organization or organizations or its or their officers for the purposes of such other charitable organization or organizations; and real estate purchased by a charitable organization with the purpose of removal thereto, until such removal, but not for more than two years after such purchase; (Emphasis supplied) provided, however , that:--
(a) If any of the income or profits of the business of the charitable organization is divided among the stockholders, the trustees or the members, or is used or appropriated for other than literary, benevolent, charitable, scientific or temperance purposes or if upon dissolution of such organization a distribution of the profits, income or assets may be made to any stockholder, trustee or member, its property shall not be exempt; and
(b) A corporation coming within the foregoing description of a charitable organization or trust established by a declaration of trust executed in the commonwealth and coming within said description of a charitable organization shall not be exempt for any year in which it omits to bring in to the assessors the list, statements and affidavit required by section twenty-nine and a true copy of the report for such year required by section eight F of chapter twelve to be filed with the division of public charities in the department of the attorney general, nor shall it be exempt for that athletic property or portion thereof for the part of the year which the assessors have determined to be utilized for other than literary, educational, benevolent, temperance, charitable, or scientific purposes in direct competition with a person engaged in the same activity and subject to the tax imposed by this chapter on properties so used. In the case of the exemption of property from tax for a part of the year, the tax imposed shall bear the same proportion to the tax which would be applicable to such property if it were subject to tax for the entire year as the time such property is employed in such use bears to the total time during which such property is available for use during the year.
(c) Real or personal property of a charitable organization occupied or used wholly or partly as or for an insane asylum, insane hospital, or institution for the insane, or principally for the treatment of mental diseases or mental disorders, shall not be exempt unless at least one fourth of all property so occupied or used, wholly or partly, on the basis of valuation thereof, and one fourth of the income of all trust and other funds and property held for the benefit of such asylum, hospital or institution and not actually occupied or used by it for such purposes, is used and expended entirely for the treatment, board, lodging or other direct benefit of indigent insane persons, or indigent persons in need of treatment for mental diseases, as resident patients, without any charge therefor to such persons either directly or indirectly, except that a charitable organization conducting an insane asylum, insane hospital or institution for the insane to which persons adjudged insane by due process of law may be committed shall be exempt from taxation on personal property and buildings so occupied or used, but shall be subject to taxation on the fair cash value of the land owned by it and used for the purposes of such asylum, hospital or institution; and
(d) Real estate acquired after May fourth, nineteen hundred and eleven, by any association or private corporation formed or incorporated for the care of the insane, shall not be exempt under
98 Appendix 4.5 – Property Tax Relief: Initial Legal Research and Relevant Statutes paragraph (c) unless the city council of the city, or the inhabitants of the town, in which it is situated, have by vote lawfully taken consented to the acquisition of such real estate, to be so exempt; nor shall real estate of a trust coming within the foregoing description of a charitable organization, if occupied or used wholly or partly as or for an insane asylum, insane hospital, or institution for the insane, or principally for the treatment of mental diseases or mental disorders, be exempt under paragraph (c) unless the city council of the city, or the inhabitants of the town, in which it is situated, have by vote lawfully taken consented to such exemption; and
(e) Real and personal property of an educational institution coming within the foregoing description of a charitable organization which is occupied or used wholly or principally as residences for officers of such institutions and which is not part of or contiguous to real estate which is the principal location of such institution shall not be exempt.
In any city or town which accepts the provisions of this paragraph, the provisions of subsection (c) shall not apply to any charitable non-residential mental health facility, organized under chapter one hundred and eighty which provides clinical, therapeutic, diagnostic and counseling services to persons with mental disorders.
Chapter 59 Section 5, Clause 46.
Forty-sixth, Real estate, owned by an economic development corporation whose purpose is to retain and expand job opportunities and which is organized under chapter one hundred and eighty, from the date of said real estate's acquisition until such real property is leased, rented, or otherwise disposed of; provided said exemption for such real property should not extend beyond a total period of seven years; and provided, further, that if the whole or any part of any such real estate is used for other than the purpose of said corporation and derives any income from such use, such real estate or part thereof, as the case may be, shall not be exempt.
99 Appendix 4.6 – Property Tax Relief: Legal Research Memo (9/24/2008)
4.6 Property Tax - Legal Research Memo
100 Appendix 4.6 – Property Tax Relief: Legal Research Memo (9/24/2008)
101 Appendix 4.6 – Property Tax Relief: Legal Research Memo (9/24/2008)
102 Appendix 5.1 – Exit Strategies Subcommittee – Meeting Notes (2/19/2008)
Appendix 5 – EXIT STRATEGIES SUBCOMMITTEE
5.1 Exit Strategies Subcommittee – Meeting Notes (2/19/2008)
Exit Strategies Working Group - Meeting Minutes- February 19, 2008 Attendees: Co-Chairs Charleen Regan (Consultant) and Don Bianchi (MACDC); Steve Cook (Oak Hill CDC); Sue Connelly (MHP); and Evelyn Friedman (Nuestra Comunidad, by phone) The meeting convened at 10:05 a.m.
Introduction: Charleen and Don welcomed everyone to the meeting and introductions ensued. They noted that the following individuals have been approached about serving on this committee. Some of these individuals have indicated an interest in participating, but could not attend this meeting. Others have indicated they are not able to participate. Finally, some have not yet replied to our invitation. Once our participation list is complete, we will distribute it.
Individuals Invited to Participate by Charleen and Don:
Deb Goddard or Jo Ann McGuirk from DHCD Sue Connelly or someone from Lending Division at MHP Bill Breitbart from CEDAC Bob Van Meter from LISC Kristen Harol from The Life Initiative David Abromowitz from Goulston and Storrs Evelyn Friedman, Pat Canavan or someone else from the City of Boston Patricia Belden from Preservation of Affordable Housing Kevin Harriman from Brockton Housing Authority Steve Cook from Oak Hill CDC Mossik Hacobian from Urban Edge Lionel Romain or someone else from Nuestra Comunidad Tamar Kotelchuck or someone else from Lawrence Community Works Charles Rucks from Springfield NHS Jeanne Dubois from Dorchester Bay EDC Richard Thal from Jamaica Plain NDC Peter Gagliardi from HAP
Role of Exit Strategy Committee/ Relationship to other Committees: As we use it, the term “exit strategies” is what happens beyond an interim acquisition and holding period- to the property, to the residents, to the entity that controls the property during the holding period, to the City or Town, to the project funders, to the interim funds themselves.
Charleen noted that in assessing the broad issue of disposition of foreclosed properties, we should start with the outcomes we want to see, which are the “exit strategies”- the eventual disposition of the properties as affordable homeownership, or affordable rental housing, or some other disposition. Therefore, these desired exit strategies need to guide the stages that lead up to it- the inventorying of potential properties, the assessment of their feasibility, the pulling together of financial resources.
Therefore, there are limits to what each of the sub-committees of the Foreclosed Properties Task Force can achieve on its own. The Exit Strategy Group will meet, as will the other sub- committees, and the come together on March 4. At that meeting, our recommendation is that the
103 Appendix 5.1 – Exit Strategies Subcommittee – Meeting Notes (2/19/2008) full group assess what individual sub committees, working independently or in combination, should focus on going forward- with the expectation that separate subcommittee meetings will be of limited value.
Potential Acquisition/Interim Strategies: With particular attention to the link between acquisition/ holding strategies and exit strategies, we discussed how particular acquisition strategies may best facilitate exit strategies. The Acquisition Sub-committee will examine these in detail- including strategies which involve acquisition of the properties and acquisition of the mortgages securing the properties.
We would like to encourage consideration of two alternatives to control of the properties. The first is aggressive code enforcement by the locality- as is being pursued in Boston, Worcester and Springfield, among other places. This will raise the cost of inaction on the part of the foreclosing lender, and incent these foreclosing lenders to negotiate responsible dispositions- of properties at a substantial discount.
The second is to explore using the receivership model on a broader scale. The receivership statute in Massachusetts is a good one- and can be used to control code-delinquent properties if local government and the courts have the political will to do so. We discussed how the receivership model needs three additional things to work broadly and effectively: first, building a network of capable receivers; second, adequate funding to compensate the receivers; and third, adequate funding for property repairs.
Potential Exit Strategies: Ultimately, there are four potential long-term exit strategies to plan for: development as affordable homeownership, development as affordable rental housing, demolition tied to some combination of redevelopment and open space preservation, and disposition to a responsible market owner.
Good and thoughtful planning will be necessary to avoid a fifth, and least favorable, option- no feasible exit strategy other than a sale of the property back to anyone willing to buy the property on the market. In this event, the costs will likely be enormous- to the property, to the residents, to the entity acquiring the properties, to the locality, to the funders and to the funding resources. It is our responsibility to make sure that the acquisitions, while proceeding in a timely manner, do not get ahead of the strategies to preserve their impact.
In that context, analysis of paths to these exit strategies will be explored by this subcommittee in detail. We will look at sale to homebuyer options, and long-term rental options (including bundling foreclosed properties as part of a larger development package), simple (block grant) and more complicated (tax credit) strategies, State and federal policies and legislation that needs to change to facilitate these strategies (ranging from changes to tax credit rules to facilitate rental changes in long-term deed restrictions to facilitate homeownership strategies).
Matching Acquisition/Interim Strategies to Exit Strategies: To aid our thinking, and the larger group’s thinking, on how to pull together and implement the pieces of the disposition puzzle, we have drafted a preliminary matrix of options, showing the inter-relationship of various acquisition and holding strategies with successful exit strategies. This matrix is attached.
We look forward to working with the full group and the other sub-committees to pull together a workable program within the next 6 months.
104 Appendix 5.2 – Exit Strategies Subcommittee – Progress Report (3/20/2008)
5.2 Exit Strategies Working Group – Progress Report (3/20/2008)
The Exit Strategies Committee was formed as a sub-committee to the Foreclosed Properties Task Force. It is co-chaired by Charleen Regan and Don Bianchi. The composition of the group is evolving; to date, more than a dozen individuals have expressed interest in participating in this Committee.
The Task Force has given the following charge to the Exit Strategies Committee: Model best practices to develop foreclosed property as affordable or mixed income homeownership developments, bundled rental properties or demolition as part of a revitalization plan.
We are proceeding in three aspects of this charge:
A. Identify the potential development strategies to pursue, and what factors bear on these potential strategies.
We have attached a draft matrix that Charleen developed to assess the factors involved in developing three categories of properties: single family properties, small scale multi-family properties, and larger multifamily buildings. This matrix identifies the potential universe of strategies for interim control; exit strategies; barriers and issues; and permanent funding resources needed.
B. Identify the considerations needed to assess a particular property’s suitability for specific exit strategies.
In developing a strategy for assessing a property’s suitability for acquisition for this purpose, in order to adequately inform consideration of potential exit strategies, the Exit Strategies Committee recommends consideration of the following: 1. Inventory of potential properties - what is available and how to assess them and prioritize among available properties?
2. Neighborhood Planning Objectives - what does the community want or need, and how does this compare to what the market will support? Caution : Develop strategies to prevent displacement of residents, including tenants.
3. Type of housing - what is the preferred use and ownership structure for the housing?
4. Property Condition - are the properties in good condition, and if not, can they be renovated within a reasonable cost? Caution: Do not overpay for housing. Leave sufficient resources for required rehab.
5. Acquisition strategy - what will it cost to acquire and hold the properties, and what liens and other impediments are there to acquisition? Caution : Do not let the acquisition strategy box you in- picking the wrong type of property and getting stuck with liens can be bad news. Consider alternative ways to control properties- aggressive code enforcement, receivership, foreclosing on liens. Consider demolition and land banking until the market for new development stabilizes.
6. Market - What impact will the rental market and homeownership market (now and projected into the future) have on the ability to successfully develop the properties? 105 Appendix 5.2 – Exit Strategies Subcommittee – Progress Report (3/20/2008)
Caution : For homeownership, consider the impact of deed restrictions have on marketability?
7. Resources - what resources are available to acquire and hold the properties and for their eventual development or other disposition? What portion of overall affordable housing funding pool will be available for this purpose? For rental housing, will federal or state rental assistance be available? Caution: Assess what public resources are available to develop and maintain the properties. There will be a need for small scale rental production models and resources. For larger tax credit rental projects, there are a number of issues, including the need to reform the “10-year rule”, address investor comfort levels, and provide the necessary guarantees.
8. Design and Construction Standards - Will the standards for public money be flexible enough, particularly during the interim holding period, given available resources? Caution: Clarity and consistency on state and local standards is essential.
9. Development capacity - who has the capacity to manage a scattered-site development? What is the appropriate role for non profits and for profits?
10. Management capacity - what are the challenges and costs associated with the long term management of scattered site properties, and how can they be addressed? Caution : make sure that adequate reserves are established and maintained.
11. Worst-Case Exit Strategies - what exit strategies are available if development strategies are not feasible? Caution : when considering worst-case exit strategies, consider impact on residents, building, neighborhood, project owner and funding sources.
C. Flush out the details and the technical considerations of various exit strategies. This is our next task, to assess potential exit strategies, the resources needed to address them, and the technical issues associated to making them workable. We will look at what is needed to support homeownership, small scale rental development, large scale rental development, demolition and land banking, and any other potential exit strategies.
Specific policy explorations: o Public resources for long-term stability—how much, with what per unit/project limits? o Need for small scale rental production models and resources o Fit with LIHTC —need for reform (10 year rule), investor comfort levels; guarantee issues o Capacity building and new models of management o Reserve structure and possible pools for long term sustainability o Demo and Land banking until the market for new development stabilizes o Put Muni regulatory structure in place to insure long term sustainability and accountability
106 Appendix 5.3 – Exit Strategies Matrix (Draft 3/20/2008)
5.3 Exit Strategies Matrix (draft 3/20/2008)
Type of Strategies for Exit Strategies Barriers/Issues Permanent Property Interim Control Funding of Asset Resources Needed
-REO with Muni Homeownership. Re-sale issues: Market FTHB, soft second,
requirements for Sale as issues, qualified counseling funding Single responsible affordable homebuyers; Who brokers, family holding housing to counsels? Deed restrictions homebuyer. impact marketability. -City control through lien or Holding issues: costs, receivership oversight, municipal will in enforcing code, -non-profit ownership-short Acquisition Funding: LTV, sales, buy source, market risk mortgages
Sale as condos to All of above plus: often least Same as above
individual attractive option of Small -REO above homebuyers homebuyers with choices. scale -Non-profit multi- acquisition-short Sale to owner Market, sustainability, Same as above plus family sales, buy occupant who appraisal, ltv, long-term additional post- (triple mortgages rents other units management issues for purchase support decker) -City control buyer. and counseling through lien or receivership Package as rental Holding costs, long-term MHP SSRPP-type property for non- management, subsidy product, HSF, profit ownership resources, rehab standards; HOME, PB Sec. 8 lack of subsidy resources for or other rental
small scale rental property; assistance; difficulty in managing small Municipal funds LIHTC scattered site
properties Sale to Market; how to insure that Municipal $ and responsible buyer remains responsible. involvement in long market buyer How does non-profit play term code broker role to insure good enforcement, outcome? landlord rehab loans, PB Sec. 8 linked to ‘good’ landlord programs. Demolition as Consensus on demolition, Funding for part of future uses; community process neighborhood and planning, Maintenance of vacant land plan to reduce Municipal demo density or Land funds, funds for Bank vacant land ‘greening’, long for future term vacant lot development maintenance, land banking.
107 Appendix 5.3 – Exit Strategies Matrix (Draft 3/20/2008)
Type of Strategies for Exit Strategies Barriers/Issues Permanent Property Interim Control Funding of Asset Resources Needed
Small scale: Lack of small MHP SSRPP-type
scale financing packages product, HSF, -Non-profit and subsidy resources plus HOME, PB Sec. 8 acquisition holding costs, long-term or other rental -City control management, subsidy assistance; 5-20 unit through resources, rehab standards Municipal funds building (s) foreclosing lien or receivership Package as rental property for non- Larger scale LIHTC LIHTC set asides, profit ownership package: difficulty in recognition of managing scattered site higher operating
properties costs, PB rental assistance, training and support for new management models. Sale to Market; how to insure buyer Municipal programs responsible remains responsible, role for to support good market buyer non-profit as broker? landlords, rental assistance, targeted rehab loans.
108 Appendix 5.4 – Exit Strategies Subcommittee: Links to Land Banking and Receivership Studies
5.4 Exit Strategies Subcommittee: Links to Land Banking and Receivership Studies
Land Bank Authorities : A Guide for the Creation and Operation of Local Land Banks Author: Frank S. Alexander, Professor of Law, Emory University School of Law Published by Local Initiatives Support Corporation April 2005 http://content.knowledgeplex.org/kp2/cache/documents/1112/111259.pdf
109 Appendix 5.5 – Exit Strategies Subcommittee: Matrix of Decision Making Criteria
5.5 Exit Strategies Subcommittee: Matrix of Decision- Making Criteria
Exit strategies will be informed and/or dictated by the nature and status of a property, measured against a basic set of criteria (see below). Building on that information, an overall planning objective for a particular targeted neighborhood will be informed by an aggregated analysis of the involved properties, a “neighborhood inventory”. In addition to the nature and status of the housing in a particular area, the development and management capacity of an entity will also factor into the exit strategy. Therefore, the acquisition strategy must take into account these key elements of an exit strategy. At the outset, an entity needs to undertake the following tasks:
1. Create an inventory of properties
2. Apply the following matrix factors to each property (this is a RAW description but provides a sense of what we have in mind):
a. Occupied Yes/No
b. Size Small/Medium/Large:
c. Condition Poor/Fair/Good
d. Strength of Market Weak/Fair/Strong
Scoring each property will identify the most appropriate exit strategy for that property, and, in sum, for a targeted neighborhood.
For instance, it may be that the exit strategy for a property “scored” as follows could be to (1) board and hold for bundling into a tax credit proposal, or (2) rehab and rent.
e. Occupied Yes/ No
f. Size Small /Medium /Large:
g. Condition Poor /Fair /Good
h. Strength of Market Weak/Fair /Strong
3. Create a neighborhood inventory based upon the profiles of each property.
4. Identify the appropriate neighborhood strategy based upon the neighborhood inventory . Continuing with the example, above, if a targeted neighborhood was dominated by such properties that would indicate that the first option is realistic because of the scale that can be achieved readily. On the other hand, if scale would not be sufficient to bundle, then the rehab/rent may be appropriate. This, then, raises the question of property management: is there sufficient scale such that professional property management is practical? If not, then the exit strategy will default to management by the local entity.
5. Match entity’s capacity with neighborhood profile . This final overlay will assist in prioritizing potential target neighborhoods as well as informing the exit strategies that are appropriate. For instance, if the appropriate strategy is rehab to rent, the scale would not support professional property management, and the local entity does not have the capacity to undertake property management, it may decide to identify another actor that is better suited and target another neighborhood for its direct efforts.
110 Appendix 5.5 – Exit Strategies Subcommittee: Matrix of Decision Making Criteria
The matrix and evaluation might look like the following:
Small Medium Large SIZE * Poor Fair Good CONDITION * Yes No OCCUPIED * Weak Fair Strong MARKET *
Initial Property Outcome: (1) Bundle/LIHTC or (2) Rehab and Rent
Small Medium Large SIZE * Poor Fair Good CONDITION * Yes No OCCUPIED * Weak Fair Strong MARKET *
Initial Property Outcome: (1) Market Solution, preference for Owner Occupant
There is a lot of work to be done on the matrix but it should be possible to identify the possible exit strategies attached to each element that makes the decision tree relatively simple (!).
For instance, “Property Condition/Good” allows the following options: Market Solution or Assisted? Either Hold or Resale? Either
“Market/Weak” allows the following options: Market Solution or Assisted? Assisted Hold or Resale? Hold
The matrix narrows options to the most likely outcomes.
111 Appendix 5.6. – Exit Strategies Subcommittee: Financial Models
5.6 Financial Models: Funding Requirements by Strategy, Project Size and Locations
5.6.1 - 12 buildings, 36 units developed at rental property with tax credits (9%), anti-churning relief 5.6.2 - 12 buildings, 36 units developed at rental property without tax credits 5.6.3 - 12 buildings, 36 units developed at rental property with tax credits (4%), anti-churning relief
5.6.1 36 Unit Scattered Site Rental, 9% tax credits, anti-churning relief
12 Buildings, 36 Units Developed as rental property with tax credits (4%) Anti-churning relief
Scenario A: 2/3 of units in each building are occupied. Distress is not severe. Scenario B: Units are in deplorable condition; the few existing residents are relocated for construction
"Affordable/market" units are priced at the lesser of 60% rents (less utility allowances) or market prices 100% units eligible for acquisition credits
Summary Table Brockton Chelsea Worcester Scenario A Scenario B Scenario A Scenario B Scenario A Scenario B Acquisition price / unit 92,667 62,667 70,000 40,000 60,000 41,667 Rehab/unit 30,000 60,000 55,000 85,000 30,000 75,000 TDC 5,345,562 5,953,706 5,894,643 6,496,261 4,103,000 5,964,402 Rental Mix Units at 110% FMR 0 0 0 0 0 0 Units at FMR 0 0 0 0 0 0 Affordable/market 36 36 36 36 36 36
Permanent Loan 807,740 715,595 1,501,965 1,501,965 1,172,399 1,080,254 Tax Credit Equity 2,175,305 3,134,471 2,939,516 3,892,181 1,837,885 3,510,538 Credits Per Unit 7,109 10,243 9,606 12,720 6,006 11,472 Subsidy Required 2,362,517 2,103,640 1,453,163 1,102,115 1,092,716 1,373,609 Subsidy Per Unit 65,625 58,434 40,366 30,614 30,353 38,156
Note: Brockton scenario is adjusted to reflect conventional underwriting assumptions (vacancy loss, debt service coverage). Brockton has already committed project-based Section 8s and negotiated a construction/perm loan, the terms of which differ from those assumed here.
112 Appendix 5.6. – Exit Strategies Subcommittee: Financial Models
Calculations and Assumptions Buildings: 12 Interest: 0.07 Total units: 36 Amort.: 30 2-BR 12 3-BR 24
Brockton Chelsea Worcester Scenario A Scenario B Scenario A Scenario B Scenario A Scenario B Acquisition/building 278,000 188,000 210,000 120,000 180,000 125,000 Acquisition/unit 92,667 62,667 70,000 40,000 60,000 41,667 Rehab/building 90,000 180,000 165,000 255,000 90,000 225,000 Rehab/unit 30,000 60,000 55,000 85,000 30,000 75,000 Holding period (months) 6 6 6 6 6 6 Construction period (months) 9 12 9 12 9 12 % vacant units 33% 100% 33% 100% 33% 100%
Total acquisition cost 3,336,000 2,256,000 2,520,000 1,440,000 2,160,000 1,500,000 Total rehab cost 1,080,000 2,160,000 1,980,000 3,060,000 1,080,000 2,700,000 Construction contingency 108,000 216,000 198,000 306,000 108,000 270,000 Holding period costs--vacant units 41,234 133,740 37,868 121,500 36,383 122,400 Other soft costs 237,600 475,200 435,600 673,200 237,600 594,000 Developer fee 386,825 560,541 523,720 696,105 327,297 627,960 Reserves 155,903 152,225 199,456 199,456 153,720 150,042 TDC 5,345,562 5,953,706 5,894,643 6,496,261 4,103,000 5,964,402
Units at 110% FMR 0 0 - 0 0 0 Units at FMR 0 0 - 0 0 0 Affordable units (lesser of 60% or market) 36 36 36 36 36 36
Stabilized operating cost/unit 6,870 6,870 7,750 7,750 5,940 5,940 Operating cost/unit, holding period
Gross potential income 338,400 338,400 438,840 438,840 338,400 338,400 Vacancy 5.0% 7.5% 5.0% 5.0% 5.0% 7.5% Gross effective income 321,480 313,020 416,898 416,898 321,4 80 313,020 Operating expenses 247,320 247,320 279,000 279,000 213,840 213,840 NOI 74,160 65,700 137,898 137,898 107,640 99,180 DSC 1.15 1.15 1.15 1.15 1.15 1.15 Avail. for debt service 64,487 57,130 119,911 119,911 93,600 86,243
Perm. Loan 807,740 715,595 1,501,965 1,501, 965 1,172,399 1,080,254
Acquisition basis 3,336,000 2,256,000 2,520,000 1,440,000 2,160,000 1,500,000 Construction basis 1,188,000 2,376,000 2,178,000 3,366,000 1,188,000 2,970,000 Soft costs in basis 237,008 517,599 402,447 675,495 232,885 608,940 130% basis boost 130% 130% 130% 130% 130% 130% 4% rate 0.0334 0.0334 0.0334 0.0334 0.0334 0.0334 9% rate 0.0780 0.0780 0.0780 0.0780 0.0780 0.0780 Total credits 255,918 368,761 345,825 457,904 216,222 413,005 Credits per unit 7,109 10,243 9,606 12,720 6,006 11,472 Equity (at $.85/$1.00) 2,175,305 3,134,471 2,939,516 3,892,181 1,837,885 3,510,538
Soft Debt Required 2,362,517 2,103,640 1,453,163 1,102,115 1,092,716 1,373,609 Soft Debt Per Unit 65,625 58,434 40,366 30,614 30,353 38,156 Note: Brockton and Chelsea are both Difficult Development Areas. This analysis assumes that Worcester projects would be located in a qualified census tract. 113 Appendix 5.6. – Exit Strategies Subcommittee: Financial Models
Rent Assumptions Brockton Chelsea Worcester 2BR 3BR 2BR 3BR 2BR 3BR 50% income limit 34,200 39,525 38,600 44,625 34,600 40,000 50% rents 855 988 965 1,116 865 1,000 60% income limit 41,040 47,430 46,320 53,550 41,520 48,000 60% rents 1,026 1,186 1,158 1,339 1,038 1,200 Market 750 800 950 1,100 750 800 FMR 1,213 1,451 1,353 1,618 965 1,154 110% FMR 1,334 1,596 1,488 1,780 1,062 1,269 Utility allowances 226 281 226 281 154 181 Weighted avg rents: FMR: 1,109 1,267 828 110% FMR 1,246 1,420 937 Affordable 783 1,016 783
Operating Cost Assumptions
Operating expenses during vacant holding period:
Insurance 1,000 per year Utilities 450 per year Property taxes 10 per mil Management premium 400 per year
Premium for occupied units during the holding period: 0.03 of rents as mgmt fee 250 per unit insurance
114 Appendix 5.6. – Exit Strategies Subcommittee: Financial Models
5.6.2 36 Unit Scattered Site Rental, 9% tax credits, no churning relief
Assumptions: same as above: 12 Buildings, 36 Units, developed as rental property with tax credits (4%) Anti-churning relief
Scenario A: 2/3 of units in each building are occupied. Distress is not severe. Scenario B: Units are in deplorable condition; the few existing residents are relocated for construction
"Affordable/market" units are priced at the lesser of 60% rents (less utility allowances) or market prices 30% of units eligible for acquisition credits
Summary Table Brockton Chelsea Worcester Scenario A Scenario B Scenario A Scenario B Scenario A Scenario B Acquisition price / unit 92,667 62,667 70,000 40,000 60,000 41,667 Rehab/unit 30,000 60,000 55,000 85,000 30,000 75,000 TDC 5,345,562 5,953,706 5,894,643 6,496,261 4,103,000 5,964,402 Rental Mix Units at 110% FMR 0 0 0 0 0 0 Units at FMR 0 0 0 0 0 0 Affordable/market 36 36 36 36 36 36
Permanent Loan 807,740 715,595 1,501,965 1,501,965 1,172,399 1,080,254 Tax Credit Equity 1,845,746 3,169,267 2,890,110 4,205,982 1,690,726 3,753,682 Credits Per Unit 6,032 10,357 9,445 13,745 5,525 12,267 Subsidy Required 2,692,076 2,068,845 1,502,568 788,314 1,239,875 1,130,466 Subsidy Per Unit 74,780 57,468 41,738 21,898 34,441 31,402
Note: Brockton scenario is adjusted to reflect conventional underwriting assumptions (vacancy loss, debt service coverage). Brockton has already committed project-based Section 8s and negotiated a construction/ perm loan, the terms of which differ from those assumed here.
Calculations Same as model for 9% credits with churning relief until soft costs in basis.
Brockton Chelsea Worcester Scenario A Scenario B Scenario A Scenario B Scenario A Scenario B Perm. Loan 807,740 715,595 1,501,965 1,501,965 1,172,399 1,080,254
Acquisition basis 1,000,800 676,800 756,000 432,000 648,000 450,000 Construction basis 1,188,000 2,376,000 2,178,000 3,366,000 1,188,000 2,9 70,000 Soft costs in basis 623,834 1,078,140 926,168 1,371,600 560,183 1,236,900 130% basis boost 130% 130% 130% 130% 130% 130% 4% rate 0 .0334 0.0334 0.0334 0.0334 0.0334 0.0334 9% rate 0.0780 0.0780 0.0780 0.0780 0.0780 0.0780 Total credits 217,147 372,855 340,013 494,821 198,909 441,610 Credits per unit 6,032 10,357 9,445 13,745 5,525 12,267 Equity (at $.85/$1.00) 1,845,746 3,169,267 2,890,110 4,205,982 1,690,726 3,753,682 Soft Debt Required 2,692,076 2,068,845 1,502,568 788,314 1,239,875 1,130,466 Soft Debt Per Unit 74,780 57,468 41,738 21,898 34,441 31,402
115 Appendix 5.6. – Exit Strategies Subcommittee: Financial Models
5.6.3 36 Unit Scattered Site Rental, 4% tax credits, anti-churning relief
Assumptions: same as above (12 Buildings, 36 Units, developed as rental property) under two scenarios
Scenario A: 2/3 of units in each building are occupied. Distress is not severe. Scenario B: Units are in deplorable condition; the few existing residents are relocated for construction
"Affordable/market" units are priced at the lesser of 60% rents (less utility allowances) or market prices 100% units eligible for acquisition credits
Summary Table Brockton Chelsea Worcester Scenario A Scenario B Scenario A Scenario B Scenario A Scenario B Acquisition price / unit 92,667 62,667 70,000 40,000 60,000 41,667 Rehab/unit 30,000 60,000 55,000 85,000 30,000 75,000 TDC 5,345,562 5,953,706 5,894,643 6,496,261 4,103,000 5,964,402 Rental Mix Units at 110% FMR 0 0 0 0 0 0 Units at FMR 0 0 0 0 0 0 Affordable/market 36 36 36 36 36 36
Permanent Loan 807,740 715,595 1,501,965 1,501,965 1,172,399 1,080,254 Tax Credit Equity 1,615,784 1,915,298 1,861,083 2,157,322 1,258,426 1,978,491 Credits Per Unit 5,280 6 ,259 6,082 7,050 4,113 6,466 Subsidy Required 2,922,038 3,322,814 2,531,595 2,836,974 1,672,175 2,905,657 Subsidy Per Unit 81,168 92,300 70,322 78,805 46,449 80,713
Calculations Same as for prior two models except lower credit amount.
Brockton Chelsea Worcester TDC 5,345,562 5,953,706 5,894,643 6,496,261 4,103,000 5,964,402 Avail. for debt service 64,487 57,130 119,911 119,911 93,600 86,243
Perm. Loan 807,740 715,595 1,501,965 1,501,965 1,172,399 1,080,254
Acquisition basis 3,336,000 2,256,000 2,520,000 1,440,000 2,160, 000 1,500,000 Construction basis 1,188,000 2,376,000 2,178,000 3,366,000 1,188,000 2,970,000 Soft costs in basis 623,834 1,078,140 926,168 1,371,600 560,183 1,236,900 130% basis boost 130% 130% 130% 130% 130% 130% 4% rate 0.0334 0.0334 0.0334 0.0334 0.0334 0.0334 9% rate 0.0334 0.0334 0.0334 0.0334 0.0334 0.0334 Total credits 190,092 225,3 29 218,951 253,803 148,050 232,764 Credits per unit 5,280 6,259 6,082 7,050 4,113 6,466 Equity (at $.85/$1.00) 1,615,784 1,915,298 1,861,083 2,157,322 1,258,426 1,978,491
Soft Debt Required 2,922,038 3,322,814 2,531,595 2,836,974 1,672,175 2,905,657 Soft Debt Per Unit 81,168 92,300 70,322 78,805 46,449 80,713
Note: Brockton and Chelsea are both Difficult Development Areas. This analysis assumes that Worcester projects would be located in a qualified census tract.
116 Appendix 5.6. – Exit Strategies Subcommittee: Financial Models
5.6.4 18 Unit Scattered Site Rental, No tax credits
Assumptions 6 Buildings, 18 Units - Developed as rental property
Scenario A: 2/3 of units in each building are occupied. Distress is not severe. Scenario B: Units are in deplorable condition; the few existing residents are relocated for construction "Affordable/market" units are priced at the lesser of 60% rents (less utility allowances) or market prices Rent Assumptions and Operating Cost Assumptions: same as for other models
Summary Table Brockton Chelsea Worcester Scenario A Scenario B Scenario A Scenario B Scenario A Scenario B Acquisition price /bldg 200,000 170,000 270,000 120,000 125,000 75,000 Rehab/unit 55,000 75,000 55,000 100,000 25,000 55,000 TDC 2,618,790 2,907,113 3,058,151 3 ,262,487 1,439,697 1,890,752 Rental Mix Units at 110% FMR 0 0 0 3 0 3 Units at FMR 0 18 9 15 9 15 Affordable/market 0 18 9 15 9 15
Permanent Loan 1,131,738 357,797 1,031,662 901,523 636,487 596,019 Subsidy Required 1,487,052 2,549,315 2,026,489 2,360,965 803,210 1,294,733 Subsidy Per Unit 82,614 141,629 112,583 131,165 44,623 71,930
Calculations and Assumptions Interest: 0.07, Amort.: 30 2-BR 6; 3-BR 12
Acquisition/building 200,000 170,000 270,000 120,000 125,000 75,000 Rehab/unit 55,000 75,000 5 5,000 100,000 25,000 55,000 Holding period (months) 1 2 6 6 6 6 Construction period (months) 3 6 9 12 9 12 % vacant units 33% 100% 33% 100% 33% 100% Total acquisition cost 1,200,000 1,020,000 1,620,000 720,000 750,000 450,000 Total rehab cost 990,000 1,350,000 990,000 1,800,000 450,000 990,000 Construction contingency 99,000 135,000 99,000 180,000 45,000 99,000 Holding period costs--vacant units 4,983 29,000 20,419 60,750 16,830 56,700 Other soft costs 217,800 297,000 217,800 396,000 99,000 217,800 Reserves 107,007 76,113 110,932 105,737 78,867 77,252 TDC 2,618,790 2,907,113 3,058,151 3 ,262,487 1,439,697 1,890,752 Stabilized operating cost/unit 6,870 6,870 7,750 7,750 5,940 5,940 Operating cost/unit, holding period Gross potential income 239,544 1 69,200 246,546 233,969 174,060 174,748 Vacancy 5.0% 7.5% 5.0% 7.5% 5.0% 7.5% Gross Effective Income 227,567 156,510 234,219 2 22,270 165,357 161,642 Operating Expenses 123,660 123,660 139,500 139,500 106,920 106,920 NOI 103,907 3 2,850 94,719 8 2,770 58,437 54,722 DSC 1.15 1.15 1.15 1.15 1.15 1.15 Available for debt service 90,354 28,565 82,364 71,974 50,815 47,584 Permanent Loan 1,131,738 357,797 1,031,662 901,523 636,487 596,019 Subsidy Required 1,487,052 2,549,315 2,026,489 2,360,965 803,210 1,294,733 Subsidy Per Unit 82,614 141,629 112,583 131,165 44,623 71,930
117 Appendix 5.7. – Suggested Terms for “Other Bond Resources” Program
5.7 Suggested Terms for “Other Bond Resources” Program
The Exit Strategies Subcommittee drafted recommendations for a subsidy program using state housing bond funds (in Massachusetts) for projects requiring deeper subsidy.
Rental Term Sheet (“Other Bond Resources” program)
A permanent subsidy program to fund the acquisition and rehabilitation of small-scale, scattered site foreclosed properties as affordable, rental projects in conjunction with a neighborhood stabilization strategy.
Eligible projects : • Rental projects in communities impacted by foreclosure; priority for Commonwealth’s designated foreclosure-impacted communities. • Properties that have either been foreclosed or acquired before foreclosure through short sales or bulk purchases of mortgages. • Properties located in a targeted geographic area as part of a neighborhood strategy • Preference for tenanted properties in fair to good condition with rehab costs per unit of under $100,000. • *Priority for projects that have been acquired with State Foreclosure Acquisition pool funding.
Size : Projects of 4-40 units in buildings of 2-20 units; smaller size projects will use state bond and municipal resources; projects over 20 units may qualify for LIHTC as well.
Eligible developers : Non-Profit or for-profit developers; priority for non-profit developers and developers with property acquired through the Foreclosure Acquisition Fund.
Targeting: 51% of the units should serve households at 80% AMI or below; at least 25% of the units should be affordable to households at 50% of AMI.
Rehab standards : HQS and flexible application of DHCD design and rehab guidelines. A Capital Needs Assessment and useful life analysis will be required.
Affordability Restrictions. Deed restrictions for long-term affordability for 50% of the units.
Municipal match : Municipal match 1:3. Match may be met in a variety of ways including waiving fees. Municipalities will also be encouraged/required to provide a strategic plan for management of foreclosed inventory and adopt best practices to prevent additional abandonment and vacancies.
Developer Fee : 15% of TDC for projects 20 units+; 20% for projects under 10 units; acknowledge and fund higher overhead and staff costs; perhaps allow the higher percentage fee if TDC is lower than $150K.
DHCD Resources : • HSF—up to $75,000 per unit; project cap $1.5 million • 9% LIHTC set-aside; priority for 4% allocation. • PB Sec 8—for 25% of the units; more if eligible and fit neighborhood strategy. Section 8 at FMR.
118 Appendix 5.7. – Suggested Terms for “Other Bond Resources” Program
Eligible Costs : Acquisition Relocation costs Holding Costs Construction Soft Costs Developer Fee and Overhead
Funds will be available during the acquisition and holding period.
Administration of the program Application Process For HSF foreclosure priority funds, applicants have two routes: 1. Applicants may apply for a preliminary set-aside of funding based on a plan including number of units and estimated cost, endorsed by the municipality targeting a geographic area. The municipality must commit to fund a match. The municipality will be awarded the funds upfront and will advance to the project upon acquisition. 2. Or, applicants may apply out of round once site control is achieved.
For LIHTC projects: The Qualified Allocation Plan (QAP) will provide a set-aside amount and priority for projects that are from the foreclosure-impacted communities and involve rehabilitation of foreclosed properties. Applicants will apply in twice-yearly rounds with priority status.
Design, Submission and Reporting Requirements • DHCD will issue updated Design and Rehab standards appropriate for small scale, acquisition and rehab projects. • Reporting and submission requirements will be scaled to the size and complexity of the project. o Limited Phase I environmental only, including lead and asbestos, o no market studies (except for LIHTC projects), o no contractor bonding requirements for smaller scale jobs, o simplified building appraisals, streamlined construction monitoring)
Additional elements necessary for Program success: • Lenders participating will be asked to contribute construction monitoring costs, lender legal costs and agree to streamlined submission and reporting requirements. • Creation of an operating reserve pool to spread risk of later operating shortfalls. • Capacity building for non-profits—additional grant funds to add capacity; skill bank, circuit rider consultants
119 Appendix 5.8 –Exit Strategies Subcommittee: Receivership Options Matrix
5.8 Receivership Options Matrix
Intervention Problem Goal Tasks* Exit Strategy Resources
Heat and Displacement of Buy time and Fix isolated condition Owner pays off Community lender other tenants due to lack avoid and enable tenants to receiver’s lien. Plan provides Type of utility of heat. This could displacement. stay in place. Use should be in place guarantee to buy shutoff be due to failure of tenant rents to pay to assure that lien from receiver Receivership the owners to pay utility bills with back- future obligations in the event that utility bills or a up guarantee by City. are met. tenant rents do broken furnace. Work with utility not cover utility When to use : When companies to get costs or receiver stepping in can avoid appropriate low assigns priority displacement and income discounts and lien back to there is a good other mandated community lender chance the landlord low/mod concessions will get the message and protections. for the future. Conventional Code, health, safety Protect tenants. Determine extent and Assume that in the Loans from a new Receivership issues that endanger Create cost of code majority of cases, Distressed when property the tenants and cause conditions for problems. Determine the owner will pay Property is condemned displacement. long-term gap between rents off the receiver’s Program for violations When to use : When stability for and cost of repairs lien which will revolving loan of the Sanitary the landlord has tenants. and how much include cost of pool to pay for Code been unwilling or money can be receivership, cost repairs. Funding unable to deal with borrowed. If costs of of repairs and a through City code problems and repairs exceed the requirement that rehab funds, new there is some value value of the property, any municipal liens pilot based on old left in the building so determine whether are paid. Plan must DHCD that the cost of the the property should be in place to Abandonment repairs does not be targeted for public assure that the prevention exceed the value of funds to make up the conditions are not program. State the property. gap. Is so, proceed to repeated. If the and City funds are receivership. If owner doesn’t pay secured by lien. property cannot be off lien, the salvaged, City should receiver forecloses move quickly to on the lien and the demolish. property can be transferred to new, responsible owners. Proactive Failure or Restore to Neighborhood Network of CDCs Housing Receivership unwillingness of long-term mapping and or non-profits buy Stabilization for Acquisition owner to maintain stability targeting; assessment receivers lien with Fund (HSF) plus and property over a long through a of rehab needs; help from public City contribution Revitalization period creating a change of capitalization of Non- resources and and match. New threat to the safety ownership as profit developers to rehab property for non-profit owners of tenants and a part of a take this on. Probable either sale to ask City to file for nuisance property to neighborhood relocation of tenants low/mod owners S8 of Ch 58 the neighborhood. revitalization temporarily while or manage as rental abatement of back When to use : When strategy property undergoes housing. taxes if applicable. the landlord has substantial rehab. abandoned the property; when the property is in an area targeted for revitalization; where other acquisition strategies cannot work in a timely manner.
* in addition to due process notification tasks, recruiting and training qualified receivers, certifying FMRs and other tasks dictated by the receivership statute.
120 Appendix 5.9 – Draft Receivership Program Model (Distressed Housing Program)
5.9 Draft Receivership Program Model (Distressed Housing Program) – June 2008
D R A F T Distressed Housing Program for Smaller Residential Properties June 2008
Introduction
In recent years, both government and the private sector have increasingly focused on the economic revitalization of the Commonwealth's older cities. The problems caused by disinvestment and distressed housing are a high priority for all concerned about making our cities a vital and attractive place to live. Today, a dramatic increase in foreclosures threatens the stability of our neighborhoods and adds urgency to our efforts.
This proposal offers an efficient and cost-effective pilot program, to address problems associated with many distressed urban residential properties. The key element is the use of professional property managers appointed by the housing court to step in and stabilize and manage distressed properties whose owners have failed to meet the basic responsibility to comply with health and safety codes. The program is designed for the City of Springfield, but it potentially can be used in other cities as well. When appropriate, this proposed program employs the state’s receivership statute to stabilize troubled properties. The statute is a powerful tool but it is not used as frequently or effectively as possible because of lack of funds to pay for the necessary repairs and lack of availability of professional property managers to accept court appointments. Despite the fact that Massachusetts has a Receivership statute that provides a mechanism to cover such costs by allowing costs of the receivership to have a priority lien on the property, the source of the money in real time is elusive. For the initial pilot program, we propose a revolving fund that will be largely self-sustaining after an initial investment.
Background Under current practice, the City of Springfield cites owners for Code violations in their residential properties. When owners fail to respond and problems are serious (for example, lack of heat) many properties are condemned and the residents ordered to vacate. In one four-month period during the winter of 2006-07, the City of Springfield condemned sixty properties and brought cases in the Springfield Housing Court seeking emergency orders that the properties be vacated. In almost all of those cases the tenants were ordered to vacate and were provided with limited emergency housing at public expense. The properties were left vacant and boarded up, contributing to blight in the community. The properties were lost to the tax rolls. Hundreds of people were added to the ranks of the homeless, creating an enormous burden in economic and social costs to the community.
This proposal sets forth a better way to address these problems through the creation of a Distressed Housing Program (the Program). The Program provides an administrative framework to support City and Court intervention on distressed properties. The Program will have the skills and resources to assess property, qualify receivers, provide oversight and reporting as necessary to the City, the Court and any funding sources. A local nonprofit housing agency would be an ideal administrator provided adequate funding for start-up costs and program administration is available.
The types of properties in distress represent a continuum of problems that range from the simple heat complaint to the complete deterioration and total abandonment of the property. This proposal matches the housing problem to a series of strategies each with different types of intervention, exit strategy and potential funding sources. The three basic distressed housing types we have
121 Appendix 5.9 – Draft Receivership Program Model (Distressed Housing Program) identified are detailed in the attached matrix of Program interventions. In summary, the properties will generally fit within these three categories, recognizing that there will be judgment calls and less than bright lines separating these categories.
1. ‘Rapid recovery’ properties where an inexpensive intervention such as fixing the furnace and buying a tank of oil will avoid tenant displacement. 2. Conventional Receivership for more substantial code violations which may involve relocation of tenants, when the value of the repairs will not exceed the value of the property. 3. Receivership as part of a neighborhood revitalization strategy for targeted properties whose repairs will exceed the value of the property and for which a change in ownership is the only way to restore stability to the property and the neighborhood.
The Program will assess the appropriate intervention based on the facts and presentation of the property.
The first level of distressed property is one that may be amenable to a relatively inexpensive ‘quick fix’ to avoid displacement and to buy time to arrange a longer term solution. We have called this first level of response, the Rapid Recovery Pilot .
Rapid Recovery Pilot
Program Description : The Rapid Recovery Pilot (RRP) involves prompt intervention by the City and the Program administrator to avoid tenant displacement when the property can be stabilized quickly. The RRP will work through a program administrator who will have developed a list of pre-approved receivers in accordance with court rules. The program administrator will assess the code compliance needs of a property, recommend a course of action to the court and upon court approval will promptly proceed to remedy the code issues that threaten the tenancy of the building residents. The receivership will have a priority lien on the property to cover the costs of the receivership and the costs of the rehabilitation. The owner may redeem this lien but must also pay any municipal liens and file a plan with the court to assure future stability of the property before the lien is released.
The RRP can also be used to stabilize properties going into the foreclosure spiral when tenants are at most risk due to the inaction of a disinvested landlord on their way to continued neglect and likely eviction by the foreclosing entity. RRP will provide the mechanism for the court to intervene between the time the foreclosure notice is filed and when the property is foreclosed. During this time, the court, through the receiver, can perform needed repairs to keep the tenants housed. The receivership at this critical time will also provide the vehicle for the court to insure that the property is sold to a responsible party by requiring approval by the court of any party redeeming the lien or buying the property.
Goal: Stabilize property so that tenants can remain in place either permanently or until longer- term solutions are developed.
When it will be utilized: • Property has sanitary code violations that jeopardize the welfare of the tenants and that can be fixed promptly by a responsible party. This may include: lack of heat or other utility service, fire hazards, and other health and safety violations. • The building must have reasonable remaining useful life and value and the cost of the repairs cannot exceed the value of the building.
122 Appendix 5.9 – Draft Receivership Program Model (Distressed Housing Program)
How will it be administered? When Code enforcement authorities identify properties at or near the point of condemnation, they will contact the Distressed Housing Program (the Program). The Program will evaluate the property and determine what will be required to keep it occupied. Working with the City, the Program will determine which cases should be brought to court to seek a court-ordered remedy. Often this remedy may be as little as putting fuel in the tank or fixing the furnace and creating a ‘heat or utility” receivership whereby the receiver arranges for the utilities in their name or buys the tank of oil.
The Program will then contact a property manager who has been pre-screened by the program, is on the list of appointments as required by court rules, and has agreed to serve as a court-appointed receiver. The City will move the court for appointment of the receiver. If appointed, the receiver will make repairs as necessary, or have the utilities reinstated in the receiver’s name if it is a heat receivership, and receive a statutory priority lien on the property for the cost of repairs and management.
At all times throughout the RRP process, the receiver will seek to have the owner resume responsibility for the property. If the owner fails to do so, the receiver will apply to the court for permission to sell the property at public auction to a buyer who must demonstrate to the court that he or she will meet the responsibilities of property ownership. A more complete, step-by-step list of operations is included as Appendix A.
Costs and Funding. The program will require initial funding for the start-up costs of administration, for continued oversight and reporting and to pay for initial building assessment. Additional funding for the repairs and utility payments will also be necessary as part of a revolving fund. These costs are part of the costs of the receivership and can be recovered through the priority lien. Tenant rent payments, as certified by the Court and collected by the receiver, will cover a reasonable portion of the repair and utility costs under the RRR since to qualify, the costs will be modest. Two ways to capitalize the RRR are below.
1. Revolving loan fund. The City’s CDBG program is a logical source for the initial capitalization for administration expenses and the revolving loan fund. Repayment of the liens will provide a self-funding source of revenue.
2. City Guarantee to purchase the lien. Alternatively, the City can pay for the start-up and then provide guarantees to the program. The City’s guarantee to purchase the receiver’s lien if the rents do not cover fully the expenses, will allow the Program to borrow funds from community- minded banks to accomplish the repairs or utility reconnections.
Benefits of Rapid Recovery Program : • Avoid displacement of tenants in situations where the problem is relatively simple to fix, such as heat or utility shut-offs. • Prevent vacancy and the abandonment that results in declining markets • Stabilize neighborhoods that lose value with each abandoned property. • Send a strong message to landlords that they will be held accountable for responsible management. • Insure that municipal liens are paid and a plan for responsible ownership and management going forward is in place before the receiver’s lien is removed.
123 Appendix 5.9 – Draft Receivership Program Model (Distressed Housing Program)
Appendix A: Program Operation Step by Step
1. City Code Enforcement Authorities identify properties at or near point of condemnation.
2. Code Enforcement Authorities make every effort to have property owner correct violations.
3. If owner does not respond, City takes two steps: (A) Begins court case against owner (as in current practice); (B) Contacts DISTRESSED HOUSING PROGRAM for evaluation of the property.
4. Distressed Housing Program evaluates property, acting cooperatively with Housing Specialist Department of the Housing Court.
5. If owner continues non-responsive, Distressed Housing Program contacts an appropriate local professional property manager from pre-screened list of local property managers who have agreed to act as receivers. (Receivers must also be designated consistent with Trial Court rules.)
6. City applies to the court for appointment of receiver
7. Upon application for appointment of receiver, all parties with an interest in the property, including all mortgagees and lien holders, receive notice. Any mortgagee or lien holder will have an opportunity to come forward and correct code violations in the property to protect its interest. In addition, any mortgagee or other lien holder’s right to foreclose upon and sell the property is preserved, so long as buyer is approved by the court to insure that property will be maintained in compliance with Codes after sale.
8. Upon determination that property is appropriate for receivership, court appoints receiver, delineating the scope and limits of the receiver’s responsibilities.
9. Receiver stabilizes and repairs property under direction of the court. Residents may be relocated as necessary, although the goal of the RRR is keep tenants in place.
10. Receiver perfects statutory priority lien on property for costs of operation of receivership.
11. If owner still does not respond, and no other responsible party comes forward (e.g., mortgagee bank), receiver applies to court for permission to foreclose on lien and sell property.
12. Terms of sale and purchasers must be approved by the court to insure that property will be maintained in compliance with Codes after sale.
13. Upon sale, receiver’s lien is satisfied. Receiver reimburses Distressed Housing Program for costs of receivership.
14. New owner takes property free from private encumbrances (municipal liens must be satisfied as a term of the sale).
15. Distressed Housing Program maintains records and provides full accounting as a public record. All court records of the receivership are also public records.
124 Appendix 6.1 – Matching Properties with Buyers Subcommittee: Meeting Notes (2/28/2008)
Appendix 6: MATCHING PROPERTIES WITH BUYERS SUBCOMMITTEE
6.1 Matching Properties with Buyers Subcommittee – Meeting Notes (2/28/2008)
TO : Foreclosed Properties Task Force FROM : Subcommittee on Matching Properties and Homebuyers SUBJ : Report for March 4, 2008 DATE : March 3, 2008
CHARGE TO THE SUBCOMMITTEE : Develop a model for non-profits who wish to facilitate the transfer of properties from foreclosing lenders to new homeowners.
The Committee on Matching Properties and Homebuyers met on Thursday, February 28 at CHAPA. Present were: Paul Douglas, Franklin County and Housing and Redevelopment Authority / Rural Development, Inc.; Susan DiMatteo, DND (City of Boston); Rick Presbrey, Housing Assistance Corporation (Hyannis); Robert Salisbury, Bonz & Co.; Elsa Campbell, DHCD; Bill Cotter, City of Boston.
Others expressing interest but unable to attend included: Peter Milewski, City of Boston; Alice Wong; John Feuerbach, DND, City of Boston; Katie Cahill-Holloway, DND, City of Boston; Carole Cornelison, DND, City of Boston; Don Bianchi, MACDC; Alice Wong.
I have also taken the liberty of adding a number of names to the list because I think it would be useful to obtain feedback or perhaps to even encourage participation: Mossik Hacobian, Urban Edge; Nancy Davison, Housing Assistance Corporation; and several people at HAP, Deborah Broaden, Deborah McPartlan, and Michelle McAdaragh.
At our initial meeting, the group brainstormed to create lists of obstacles, opportunities, and possible strategies. The result of that effort follows:
Obstacles: • Buyers waiting for bottom of market (not buying now) • Fannie Mae “declining market” policy o Requires increased down payment • Credit tightening/higher scores required • Perception of market risk • Neighborhood conditions in cases of concentration of foreclosure • Pool of potential buyers depleted marginal • Condition of property • Cost of managing “matching” effort • Consumer pessimism • Lack of public subsidy money • Accessing REO
Opportunities: • Decreasing prices • Price differential: owning versus renting • In some markets buyers are still available • Upgrade properties
125 Appendix 6.1 – Matching Properties with Buyers Subcommittee: Meeting Notes (2/28/2008)
• FHA 203 (k) • Purchase/rehab MassHousing product • Block grant money • CPA money
Strategies: • Buyer incentives • Rehab loan/grant • Rent-to-own (reference to Mossik’s idea) • Lender discount on short sale • Information clearing house (caution re: disclosures) • Tailor strategies to market • Homebuyer education on buying REO property • Focus on ability to sustain • Address crime issues in neighborhood • Brockton model o LHA takes title/modest rehab, rent • Additional down payment money for declining markets • Work with brokers who have listings • “Buyer broker role”
Sources: • Program income/ CDBG • HOME • CPA • HSF (weak market provisions) • Weatherization
126 Appendix 6.2 – Matching Properties with Buyers Subcommittee: Progress Report (3/21/2008)
6.2 Matching Properties with Buyers Subcommittee – Progress Report (3/21/2008)
TO : Foreclosed Properties Task Force FROM : Subcommittee on Matching Properties and Homebuyers SUBJ : Strategies for further consideration DATE : March 21, 2008
CHARGE TO THE SUBCOMMITTEE : Develop a model for non-profits who wish to facilitate the transfer of properties from foreclosing lenders to new homeowners.
The Subcommittee on Matching Properties and Homebuyers has identified the following strategies: • Promote short sales with owners who are not going to be able to keep their homes. • Create and fund incentives for buyers in weak market, highly impacted areas • Establish and fund rehabilitation / home improvement grants and/or non amortizing loans. • Reactivate “purchase and rehab” loan programs • Create and fund the operation of “rent-to-own” programs (HUD 203 b) • Increase the level of first time homebuyer education and counseling These strategies have arisen over the course of two meetings
Background notes from our meeting:
The Subcommittee met at MHIC on Tuesday, March 18 from 1:00 to 3:30 PM. Present were: Gina Govoni, MHP; Fran Pheeny, Fannie Mae; John Feuerbach, DND; Susan DiMatteo, DND; Katie Cahill Holloway, DND; Margy Grant, MAR; Kevin Sears, MAR; Eric Berman, MAR; Peter Milewski, MassHousing; Elsa Campbell, DHCD; Avi Glaser, Community Housing; Veronica Truell, Codman Square HCD; Peter Gagliardi, HAP.
Peter Milewski introduced three people from the Massachusetts Association of Realtors. Margy, Kevin, and Eric described an initiative to sell houses before foreclosure. They have developed some communication channels with servicers, and can now discuss “short sales” before any foreclosure action is taken. They are getting agreement about discounted prices based on current market analysis and have established a process that is working. MAR has a training program for their members. MassHousing is working on mortgage products to facilitate the sales to new owners. The MAR people were very interested in getting early referrals from people who might be facing foreclosure, allowing the process of selling their home to begin before it is too late.
Peter Milewski reported that MassHousing was working with a pilot effort in one city to help facilitate resale of homes before foreclosure.
There was discussion of the need for different strategies for different situations. Some areas may handle much of the property turnover through successful “short sales” while weak markets may require greater intervention.
Other information from members of the committee included: • Some municipalities are requiring by ordinance that foreclosure documents be recorded (some servicers don’t actually file the deeds because they don’t want to be responsible for the property). Boston is about to sign such an ordinance and Lawrence, Chelsea, and Worcester were also mentioned.
127 Appendix 6.2 – Matching Properties with Buyers Subcommittee: Progress Report (3/21/2008)
• From a real estate broker’s perspective, there is a huge difference between selling occupied homes through a “short sale” and selling REO properties. It is really two different business models. • Boston has conducted or will conduct “home seller forums”. Some organizations are operating “foreclosure clinics” at which information about short sales, etc., is made available.
128 Appendix 6.3 – Matching Properties with Buyers Subcommittee: Proposed Deliverables
6.3 Matching Properties with Buyers Subcommittee: Proposed Deliverables (April 2008)
The intent of the Matching Foreclosed Properties with Buyers Subcommittee is to develop a strategy which will effectively and efficiently result in the purchase of foreclosed properties by qualified buyers. The strategy is comprised of four integrated programs which work together to create this result. The four programs are:
1). Facilitated Short Sale and Buyer Access Program
In conjunction with the Massachusetts Board of Realtors, the program will work with realtors who have been through the association’s Loss Mitigation Certification course to facilitate short sales for homeowners facing foreclosure. The program will develop guidelines to determine when a short sale is the most appropriate course of action. It will create a referral system in conjunction with the MBR for foreclosure counselors to access when a short sale is the preferred outcome for a client.
Additionally, the program will work with the MBR to develop a system to inform qualified buyers and realtors of available foreclosed properties in their area. In addition to potential buyers identified by the realtors, the system will assist those completing first time homebuyer courses to access information on foreclosed properties.
Deliverables: Short sale guidelines, MBR referral system, tracking system for available foreclosed properties.
2). Rent to Own Program
Utilizing the HUD/FHA 203(b) program, the Rent to Own (RTO) program will assist low and moderate income families create the financial strength and stability needed to purchase and afford their own home. The program will focus on potential buyers who are tenants in foreclosed properties owned by non profit housing agencies. Participants may include former owners of properties acquired by housing agencies through a short sale who are allowed in stay in the home while working on stabilizing their financial situation through the RTO program. A time frame of one to two years to purchase will be set during which the tenant will participate in credit counseling, financial literacy, budgeting and first time homebuyer (if appropriate) classes to obtain the qualifications necessary to participate in the HUD/FHA 203 (b) program.
Deliverables: Outline of specific program components and guidelines for accepting tenants in to the program.
3). Buyer Incentives Program
Many potential homebuyers are reluctant to enter the housing market, particularly in distressed neighborhoods. Effective incentives often combine significant down payment /closing cost assistance with no/low cost rehabilitation funds. A number of incentive program models from around the country are currently under review to assist in making recommendations for creating incentive programs for the Task Force. Programs under review include:
• Springfield Employer Incentive Program Four Springfield employers: MassMutual, Baystate Health, Springfield College and American International College will provide $10,000 in down payment assistance for employees. Funds provided by each employer will be matched one for one by the state and
129 Appendix 6.3 – Matching Properties with Buyers Subcommittee: Proposed Deliverables
will be structures as five-year forgivable loans. The program is targeted to the State Street and North End neighborhoods.
• Minneapolis Advantage Program Provides $10,000 in down payment assistance to homebuyers in one of eighteen targeted neighborhoods hardest hit by foreclosures. Can be used with $4,000 incentive grant program available through the Minneapolis Neighborhood Revitalization Program and up to $15,000 rehabilitation loan funds.
• New Orleans Qatar Fund Through the Neighborhood Housing Services of New Orleans, provides $25,000 as a soft second mortgage repayable upon sale, transfer or refinance of a home.
• New Orleans Jeremiah Group Soft Second Program Funded through the Louisiana Redevelopment Authority, the program provides up to $50,000 to assist low income renters purchase a home. The loan is forgiven if the buyer stays in the home for ten years.
Deliverables: Programmatic details for a recommended buyer incentive program/s.
4). Deed Restriction Impact Minimization Program
Deed restrictions that accompany many public incentive/subsidy programs can be a disincentive to potential buyers that the programs are targeted towards. This final strategy component will review standard deed restrictions in light of the current real estate market and make recommendations for structuring the restrictions to minimize negative impacts on the incentive programs.
Deliverable: Recommendations for effective forgiveness/recapture guidelines for incentive programs.
130 Appendix 6.4 – Matching Properties with Buyers Subcommittee: Draft Program Models (5/29/2008)
6.4.1 Matching Properties with Buyers: Draft Program Model (Facilitated Short Sale)
The intent of the Matching Foreclosed Properties with Buyers Subcommittee is to develop a strategy which will effectively and efficiently result in the purchase of foreclosed properties by qualified buyers. The strategy is comprised of four integrated programs which work together to create this result. The four programs are:
1). Facilitated Short Sale and Buyer Access Program
In conjunction with the Massachusetts Board of Realtors, the program will work with realtors who have been through the association’s Loss Mitigation Certification course to facilitate short sales for homeowners facing foreclosure. The program will develop guidelines to determine when a short sale is the most appropriate course of action. It will create a referral system in conjunction with the MBR for foreclosure counselors to access when a short sale is the preferred outcome for a client.
Short Sale Program Outline
1. Mass Board of Realtors provides WMFPC with contact list of realtors who are Loss Mitigation Certified (LMC). 2. WMFPC sends letter to LMC realtors to ask if they would like to be included on a referral list given out to homeowners who are counseled through the Center. 3. WMFPC counselors make LMC realtor list available to homeowners for whom it is determined that a short sale is their best outcome. 4. WMFPC marketing materials (website, brochures) include information instructing homeowners on the use of short sales and referring them to the LMC realtors list available through WMFPC counselors and on website. 5. LMC realtors on WMFPC list are furnished with information about the Center for clients who decide not to go through with a short sale.
The subcommittee had proposed earlier that it would work on the creation of a list of available REO properties. Since that time a number of initiatives have begun at the state level to create that list. The subcommittee is deferring to those state-wide efforts.
131 Appendix 6.4 – Matching Properties with Buyers Subcommittee: Draft Program Models (5/29/2008)
6.4.2 Matching Properties with Buyers: Draft Program Model (Rent to Own)
2). Rent to Own Program Model
Utilizing the HUD/FHA 203(b) program, the Rent to Own (RTO) program will assist low and moderate income families create the financial strength and stability needed to purchase and afford their own home. The program will focus on former owners of properties acquired by housing agencies through a short sale who are allowed in stay in the home while working on stabilizing their financial situation through the RTO program. A time frame of one to two years to purchase will be set during which the tenant will participate in credit counseling, financial literacy, budgeting and first time homebuyer (if appropriate) classes to obtain the qualifications necessary to participate in the HUD/FHA 203 (b) program.
Lawrence Community Works has identified a non profit, New Prospect Consulting Services, Inc., which provides services to set up a FHA 203B rent to own program. Main components of their program include: • Access to a mortgage lender willing to work with the 203b program • Full coverage of the nonprofit’s downpayment and closing costs through lienholder concession and broker commission donation. • Small income stream back to nonprofit • Tenant screening and counseling services
Main Components of Outline of Rent to Own (RTO) Program 1. Identify homeowner facing foreclosure. 2. Housing nonprofit reviews homeowner’s financial status to determine eligibility for RTO program. 3. Homeowner accepted into RTO program. 4. Realtor provides Broker Price Opinion (BPO). 5. Realtor negotiates with lien holder of subject property discounted purchase price of not more than 94% of BPO and drafts purchase and sales agreement. 6. Lien holder agrees to pay 4% real estate commission. Realtor donates all but $1,000 to nonprofit for closing costs. 7. Formal appraisal done by FHA approved appraiser. 8. Lender issues mortgage commitment of 97% of appraisal to nonprofit. 9. A lease agreement between the homeowner and nonprofit is executed and closing is scheduled.
EXAMPLE Appraised Price $100,000 Negotiated Price $ 94,000
Revenue as a Percentage of Purchase Price Lienholders Concession @ 6% $6,000 Real Estate Commission @ 4% $4,000 Total Revenue $10,000 Closing Cost Estimates Downpayment @ 3% $3,000 Closing Costs (Estimated) $2,250 Prepaid Insurance & Taxes $1,000 Fixed consulting Fee $1,000 Total Closing Costs $7,250
Cash Flow After Closing Costs $2,750
132 Appendix 6.4 – Matching Properties with Buyers Subcommittee: Draft Program Models (5/29/2008)
6.4.3 Matching Properties with Buyers: Draft Program Model (Buyer Incentive Program)
3). Buyer Incentive Program
Goals • Speedy reoccupation of vacant properties by qualified buyers. • Preserve housing values in target neighborhoods. • Provide deep enough subsidy to convince potential buyers that waiting for prices to drop further is not cost effective. • Provide equity insurance to potential homeowners in areas where there is concern that market values may continue to fall. • Minimize the disincentives to buyers of deed restrictions. • Leverage employer assisted downpayment programs where possible. • Concentrate impact in target neighborhoods, preferably those covered by employer assisted homebuyer programs.
Outline of Incentive Program 1. Identify grant program to provide subsidy funds. Subsidy of $20,000 -$30,000 available for use as downpayment assistance or minor renovations to be undertaken by homeowner. 2. Identify vacant properties in target areas that are in need of minimal rehabilitation. 3. Identify local realtors certified by lenders to sell REO properties. 4. Negotiate sales price @ 90% of current market value on behalf of buyers. 5. Match properties with qualified buyers through local FTHB programs and realtors. 6. Utilize employer-assisted homebuyer programs where possible. 7. Design second mortgage of $20,000-30,000 as a 0 interest, 10 DPL loan. Second mortgage is completely forgiven if owners remain in the property for 10 years. If homeowner sells before 10years, nonprofit shares equity in compliance with FHA Community Seconds program guidelines (i.e.: the nonprofit share is equal to the amount of the second mortgage divided by the original purchase price of the property, multiplied by the current value of the property. Should market values fall during the initial ten year period, second mortgage is forgiven.
EXAMPLE Current market value $89,000
Nonprofit negotiated purchase price $ 80,000 Rehabilitation costs $ 30,000 Total Equity Required $110,000
Equity in project $110,000
Employer-assisted homebuyer grant $ 10,000 1st mortgage $ 70,000 2nd mortgage $ 30,000
New homeowner purchases $110,000 renovated home for $70,000.
An underlying problem was identified by the subcommittee for a nonprofit utilizing either the RTO or any buyer incentive programs that utilizes loan funds to purchase the property on behalf of a homeowner. Nonprofits need additional equity when utilizing these programs to offset the risk that underlies purchasing and holding distressed properties and, most importantly, to maintain the ratio of assets to liabilities on their balance sheet to stay in compliance with their 133 Appendix 6.4 – Matching Properties with Buyers Subcommittee: Draft Program Models (5/29/2008) contracts with existing lenders. Funds that do not need to be repaid by the nonprofit must be identified to make either of these programs work.
4). Deed Restriction Impact Minimization Program
Deed restrictions that accompany many public incentive/subsidy programs can be a disincentive to potential buyers that the programs are targeted towards. In order to address the need for vacant foreclosed properties to be quickly reoccupied, the subcommittee recommends that, for the duration of the foreclosure emergency, any public equity that is made available as an incentive to homeowners to purchase a vacant foreclosed home be structured so that the repayment of the equity disappear after a period no longer than ten years. Should the property be sold during the ten year period, an equity share formula would be utilized. The subcommittee also recommends that eligibility for the reduced of deed restrictions be compatible with the Housing Stabilization Fund (HSF) guidelines.
While it is expected that the need for the reduced deed restrictions may be eliminated as the foreclosure emergency abates, there may still be weak housing markets, particularly in urban areas. These areas may continue to be designated as appropriate for a deed restriction minimization program.
134 Appendix 7.1 – Test Community Overview: Chelsea
Appendix 7: TEST COMMUNITY OVERVIEWS
7.1 Test Community Overview: Chelsea (March 2008)
Chelsea Neighborhood Developers (CND) is developing a Distressed Housing Initiative to purchase properties that are in foreclosure or have been foreclosed, rehabilitate as needed, and resell to homeowners or bundle into rental projects. Acquisitions will be targeted to strategic locations selected to stem neighborhood disinvestment, including key corridors and nodes identified in recent neighborhood revitalization plans, areas with a cluster of resident activity and support, and properties near CND's existing portfolio. In select areas, CND, in conjunction with the City of Chelsea, will demolish properties that are past financially viable rehabilitation to make way for new development. We will acquire at auction or post auction, through short sales, or through bulk purchases if available.
Once site control is secured, redevelopment of the properties could occur in several ways: • properties could be revitalized and sold to first-time, low-income homebuyers, with one of the goals to create some ownership opportunities for our IDA participants who will benefit from long term post-purchase support through the IDA program; • clusters of severely deteriorated homes could be torn down to allow for higher-quality new construction; or • a number of properties could be bundled and redeveloped as low-income rental housing using tax exempt bonds and 4% tax credits.
Note that a significant part of CND's portfolio is in scattered two-, three- and six- family properties, financed through tax exempt bonds and 4% LIHTC, along with an array of soft financing. We have experience financing and renovating bundles of occupied, scattered site properties.
Elements that we would like to see in place:
Pool CND will acquire to rehab and sell to homeowners (6-12 months to resale), to bundle into larger rental deals (6-9 months to construction close), and for demolition and redevelopment (demolition and up to 3 years holding) . • Ideal : Low rate (<2%); patient (2-3 year) initial acquisition capital pool with 100% LTV financing that could be secured without recourse or guarantee to organizational resources; value based on comps or opinion of value, not a full appraisal. • Immediate Need : Line of credit to begin purchasing properties immediately (this is a short term solution for access to funds; otherwise, rates and recourse make this source of funding expensive for acquisitions that take 6 months to 3 years to develop).
Acquisition Our acquisitions will be targeted to minimize disinvestment and maximize revitalization impact. • Streamlined access to servicer/lenders, ideally through a clearinghouse that can provide information on price and term deals; standard arrangements with key servicer/lenders would be useful (Deutchbank is on 40% of Chelsea foreclosures); • Ability to participate in bulk purchases. • Affordable and efficient property condition studies (CND has this process in place), environmental studies (Bulk HazMat and Phase I studies) and bulk title reviews would help manage costs. • Best practices on short sales, auctions.
135 Appendix 7.1 – Test Community Overview: Chelsea
Holding We anticipate that the majority of our acquisitions will be occupied properties; unless properties have significant code violations, we will maintain tenancies in place; in problem properties we will relocate existing tenants to other recently purchased properties or to our existing portfolio, and board the property until it can be rehabilitate. We will quickly move to demolition in properties purchased for that purpose . • City tax waiver and abatement. • Gap funding to cover property management costs beyond what is supported by existing rents, recognition that there is an initial premium for tenancy and property condition assessment, interim repairs, etc. • In some instances, relocation assistance.
Exit, or Development, Strategy CND anticipates bundling some 2, and all 3+ family properties into rental deals financed with either 4% or 9% LIHTC plus other sources. One and 2 family properties can be renovated and sold to homeowners. Some properties will be demolished for redevelopment. • Rental: QAP amendment to support acquisition of foreclosed or "distressed" housing; suspension of 10-year anti-churning rule for "single-family (1-4 family)" properties to allow credits for acquisition costs; rolling or interim funding rounds would reduce holding period. • Homeownership: Biggest challenge is lack of market; ability to hold suitable properties until the market stabilizes some would be useful; models for multi-family ownership (affordable ownership with tenants) would be useful; long term homebuyer support program funding. • Demolition: Expanded CDBG or similar funding would allow City to assist in writing down the acquisition/ demolition costs of removing blighting buildings. • Note: best practices for municipal code compliance would be useful; might benefit from stronger enabling legislation.
Matching Program : Not relevant at this point.
136 Appendix 7.2 – Test Community Overview: Lawrence
7.2 Test Community Overview: Lawrence (March 2008)
With nearly 700 foreclosure filings in 2007, Lawrence, MA ranks 5th in the Commonwealth in sheer volume and first in intensity of the problem. The disaster is worsening in 2008, rapidly eroding strong recent gains in the homeownership rate of the City's majority immigrant and Latino population, and threatening the tremendous progress also recently achieved in the revitalization of distressed and blighted neighborhoods.
To address this, Lawrence CommunityWorks is developing a real estate response to complement the intensive post-purchase and foreclosure prevention and mitigation counseling we offer through our Homeownership Center. This Homeownership Preservation Initiative holds the potential of both reclaiming buildings abandoned or neglected as a result of foreclosure, and also keeping families in their homes. Specifically, this involves: 1) Reclaiming Bank Owned Properties, and 2) Piloting a Lease/Buy-Back Model to maintain current at-risk homeowners in their homes.
LCW has built over 50 homes in the last six years, almost all on vacant, abandoned, contaminated, or tax-title properties (winning three national awards in the process), and holds a scattered site rental portfolio of 71 properties, with 18 more units coming on-line next summer.
1) Reclaiming Bank Owned Properties Working with foreclosing lenders, LCW will negotiate the purchase of vacant bank-owned properties so that we can get them back into productive use by Lawrence families. The primary focus of our acquisition efforts will be the North Common neighborhood, which has been the locus of our physical revitalization efforts, and wherever possible we will work to acquire clusters of vacant properties (three of which we have already identified). The condition of the property will not dissuade us unless rehabilitation is judged to be extraordinarily cost-prohibitive (through a pre-purchase assessment) and/or property would be better demolished. We will also focus on properties where we have identified community support for acquisition by LCW and there is no viable owner-occupant competitive bidder.
While we had originally considered a "wholesale," portfolio-based approach, the reality of the Lawrence REO landscape is one of incredibly fragmented ownership; even where portfolio purchase may be possible, it would not accommodate the more powerful and stabilizing neighborhood and cluster-based approach. Nevertheless, we will also pursue this option if we can leverage such a purchase from a willing lender, and have two conversations underway toward this end.
We will pursue acquisition through short sale negotiations and auction purchases, and anticipate being able to secure properties at 30-60% of their previously appraised values. Based on the condition of the properties, available financing, and asset management considerations, LCW will either: a) Rehab the properties and sell them to Lawrence families at a reduced price, with mandatory financial / homeownership education for prospective homeowners, and targeted outreach to LCW members in our IDA and homeownership education programs b) Package the most distressed properties and/or large multi-family properties into rental projects using private, City, State and Federal subsidy.
2) Foreclosure Prevention: The Lease/Buy-Back Model While a substantially more complex undertaking, LCW also would like to help families stay in their homes when possible. We thus seek to launch a pilot program that would prevent foreclosures and stabilize families by purchasing homes BEFORE foreclosure, allowing families 137 Appendix 7.2 – Test Community Overview: Lawrence to stay on as tenants while receiving financial counseling and credit repair, and then selling the homes back to the original buyer.
Specifically, LCW would identify qualified candidates through our foreclosure prevention counseling program (which currently sees over 100 families per year). With their consent, we would negotiate a short sale purchase from the lender at an estimated 50% of original value. The owners will then become tenants, paying a rent approximately equal to their projected cost of ownership. During the two to three years of their tenancy, they will 1) undergo intensive financial literacy training and credit counseling/ repair provided by trained LCW staff, 2) participate in an LCW IDA program in order to save money towards new downpayment/closing costs, and 3) sign a hybrid lease/management agreement that promotes a continued sense of ownership/ responsibility. At the end of this period, the family would have the option of buying back the home at LCW's acquisition cost plus an increment to cover management, insurance and counseling costs (which we will attempt to reduce through grant or in-kind support) - projected to be approximately 75% of original acquisition price, and agreed upon at inception. The Lease/Buy-Back model is complex for several reasons, including (but not limited to!): the property management challenges it poses, the intensity of case management it demands, the uncertainty of the extent of rehab needs for each occupied property, and the uncertainty of market conditions at time of re-purchase.
Supportive Elements: Pool : LCW will acquire to rehab and sell to homeowners (12 months to resale) or bundle into larger rental deals (9-12 months to construction close), and for lease-buyback (acquisition and up to 3+ years holding). • Acquisition: Low rate (2-3%), patient (2-3 year), highly liquid initial acquisition capital pool with 100% LTV financing that could be secured without recourse or guarantee to organizational resources; value based on comps or opinion of value, not full appraisal; allowable uses include % for property management, capital reserves, holding costs. • Development: Significant subsidy pool allowing for minimum $100K per-unit rehab costs to deal with the realities of the properties coming into our portfolio through this acquisition surge
Acquisition : will be targeted to minimize neighborhood regression and maximize revitalization impact. • Streamlined access to servicers and lenders, ideally through a clearinghouse that can provide information on price and term deals as well as friendly contacts; standard arrangements with key servicers/lenders would be useful (Deutschebank is the top Lawrence lienholder, with Capital One, Countrywide, and Wells also up there); • Ability to participate in bulk purchases (e.g. with Fannie Mae) • In-kind support from realtor networks • Affordable and efficient property assessment (conditions/rehab needs) services, environmental studies (Bulk HazMat and Phase I studies) and bulk title reviews would help manage costs. • Best practices on short sales, auctions
Holding : the majority of our acquisitions will be vacant properties. For lease/buy-back properties, we will maintain former owners as tenants under hybrid lease management agreement; need to assess rehab needs before purchase and develop rehab plan with tenant/homeowner. • City tax waiver or abatement • See funding pool above: need to subsidize property management and holding costs, recognition that there is an initial premium for property condition assessment, interim repairs, etc. • Development of hybrid lease/management agreement (LCW Board member working on this) • Best practices on rent-to-own
138 Appendix 7.2 – Test Community Overview: Lawrence
Exit, or Development, Strategy : Bundling some 2 and all 3+ family properties into rental deals financed with either 4% or 9% LIHTC plus other sources. One and 2-family properties may be renovated and sold to homeowners. Lease/Buy-back properties will be resold to tenant/ homeowners at a maximum of 75% of original purchase price, or if necessary revert to long-term affordable rental properties in our portfolio. • Rental: QAP amendment to support acquisition of foreclosed or "distressed" housing; suspension of 10-year anti-churning rule for "single-family (1-4 family)" properties to allow credits for acquisition costs; rolling or interim funding rounds would reduce holding period; additional subsidy dollars will be needed to deal with this influx of highly distressed properties. • Homeownership: Biggest challenges are market uncertainty, increased tightening of credit, lack of current public subsidy/appetite for low-income homeownership, and severe deed restrictions; ability to hold suitable properties until the market stabilizes some would be useful; need additional subsidy (push CDBG increase!!), easing up of deed restrictions, continued support for homebuyer education and high-quality soft-second programs.
Matching Program: Not relevant at this point.
139 Appendix 7.3 – Test Community Overview: Boston (Registration Ordinance)
7.3 Test Community Overview: Boston (Registration Ordinance)
140 Appendix 7.3 – Test Community Overview: Boston (Registration Ordinance)
141 Appendix 7.3 – Test Community Overview: Boston (Registration Ordinance)
142 Appendix 7.3 – Test Community Overview: Boston (Registration Ordinance)
143 Appendix 7.4 – Test Community Overview: Brockton Foreclosure Initiative
7.4 Test Community Overview: Brockton
Brockton Foreclosure Initiative
Developed by Southeastern MA Affordable Housing Corporation in collaboration with the Brockton Housing Authority Interview with Kevin Harriman, SMAC/BHA
Building type : Triple decker; 3 units, 5 rooms each; 3,200 sq. ft total living space. Numbers aren’t working for 2-family yet—acquisition price too high but BHA sees a need/market for homeownership for this type when prices come down. They can get a Sec. 8 for new owner and provide post-purchase counseling/support.
Additional features sought : On-site parking; yard
Occupancy : most looked at are vacant but BHA willing to buy tenanted property.
How did you identify the building ? Network of brokers so far but BHA is looking to approach banks directly. Also in touch with neighborhood networks, driving by properties, internet, comps, etc.
Who did you buy from ? Banks through brokers but looking at direct strategy when access becomes clearer.
Price : First building $170,000. Fair shape. 2 nd building higher $220K but much bigger and in better neighborhood. Sound structure but had been stripped. Appraisals are all over the place, haven’t settled down. BHA sticks to numbers that they have projected for rehab and rental income and backs into what can be used for acquisition. Won’t overpay. Bank lends at 80% ltv based on appraisal which includes the rehab estimate and Sec. 8 rental income. Prices were coming down but now that properties have made it through winter, less incentive to deal. Also talk of ‘spring market’. Code enforcement, receivership looked at to drive up cost of holding, drive down price.
Due Diligence • Physical Assessment: Look at structure, environmental, systems. Screen for ‘common sense’ features—proximity to other properties, on-site parking, yard, neighborhood. Looked at 15-20 properties before settling on first two.
• Rehab estimates: Rehab cost estimate: $160,000 per building-mostly system work, not gut rehab. Most work in basement—ex.-replacement heating system—no re-ducting. Work underway; so far cost is coming in less than projected
• Environmental testing? Avoids buildings with asbestos in basement—remediation too costly. Looks at that, lead paint. De-leading built into budget.
• HSF/DHCD standards: DHCD has been improvising standards to meet modest rehab goals. Existing DHCD standards don’t fit—their boilerplate doesn’t provide appropriate guidance—DHCD says they’ll have to create new standards for this program. On the ground, DHCD staff have been flexible and have agreed to BHA’s work write-ups and assessment in terms of design and rehab. DHCD was clear up front with basic standards.
144 Appendix 7.4 – Test Community Overview: Brockton Foreclosure Initiative
One area that’s been a problem in the triples is the third floor with bedrooms with slanted roofs. Doesn’t meet HQS or DHCD standards so BHA has avoided those units.
Exit Strategy : Bank loan based on Project-based Sec. 8 rental stream, HSF and private grant money for long term rental housing. 18 units in 6 buildings. Chart below is BHA’s initial projection---all costs so far are lower. They may do more units with the savings.
Uses Amount Source Acquisition Cost $1,650,000 Loan from a local bank based on the Section 8 income stream. Rehabilitation Cost $1,300,000 Fireman Foundation in partnership with DHCD and the City. PPFCF $600,000 DHCD $600,000 City of Brockton $100,000 Total Development Cost $2,950,000 The Partnership of local banks, a foundation, the City and the State.
Property management Cost? Will send holding and property management cost projections. Do-able because BHA has a presence in the neighborhoods already and big management operation.
Units will be linked to Brockton’s Family Self-Sufficiency program providing IDAs for families to save for homeownership.
Barriers Stubborn acquisition cost—not low enough yet though coming down; lack of access directly to banks (all out of state, etc)
145 Appendix 7.5 – Test Community Overview: Worcester
7.5 Test Community Overview: Worcester
In January 2008, City of Worcester City Manager Michael V. O’Brien unveiled a comprehensive action plan aimed at dealing with vulnerable properties and protecting the local housing stock.
The plan, called “SAVE (Stabilize – Assist – Value – Enforce) Our Neighborhoods,” focuses on three areas: • Foreclosure Education, Prevention and Management : o The NeighborWorks Homeownership Center of Worcester was designated as a foreclosure counseling center as part of the National Foreclosure Hotline (888-995-HOPE) and the Worcester City Council has re-allocated CDBG block grant funds to support staffing at the Homeownership Center. o SAVE Our Neighborhoods will also focus on the need for “receivers” to hold properties where the owners have walked away but the mortgage holder has yet to acquire the property by foreclosure deed. The receivership arrangement is intended to ensure responsible management of the properties, allowing tenants to remain, until the property is transferred to a new owner. SAVE Our Neighborhoods will recommend that CDBG funds be used to support this effort.
• Reorganizing City Government for Improved Regulation of Property : The plan creates a new singular inspectional services agency to monitor private property. The new entity, the Department of Inspectional Services, would enforce state Building Codes, Housing and Sanitary Codes and public health laws as well as City ordinances that preserve the condition of private property and the safety of Worcester residents. The Department would include the following existing City Divisions: Division of Buildings and Zonings, Division of Housing, and Division of Health Inspections and would be headed by a Commissioner of Inspectional Services, a Cabinet-level position reporting directly to the City Manager. This new Department request has been submitted to the City Council for review.
• Enhanced Enforcement and Monitoring of Current and Potential Problem Properties : Under the direction of the Commissioner of Inspectional Services, this multi-department initiative, the Property Review Team (PRT), will track properties flagged by inspectional services due to public safety concerns, deteriorating condition and/or negative neighborhood impacts. PRT will work with the new Department of Inspectional Services, the Worcester Police Department, Worcester Fire Department, the License Commission, the Divisions of Economic and Neighborhood Development, the Law Department, the Treasurer’s Office and the Department of Public Works and Parks.
The Worcester Division of Technical Assistance has developed a Property Analysis Database that will be a single repository for permitting, inspection, public safety, legal, and financial information from City Departments. PRT can use this database to review at-risk properties, including information about properties that have been foreclosed or about to be foreclosed.
More information about SAVE Our Neighborhoods, including the action plan, can be found on the City of Worcester’s website: http://www.ci.worcester.ma.us/ .
146 Appendix 7.6 – Test Community Overview: Springfield/Western Massachusetts
7.6 Test Community Overview: Springfield/ Western Massachusetts
Western Massachusetts Foreclosure Prevention Education Center A group of organizations has agreed to collaborate to create a Western Massachusetts foreclosure mitigation initiative. The effort came together at a forum co-sponsored by HAP, Inc. and the Massachusetts Fair Housing Center.
To undertake this initiative, HAP engaged Doug Dylla, formerly of NeighborWorks America and more recently engaged in creating a state-wide foreclosure prevention collaborative in Ohio to provide technical assistance through the process of developing the collaborative effort for Western Massachusetts. Marie Burkhart, former Executive Director of Hilltown CDC, was also engaged as a consultant to coordinate the effort.
In order to address the foreclosure crisis in the region, the western Massachusetts Foreclosure Prevention Education Center (“the Center”) will provide a comprehensive and coordinated response to the foreclosure problem within the four counties of western Massachusetts: Berkshire, Franklin, Hampden and Hampshire.
The Center will: • Address the needs of current homeowners facing possible mortgage defaults and foreclosures; • Educate the next generation of homebuyers to both avoid future inappropriate loans and to produce a pool of new qualified, educated, responsible buyers able to acquire homes that have been foreclosed and that might otherwise become vacant or even abandoned; and • Develop effective strategies, using the collective capacity of the region’s nonprofit housing developers to address the challenges of dealing with those properties that may never the less become vacant and abandoned.
Coordinated and administered by HAP, Inc., the regions housing partnership, the Center will consist of 15 collaborating partners strategically located throughout the four county region. The activities of the Center will be directed and overseen by a leadership Steering Committee comprised of representatives of six of the partner agencies strategically located throughout the region. The agencies represented on this steering committee include: Massachusetts Fair Housing Center, the City of Springfield, Berkshire Housing Development Corporation, Franklin County Housing and Redevelopment Authority, HAP, Inc., and Valley Community Development Corporation.
Other partners include:
Acorn Housing, Berkshire County Regional Housing Authority, Chicopee Neighborhood Development Corp., Hilltown Community Development Corp., Holyoke Housing Authority, Hungry Hill Community Development Corp., New North Citizens Council, Solutions Community Development Corp. and Springfield Partners for Community Action.
Subcommittees comprised of staff from the partner agencies will focus on the areas of marketing and outreach, standardization of counseling procedures and forms and training needs and opportunities.
These non-profit agencies are already on the frontlines of addressing the foreclosure problem in western Massachusetts by providing a range of services including: foreclosure prevention counseling and negotiation, homebuyer education, financial literacy education, legal assistance,
147 Appendix 7.6 – Test Community Overview: Springfield/Western Massachusetts down payment and closing cost assistance, foreclosure assistance grants and loans and neighborhood stabilization activities in areas with high foreclosure rates.
By coordinating the activities of these collaborating partners for maximum effect and efficiency, the Center will create increased capacity in the region without unnecessary duplication of services or requiring any one partner to add additional staff. It will also create a variety of service entry points for consumers both throughout the region and through various service channels (for example, telephonically, online or face-to-face). Components of the Western Massachusetts Foreclosure Prevention Education will include:
1. Public Education and Marketing Campaign 2. Partnership-Building Efforts with Affiliate Organizations 3. Increased Foreclosure Prevention Counseling and Training Resources 4. Referral to Legal Services 5. Development of a Rescue Fund Pool 6. Regional Service Delivery and Referral System and Standardization of Intake Forms, Triage Processes and Reporting Systems 7. Partner Support Fund. 8. Partner Performance Pool 9. Ongoing Research Efforts. 10. Strategic Plan for REO
148 Appendix 8.1 Foreclosure Data Sources
Appendix 8: Library 8.1 Foreclosure Data Sources
Data Collected by Acquisition Subcommittee when Developing Foreclosure Clearinghouse Foreclosure and delinquency data are available from few central sources, each with certain limitations. While there are numerous local repositories of data that include foreclosure information, the focus here is only on sources that are more broadly available, including strengths and weaknesses of each source. The list may not be exhaustive, but represents what is known by NeighborWorks America as of May 2008.
The report compares five sources of data, three specific datasets and two more general categories of data. The specific datasets are the Mortgage Bankers Association’s National Delinquency Survey, LoanPerformance.com’s database of securitized loans and McDash Analytics’ securitized loan database. The two categories of other data sources are credit agencies, and foreclosed property and courthouse data specialists. An overview of how these sources compare is provided in an attached table. A more detailed description of each is below.
MBA’s National Delinquency Survey
The Mortgage Bankers’ NDS has the broadest coverage of all data sources and is likely the most accurate assessment of how all mortgages are performing. While this is the most comprehensive database, it has the least geographic detail, being available only at the state level. In addition, it does not provide detailed information about the products—such as when resets occur, or if there are high loan-to-value ratios. Characteristics include:
Coverage : MBA staff claim their survey represents 85 percent of all mortgages outstanding. Data points : total number of loans being serviced, portion that are 30-, 60- and 90- days delinquent, portion that started the foreclosure process that quarter and the portion that are in the foreclosure inventory. Frequency : Quarterly. Geography : State level only. Products : Mortgages are broken out by general type: whether they are prime, subprime, FHA or VA and whether they are fixed or adjustable rate. Cost : The cost is $175 per quarter or $450 per year.
LoanPerformance.com
LoanPerformance (a subsidiary of First American CoreLogic) is “the leader in mortgage finance, servicing and securitization information and analytics.” It provides a variety of analytical tools to the industry and has large databases of securitized loans. The Board of Governors of the Federal Reserve purchased two of these securities databases: subprime loans and Alt-A loans. These databases have the following characteristics:
Coverage : o The subprime database includes about 70 percent of subprime securities; given that approximately 75 percent of all subprime loans are securitized, it is estimated that the database represents between 50 and 55 percent of all subprime
149 Appendix 8.1 Foreclosure Data Sources
loans. According to MBA’s NDS data, subprime loans represented 13 percent of all mortgages at the end of the 2007. Thus, this database accounts for about 7 percent of all outstanding mortgages. o The Alt-A database (Alt-A loans are those that are not quite prime, but do not qualify, for such reasons as low documentation, for a prime loan) includes about 95 percent of all securitized Alt-A loans. It is not know what portion of all Alt-A loans are securitized; they account for about 5 percent of the market.
While these two databases represent a small portion of all outstanding loans, they represent a much larger portion of foreclosures. For example, according to MBA, while subprime loans were only 13 percent of the total at the end of 2007, they accounted for about 55 percent of foreclosures. No comparative figure was available for Alt-A loans. Little is known about the performance of Alt-A loans; many of the Alt-A are also “non-traditional” loans, such as interest only or option ARMs, the latter allowing negative amortization.
Datapoints : These databases provide a wide variety of variables, including average balance, average current interest rate, year of origination, number with prepayment penalties, number with second liens and a wide variety of factors related to risk, such as high loan-to-value and low credit score. These variables relate to owner-occupied properties only. Frequency : Monthly Geography : Both are available at the state, metropolitan/micropolitan area and zip code levels of geography; however, many zip codes are missing due to low numbers of loans (in order to protect privacy). Products : Both datasets include information on how many loans are variable rate, interest only, allow negative amortization and have an interest rate reset. However, specific product types are not included. Cost : The Fed paid a significant amount for these datasets, but the exact amount is not public knowledge.
McDash Analytics
McDash Analytics, much like LoanPerformance, was established as a place where lenders could get information on how mortgage portfolios are performing. It claims to have the largest loan level database of mortgage assets. Other characteristics are:
Coverage : McDash staff have stated that their databases include about 60 percent of securitized prime loans and about 15-25 percent of securitized subprime loans (McDash representatives claim 25%, others say 15%); thus their coverage in subprime is about half of what is available through LoanPerformance, but includes prime loans. Datapoints : McDash uses “unpaid principal balance” (UPB) to calculate the percentage of loans that are delinquent (and other characteristics) rather than simply the number of loans. For example, if $100,000 worth of loans were delinquent out of a pool of $10,000,000 that would be a 1 percent delinquency rate no matter how many loans were represented. Aside from delinquency, McDash provides data on mortgage payoffs (voluntary or foreclosed upon broken out), loan amount, FICO score, loan-to-value and age. Frequency : Monthly.
150 Appendix 8.1 Foreclosure Data Sources
Geography : McDash data are available at the state, metropolitan area and zip code levels. Products : McDash provides more information about specific products than do the other databases. It includes information on various types of ARM loans (2/28, 3/1 hybrid, etc.) and home equity loans. Cost : McDash cost $4,000 for the initial setup and $2,000 per month for updates.
Credit Agencies
At least two of the three credit agencies offer their data for sale: TransUnion and Experian. It is not known whether EquiFax sells databases that include mortgage performance information. Most of the information on the credit agencies comes from TransUnion’s TrenData database. TrenData has the following characteristics:
Coverage : TrenData is derived from a random sample of the records that TransUnion has on their customers (about 25 million); therefore, rather than having the universe of a subset of mortgages, it has representative information on for all borrowers. Datapoints : The TrenData database includes more than 200 variables, including the portion of borrowers 60-, 90- and 120-days past due (not 30-days, however), total mortgage debt and information about other consumer debt. In fact, most of the database is about various forms of consumer debt, rather than mortgage information. There is not information on foreclosures. Frequency : Quarterly. Geography : Most data are available at the zip code level, though it is possible to purchase individual consumer data. Products : There is no information about mortgage characteristics. Cost : TransUnion was willing to either charge a single fee for access ($8,000 per quarter) or on a per record basis.
Foreclosed Property and Courthouse Records Specialists
A number of companies specialize in compiling property-level data on foreclosed properties, including RealtyTrac and Foreclosure.com. These companies gather information from local public records and lenders and servicers. These sources have the potential for a high level of coverage because their sources could contain the records for all mortgages. However, an analysis done by NeighborWorks America in 2006 found that RealtyTrac’s did not cover the entire market. Their coverage rates differ across places and their local sources often change, making it more difficult to use the data to discern trends.
The 2006 analysis also found significant differences between the results provided by these firms and those done by MBA and LoanPerformance. While the latter two tracked each other well—the top states for prime and subprime delinquencies were the same for MBA and LoanPerformance— RealtyTrac and Foreclosure.com ranked states very differently. The analysis concluded by saying, “The result is a distorted view of the situation across states….”
The primary drawback to these data sources is that they provide individual records rather than any aggregation (aside from RealtyTrac, whose problems have already been described). Thus, these sources are not good for gaining an understanding of mortgage delinquency and foreclosure rates or for describing any particular geographic area.
151 Appendix 8.1 Foreclosure Data Sources
The characteristics of these datasets can are generalized as:
Coverage : Our estimate for RealtyTrac one-and-a-half years ago was that just 15 percent of all mortgages; that figure may have increased since then. In theory, these specialists have records for all mortgages with foreclosure filings. Datapoints : The information provided includes property-specific data such as address, number of bedrooms, square footage, etc. No data on delinquencies are available. Frequency : The data are updated on a continuous basis. Geography : The data go down to individual. Products : The data are about the property, not the mortgage. Cost : Varies, but relatively low.
Selected Characteristics of Delinquency and Foreclosure Data Sources Foreclosure Foreclosure % of % of Source Delinqs Starts Inventory REO? Prime Subprime Geography Cost Frequency MBA Yes Yes Yes No 85% 85% State $ Q LoanPerf Yes Yes Yes Yes 0% 55% Zip $$$ M McDash Yes Yes Yes Yes 60% ~20% Zip $$ M Credit Agency Yes No No No sample sample Zip $$ Q Foreclosure Yes Yes Yes Yes N/A N/A Individual $ continuous Specialists
Key : Delinqs = delinquency data Foreclosure Starts = foreclosure started during a given period Foreclosure inventory = all mortgages in foreclosure at a given time REO = Real Estate Owned; properties that have been taken by the lender % of Prime/Subprime = the portion of the prime and subprime mortgage market covered by the data source Geography = smallest level geography available for these data Cost = $: hundreds; $$: under $50,000; $$$: more than $50,000 Frequency = how often data are updated
152 Appendix 8.2 Understanding MERS
8.2 Understanding MERS
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169 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
8.3 Managing Residential Short Sales (Amanda Zuretti, Esq.)
Amanda Zuretti, Esq. Title Counsel
40 William Street, Suite G90 Wellesley, MA 02481 Tel: (781) 237-8770 Fax: (781) 237-8775 Managing Residential Short Sales
Amanda Zuretti, Esq. CATIC Title Counsel Presented to MCLE on March 19, 2008 (10 th Annual Real Estate Conference) Presented to the Boston Bar Association April 17, 2008
170 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
I. INTRODUCTION 1. What is a “short” sale? 2. Why are we hearing more about short sales now? 3. Trends
II. WHAT OPTIONS ARE AVAILABLE TO A SELLER IN DEFAULT? 1. Forbearance 2. Loan Modification 3. Refinancing 4. Foreclosure 5. Deed in Lieu of Foreclosure 6. Short Sale 7. Foreclosure Rescue A. Equity skimming B. Fake foreclosure counseling C. Comment on Foreclosure, Short Sale, and Predatory Lending 8. Demand for Rescission
III. LENDERS’ MOTIVATION FOR SHORT SALE
IV. WHO CAN (AND WHO SHOULD) NEGOTIATE A SHORT SALE?
V. EVALUATING THE LIKELIHOOD OF SUCCESS 1. The circumstances surrounding the mortgagor’s default 2. Value of the real estate
VI. PREPARING A REQUEST FOR SHORT SALE APPROVAL 1. Fee Agreement Letter 2. Letter of authorization 3. Preliminary HUD-1 Settlement Statement 4. Hardship letter 5. Proof of income and assets 6. Comparative market analysis 7. Offer to Purchase and listing agreement
VII. CLIENT AND TRANSACTION MANAGEMENT 1. If you are buyer’s counsel 2. If you are seller’s counsel 3. If you are settlement agent/lender’s counsel/title insurance agent 4. Communicating with real estate brokers 5. Communicating with a third-party short sale negotiator 6. Communicating with the loss mitigation specialist
VIII. SHORT SALE PROCESS 1. Client intake 2. Assembling and Submitting the Loss Mitigation Package 3. Drafting and Negotiating the Purchase and Sale Agreement
171 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
IX. SHORT SALE OUTCOMES: DEFICIENCY, DEBT CANCELLATION, GAIN OR LOSS ON SALE 1. Deficiency 2. Debt Cancellation 3. Gain or Loss on Disposition of Property
X. BANKRUPTCY 1. Chapter 7 Liquidation 2. Chapter 13 Adjustment of Debts of an Individual with Regular Income A. Bankruptcy in the Context of Foreclosure B. Bankruptcy in the Context of Short Sale C. Pending Bankruptcy Legislation
ADDENDA • MODEL FEE AGREEMENT LETTER
• MODEL DISCLOSURE REGARDING THIRD-PARTY NEGOTIATION OF SHORT SALE AND PROHIBITED PRACTICES UNDER 940 CMR 25.00
• MODEL AUTHORIZATION TO COMMUNICATE WITH LENDER ON BEHALF OF SELLER IN DEFAULT
• MODEL SELLER’s RIDER TO PURCHASE AND SALE AGREEMENT
• MODEL BUYERS’s RIDER TO PURCHASE AND SALE AGREEMENT REGARDING EXTENSION OF CLOSING
• LOSS MITIGATION QUESTIONNAIRES AND APPROVAL LETTERS
172 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
I. INTRODUCTION
1. What is a “short” sale?
A “short” sale is a disposition of real estate which is collateral for a mortgage loan where the mortgage holder agrees to accept a payment from a mortgage borrower in an amount that is less than the total amount due under the promissory note executed by the mortgage borrower. Until recently, a typical Massachusetts property owner envisioned that the value of real estate would always appreciate, and that at the time of sale, s/he would receive an offer to purchase from prospective buyer at a price sufficient to pay off all secured debt and closing costs and receive proceeds of sale. That is no longer a certainty.
2. Why are we hearing more about short sales now?
Real estate purchasers who bought property within the past two to five years may have experienced the evaporation of home equity resulting from flattening real estate prices. Others, who purchased or refinanced real estate with so-called “subprime” or exotic loan products, or who may have exhausted the equity value in their holdings through serial refinance transactions or additional secured borrowing, now find that they cannot sell real estate at a profit. Mortgagors who can meet their debt obligations may need to hold their real estate for some time before they can realize a profit. Mortgagors who can their debt obligations may face foreclosure.
3. Trends
According to the Warren Group, the publisher of Banker & Tradesman, “[p]etitions for foreclosure in Massachusetts topped 24,150 in the first 10 months of [2007], up 62.7 percent from the 14,847 filed during the same time period of 2006.” 3 “Lenders filed 2,729 petitions to foreclose in December [of 2007] up 28 percent from the 2,133 filed during the previous December. The December 2007 number is up slightly from the 2,723 petitions filed during November 2007.”4
On January 17, 2008, the Mortgage Bankers Association released a national study showing that found more than 235,000 workouts were initiated by the mortgage industry during the third quarter of 2007. Of those workouts, 54,000 were loan modifications, and 183,000 were formal repayment plans. Approximately 13,000 loan modifications and 90,000 repayment plans were established for subprime adjustable rate mortgage loans, in the third quarter of 2007. Roughly, 15,000 loan modifications and 30,000 repayment plans were instituted for borrowers with subprime fixed-rated loans.
3 http://www.wickedlocal.com/ghs-newsservice/regional_news/east/massachusetts/x1059350719 4 http://www.thewarrengroup.com/portal/Solutions/PressReleases/tabid/190/newsid751/436/MA--- Mass-Foreclosures-Recorded-in-Jan-Highest-in-Five-Months/Default.aspx 173 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
The MBA report goes on to say that of approximately 384,000 mortgage loans that resulted in foreclosure in the third quarter of 2007:
• 43% were foreclosures of “ subprime” adjustable rate mortgage loans. (The MBA report states further that of these, 18% were foreclosures of investor-owned properties; 21% were cases where the borrower either could not be located or would not respond to repeated attempts by the lenders to contact them; and 40% cases where borrowers did not meet the terms of a repayment plan or loan modification.) • 21 percent of subprime fixed- rate mortgage loans foreclosure starts, • 17 percent of prime adjustable rate mortgage loans foreclosure starts • 33 percent of prime fixed-rate foreclosures started. 5
Generally speaking, mortgage defaults seem to be attributable to loss of income, inability to make payments after mortgage rates reset, and overly optimistic real estate investment by both sophisticated and inexperienced buyers.
II. WHAT OPTIONS ARE AVAILABLE TO A SELLER IN DEFAULT?
1. Forbearance under a written agreement with the mortgagee. A forbearance agreement normally includes the borrower’s promise pay the delinquent interest and other charges over a certain period of time and to remain current on the mortgage going forward. A forbearance agreement may be an option for mortgagors who succumbed to a temporary event that caused them to fall behind in their mortgage payments. In most cases, the mortgagee looks for two things when considering a forbearance agreement: 1) whether the reason for the initial delinquency was something beyond the control of the borrower such as serious illness or injury, temporary disability or a one-time disruption in income, and 2) whether the borrower’s financial difficulties have been resolved. The mortgagee will seek assurances from the mortgagor that s/he can be counted upon to make regular loan payments as agreed.
5 Sources: MBA: 235,000 Loan Workouts Initiated During Third Quarter by Paul Jackson January 17, 2008 http://www.housingwire.com/2008/01/17/mba-235000-loan-workouts-initiated-during-third- quarter/
http://loanworkout.org/2008/01/17/countrywide-is-fixing-loans-and-saving-homes-finally/ http://www.mortgagebankers.org .
174 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
2. Loan Modification may be a possibility for a mortgagor who is not yet in default and is credit worthy but foresees difficulty in making mortgage payments in the near future. Under a loan modification, the mortgagee may agree to renegotiate either the interest rate or term of the loan in order to reduce the mortgagor’s monthly payment amount. There is a cost for obtaining a modification, however, and it is unlikely that the lender will renegotiate its loan terms if the property owner is in default or unable to accept the lender’s proposed modification terms. Once a modification agreement has been executed by both mortgagor and mortgagee, a Modification Agreement setting forth the changes to the original financing arrangements may be recorded with the records of the Registry of Deeds or Registry District of the Land Court where the mortgage is recorded or filed.
3. Refinancing the loan may be a possibility for a mortgagor who is not yet in default, is credit worthy, and is able to pay closing costs associated with applying for and closing a new mortgage loan. If the property owner is in default on his or her current mortgage, there is a reduced likelihood that he or she will be able to refinance the mortgage of favorable terms and to retire the existing loan. As a result, a new lender is unlikely to offer a new loan on terms that the property owner is in a position to accept. The refinance transaction will be evidenced by the recording of a new mortgage and the discharge of the retired mortgage.
4. Foreclosure is the mortgagee’s repossession of the real estate collateral that secures the mortgage loan debt. In Massachusetts, the foreclosure process (where the mortgagor is an individual) entails filing a Complaint with the Land Court or the Superior Court for the county where the land lies to determine if the to be foreclosed-upon borrower is in the military service and therefore entitled to the protections afforded by the federal Servicemembers Civil Relief Act (SCRA). The filing of the Complaint is the state law mechanism by which the foreclosing mortgagee evidences compliance with the SCRA and has nothing to do with the statutory procedure for foreclosing a mortgage by exercising the power of sale under G.L. c. 244. Although failure to comply with the SCRA creates a cloud on title, although it does not invalidate the foreclosure under state law.
5. Deed in Lieu of Foreclosure is the mortgagor in default’s voluntarily delivery of title to the lender. The mortgagor cannot simply record the Deed and walk away from the property and the loan debt. The lender must agree to accept the Deed in Lieu of Foreclosure.
6. Short Sale , as discussed above, is a sale to a bona fide purchaser where each of the mortgage holders (and oftentimes, other secured creditors) agree to accept an amount that is less than full amounts due them.
175 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
7. Foreclosure Rescue is illegal in Massachusetts. As defined under 940 CMR 25.00 et. seq., a foreclosure rescue “shall be a transaction (a) by which residential property is conveyed where the person conveying the property (hereafter “homeowner”) maintains a legal or equitable interest in the property conveyed, including, without limitation, a lease interest, an option to acquire the property, or other interest in the property conveyed; and (b) that is designed or intended by the parties to avoid or delay actual or anticipated foreclosure proceedings against a homeowner’s residential property.” 6
People in danger of losing their homes are prime targets for foreclosure rescue scams, and the reality is that “[f]raudulent foreclosure rescue transactions [would not occur] without the participation of mortgage lenders and closing attorneys that represented mortgage lenders.” 7 So, what does a foreclosure rescue look like and what should you as the closing attorney and title insurance agent avoid? Primarily, there are two types of scams, equity skimming and fake foreclosure counseling .
A. Equity skimming
As legal notices of foreclosure appear in public records, homeowners in distress often receive letters and calls promising them assistance. In an equity skimming transaction a so-called “buyer” approaches the homeowner with a promise to pay off an existing mortgage or to deliver a sum of money when the property is sold. The “buyer” may encourage the homeowner to move out quickly and convey the property to him or her. The “buyer” then collects rent for a time, does not make any mortgage payments, and allows the lender to foreclose. In August, the Massachusetts Attorney General’s filed three cases against alleged foreclosure scams involving 46 homeowners. 8 On September 19, 2007, the Massachusetts Attorney General’s office announced that it had reached a settlement with five lenders regarding these scams. Prosecutions of several attorneys and realtors continue.
B. Fake foreclosure counseling
Phony counseling agencies approach homeowners in default offering to perform so-called “rescue” services such as renegotiating mortgage terms or pursuing a short sale for an inflated fee, whether or not such negotiations are successful—or attempted at all.
6 940 CMR 25.01 Regulations 7 Attorney General Martha Coakley, http://www.mortgagefraudblog.com/index.php/weblog/print_friendly/ag_settles_with_5_lenders_involv ed_in_foreclosure_rescue_brings_in_4_new_pa/ 8 Kimberly Blanton, Globe Staff, August 24, 2007 176 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
A Comment on Foreclosure, Short Sale, and Predatory Lending
“After decades of redlining practices that starved many urban communities for credit and denied loans to racial minorities, today a growing number of financial institutions are flooding these same markets with exploitative loan products that drain residents of their wealth. Such “reverse redlining” may be as problematic for minority families and older urban neighborhoods as has been the withdrawal of conventional financial services. Instead of contributing to homeownership and community development, predatory lending practices strip the equity homeowners have struggled to build and deplete the wealth of those communities for the enrichment of distant financial services firms. . . ”
“Not all subprime loans are predatory, but virtually all predatory loans are subprime. Some subprime loans certainly benefit high-risk borrowers who would not qualify for conventional, prime loans.”
“Predatory loans . . . charge higher rates and fees than warranted by the risk, trapping homeowners in unaffordable debt and often costing them their homes and life savings.” 9
The following loan terms are frequently indicia of predatory lending:
• Balloon payments that require borrowers to pay off the entire balance of a loan by making a substantial payment after a period of time during which they have been making regular monthly payments; • Required single premium credit life insurance , where the borrower must pay the entire annual premium at the beginning of the policy period rather than in monthly or quarterly payments. (With this cost folded into the loan, the total costs, including interest payments, are higher throughout the life of the loan); • Homeowners insurance where the lender requires the borrower to pay for a policy selected by the lender ; • Fees for services that may or may not actually be provided ; • Loans based on the solely on the value of the property with no regard for the borrower’s ability to make payments; • Loan flipping or “churning”, whereby lenders use deceptive and high-pressure tactics resulting in the frequent refinancing of loans with additional fees added each time; • Negatively amortized loans and loans for more than the value of the home, which result in the borrower owing more money at the
9 Gregory D. Squires, “Predatory Lending: Redlining in Reverse “http://www.nhi.org/online/issues/139/redlining.html 177 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
end of the loan period than when they started making payments; and • High pre-payment penalties that trap borrowers in unaffordable loans.10
With regard to illegal prepayment penalties in Massachusetts, G.L.c. 183 §56 limits the prepayment penalty in an owner- occupied dwelling to the less of “the balance of the first year’s interest or 3 months’ interest whichever is less except, that if anticipatory payment is made within 36 months from the date of the note for the purpose of refinancing such loan in another financial institution, an additional payment not in excess of 3 months’ interest may be required.”
General Laws chapter 183 §56 makes an exception for Federal Housing Administration loans in that “the mortgagor may be required to reimburse the mortgagee to the full amount of any charges, premiums, or fees required by any statute or by any regulation of the Federal Housing Administration to be paid by the mortgagee upon payment of the note before the date fixed for payment.”
In no case is a prepayment fee or additional penalty payable by a mortgagor if the mortgage note is paid in full after 36 months from the date of the note. Further, “[a] mortgagor shall not be required to pay a prepayment fee or penalty for making additional payments toward the principal balance for the term of the loan.” See also G.L.c.167E §6; G.L.c. 183 §56; G.L.c. 140 §90A).
In addition, C.M.R. 940 CMR 8.06 (10) states that it is an unfair or deceptive act or practice for any mortgage lender to charge a prepayment fee which:
(a) violates G.L. c. 183, s. 56 ; (b) significantly deviates [from] industry-wide standards; or (c) is otherwise unconscionable. 8. Demand for Rescission may be possible under federal or Massachusetts Truth in Lending Act (TILA) laws (15 USC seq. 1601, et. seq. and G.L.c. 140D, sec. 1 et. seq., respectively), and may be coupled with a claim under G.L.c. 93A, even after a predatory loan has been discharged. Violations of TILA turn on failure to
10 Id . 178 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
provide accurate disclosure of finance charges, violations of prepaid interest moratoria, charging fees for services not actually rendered, and failure to provide accurate rescission notices to the borrower. Rescission is available to the mortgagor in default only if s/he was not complicit in any fraud related to the mortgage application or closing and only if loan for which rescission is sought was not a purchase money loan. The mortgagor in default can tender the amount due under the note within twenty days of making the demand for rescission. 11
III. LENDERS’ MOTIVATION FOR SHORT SALE
Although some lenders may seem indifferent to negotiating work outs for residential mortgages, the increase in mortgage defaults and predatory lending/predatory servicing lawsuits may motivate mortgage lenders to work with mortgagors, particularly when the borrower makes an effort to communicate with the lender.
Lenders also understand the administrative costs associated with acquiring real-estate inventory, including the requirement to reserve funds to deal with potential losses related to delinquent and non-performing loans. In the near term there may be impetus for lenders to recast or refinance loans so that they may lower the costs associated with holding foreclosed property and to reduce the amount of their required reserves.
IV. WHO CAN (AND WHO SHOULD) NEGOTIATE A SHORT SALE?
It may seem obvious that the note signatory is authorized to act on his or her on behalf to negotiate with his or her mortgagee to discuss a loan workout. However, the identity of the note signatory is not always the identical to the signatories on the recorded mortgage. Where one spouse is the obligor under the note, for example, the non- obligor spouse may not negotiate the short sale on behalf of the couple without written authority to do so.
Furthermore, all of the parties who executed the promissory note secured by the recoded mortgage must be parties to the short sale negotiation, either in person or by designating one of the note holders or a third party to communicate with the lender.
Therefore, if a note signatory has vacated the real estate leaving a spouse who is not a note signatory in possession of the real estate--or if the note signatories are not in
11 The Attorney General’s Office has created a Pro Bono Foreclosure Assistance Hotline for low- income Massachusetts residents who are facing foreclosure. The telephone number for this hotline is (800) 342-5297 or (617) 603-1700. The Massachusetts Division of Banks hotline, (800) 495-BANK, may be able to assist homeowners to obtain a brief delay in foreclosure proceedings. Low-income homeowners wishing to refinance high-interest subprime loans may contact Mass Housing at www.masshousing.com .
179 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts) agreement--it will be difficult, if not impossible, to move forward with a short sale negotiation with the lender.
Other than the note signatory, any party authorized in writing by the note signatory, such as a real estate broker or the note signatory’s attorney, may negotiate a short sale with the lender on the note signatory’s behalf.
Authorized non-attorney third-party negotiators may negotiate short sales subject to the limitations of 940 CMR 25.00 et. seq. Although there is no express prohibition of third-party short sale negotiation services in the regulation, there is also no express permission for third parties to conduct such negotiations for a fee. The Office of the Attorney General has not yet provided guidance on this point.
V. EVALUATING THE LIKELIHOOD OF SUCCESS
The likelihood of completing a short sale successfully depends on the circumstances surrounding the mortgagor’s default and the value of the real estate.
1. The circumstances surrounding the mortgagor’s default
Concerning the defaulting mortgagor’s circumstances, the answers to the following threshold questions provide the first indications as to whether an application for a short sale transaction is likely to be accepted by a mortgagee: 1) is the Seller presently in default on a first mortgage? 2) Is the Seller’s default due to an unavoidable an involuntary hardship that is beyond the Seller’s control that can be documented? 3) Is the hardship temporary or is it likely to endure? 5) Was the hardship the precipitating cause of the default? 6) Is the mortgage that is in default a purchase money loan or a loan that was refinanced within the past five years? 7) Is the Seller an owner-occupant or an investor? 8) Does the loan closing package contain indicia of Massachusetts or federal Truth in Lending or G.L.c. 93A violations?
Although the HUD/FHA guidelines do not have direct bearing on most loans that are in default, they provide some insight into what mortgagee’s who accept short sale proposals seek:
• The loan must be two months delinquent; • The homeowner must live in the property; • The reason for the default on the mortgage must have been unavoidable, involuntary, or beyond the homeowner's control;
2. Value of the real estate
With regard to the value of the real estate, the HUD/FHA guidelines provide some insight into what mortgagees who receive short sale proposals seek to recover from a short sale:
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• The real estate must appraise for at least 70 per cent of the unpaid principal balance of the first mortgage;
• The contract price must be at least 95 per cent of the mortgagee’s appraised value;
• The net amount to the lender on HUD line 504 after all closing expenses are paid must be at least 87 per cent of the mortgage holder’s appraised value.
VI. PREPARING A REQUEST FOR SHORT SALE APPROVAL
As is true with most real estate practice, preparing for a short sale is easier with a checklist. Attorneys representing short sale sellers will need the following letters and statements at the outset of representation:
1. Fee Agreement Letter which sets forth the terms under which counsel for the seller in default agrees to provide legal services. Attorneys who conduct real estate closings may not be in the habit of preparing fee agreement Letters. Because the 940 CMR 25.00 prohibits the collection of an “advance fee” for short sale representation, a fee agreement letter may be best practice with regard to representation of sellers in default. A model letter follows these materials.
2. Letter of authorization is a required writing that allows the mortgage holder for the Seller in default to communicate with persons who are not the note signatory. The letter of authorization must be sent to each lender, and should include the name and professional role of the person who is authorized to speak on the defaulting mortgagor’s behalf. The letter should include: a date, the mortgaged property address, loan reference number, and the property owner’s name, Social Security Number, and contact information. A model letter follows these materials.
3. Preliminary HUD-1 Settlement Statement is a model closing statement that shows best (read: high) estimate all the costs of selling the property as of the date of an anticipated closing date: lien payoffs, title clearing and recording fees, attorney fees, a full broker’s commission, water, sewer, taxes, utilities, betterments, common charges, smoke detector certificate, and so on. If you rely on the seller’s mortgage statements to estimate a payoff amount, add as many days of interest as remain until to the amount of the balance owing on the loan statement.
Line 603 on a preliminary should show “Cash from Seller” that represents money that the Seller would ordinarily be required to bring to the table to satisfy all
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liens. The goal, after negotiation with all creditors, is to have Line 603 on a final HUD-1 read “0.00”
4. Hardship letter is a statement of facts describes the unavoidable and involuntary hardship that is beyond the homeowner's control and reason why the hardship is the precipitating cause of the default on the mortgage. The seller’s letter should include a request for relief from the lender in the form of the acceptance less than full payment on the underlying mortgage note and a request for cancellation of any deficiency on the note. The mortgagor’s illness or injury, a family member’s illness or injury, involuntary job relocation, job loss, significant income loss, divorce or separation of domestic partners, death of spouse or wage earner, adjustment in mortgage payment or unforeseen increase in living expenses are all within the scope of involuntary hardships. Lenders are not empathetic to hardship flowing from involving dishonesty, intentional acts, or criminal behavior.
5. Proof of income and assets such as original pay stubs, asset account statements, and copies of federal and state income tax returns with all schedules and W-2 forms and 1099-S forms attached, and statements regarding other real estate must be provided to the lender to whom a short sale application is made. Copies of bank statements that show unaccountable deposits, large cash withdrawals, or an unusual number of checks must be fully explained to the lender. The lender may request an accounting for each and every deposit so it can determine whether deposits will continue.
6. Comparative market analysis showing pending and recent sales of similar homes prepared by a real estate broker, with the broker’s opinion of the value of the real estate and market analysis of the area and the property, should be included in the short sale application.
7. Offer to Purchase and listing agreement must be presented to the mortgagee. Be prepared for the lender to make a counteroffer the to the prospective buyer, to attempt to renegotiate commissions, and to refuse to allow payment of closing costs other than those shown in the 500, 700 and 1200 sections of a preliminary HUD-1 Settlement Statement.
VII. CLIENT AND TRANSACTION MANAGEMENT
1. If you are buyer’s counsel
Purchasing a short sale property requires patience. An inexperienced short sale buyer may become impatient if he or she is not given a realistic timeline for the seller’s short sale approval, and may not understand that walking away from a transaction inappropriately may cause him to lose his or her deposit. Your client
182 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts) could choose to wait for the foreclosure auction to occur, but there is no guarantee that your client will be the successful bidder. And, unlike a purchaser of a foreclosed property at auction, a short sale buyer is assured of clear, record, marketable title, free of liens, and free of tenants.
Even if you client is the successful bidder at auction, there is no guarantee that the foreclosure was properly completed. The Land Court does not review foreclosure documents. Errors in foreclosure process do occur.
In a short sale, your client acquires real estate with clear, record, marketable title at a slightly lower than fair market value. Evaluate whether your client is dealing with the short sale seller in good faith. A buyer who executes a Purchase and Sale Agreement without an intention to consummate a sale is likely to lose his or her deposit. Worse, binding a short sale seller Purchase and Sale Agreement without an intention to consummate a sale may deprive the short sale seller of any real opportunity to find a bona fide purchaser.
2. If you are seller’s counsel
Managing a short sale requires “soft” skills. Losing a home is a miserable experience and a short sale seller may have unrealistic expectations regarding the amount of time that it takes to obtain approvals from short sale lender(s). He or she may want to walk away from the transaction and allow a foreclosure to proceed, not understanding that surrendering his or her home or investment property to the auction process does not free him or her of the obligation to pay some of the underlying debt.
Your client should be made aware early on that even if his mortgagee agrees to a short sale, there will be costs associated with the closing that s/he must pay in order to deliver the property to the buyer. The seller and buyer may negotiate who pays:
• Condominium Fees : The seller or buyer must pay unpaid condominium fees through the date of closing.
• Real Estate Taxes : At closing, the lender is entitled to receive the amount any real estate taxes that were not covered by the seller’s tax escrow account.
• Utilities : The seller or buyer must pay all water/sewer, electric, gas, telephone, trash, cable fees through the date of closing, and should statements to the closing showing that these bills have been paid.
• Closing Costs : The seller’s and buyer’s recording fees, condominium fees, smoke detector fees, excise stamp.
183 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
• Brokers Fees : The brokers are entitled to commission in accordance with the listing agreement, which should be included in the Offer, preliminary HUD-1 Statement, and Purchase and Sale Agreement. The commission is typically 5% to 6%. Brokers may be willing to reduce commission to make a short sale work, but this should be your last option to save a transaction, not your first request to make the short sale palatable to the short sale lender.
• Your Fee : Negotiating a short sale is labor intensive and requires diligent communication by telephone, facsimile, e-mail, and in-person meetings with your seller. You may charge a fee, but you should discuss this with your client (and Bar Counsel) and put it in a fee agreement letter.
• Loan Deficiency : Even if his mortgagee agrees to a short sale, the short sale seller may not be relieved of the underlying loan debt. Each lender who accepts a short sale has sole discretion as to whether to cancel the debt or to pursue an action to collect the difference between the amount that owed and the amount recovered, which is called a “deficiency.” Lenders may request—but not require--the short sale seller sign a promissory note for some or all of the deficiency before approving a short sale.
Counsel for the short sale seller must be aware that even in a climate with a record number of defaults, lenders will reject short sale proposals if:
• the short sale seller is not yet in default; • the short sale seller has not received an offer to purchase from a prospective buyer, the amount offered is so low that the lender will not recover a significant portion of the outstanding mortgage loan debt • the short sale seller has not submitted a complete and correct loss • mitigation package; or • the short sale seller has assets available that could be liquidated to pay the mortgage.
Seller’s counsel should make all parties to the short sale aware that:
• the loss mitigation review process typically lasts from 60 to 90 days at a minimum; • the seller must be in default to be eligible for a short sale, and should not have made mortgage payments for at least two months; • the brokers are entitled to a commission for marketing the property; • the lender may pursue a deficiency; • the seller must consider filing for Bankruptcy protection; • the seller must seek advice regarding income tax liability;
184 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
• the short sale may be rejected by either mortgagee if there is more than one mortgagee and where one lender demands a payoff amount that is unacceptable to the other.
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3. If you are the settlement agent/lender’s counsel/title insurance agent
As in any real estate closing, you must review the status of title, notify seller’s counsel of outstanding encumbrances, clear the purchase money mortgagee’s underwriting objections, and disburse funds.
Where the seller is unrepresented, you must find out who is negotiating the short sale and have the seller to authorize you in writing to communicate with the short sale mortgagee directly so that you may obtain written approval to close the transaction, payoff balances from mortgagees and creditors, and instructions as to how payment of liens must be made.
Where seller is unrepresented and you are both buyer’s counsel and settlement agent, be attentive to the signs that you are inadvertently (or purposely) negotiating the short sale on the seller’s behalf in order to close the transaction.
Although the Prohibited Practices Disclosure at the end of these materials is a suggested form, you may wish to include it if you are the settlement agent for a short sale transaction.
4. Communicating with real estate brokers
While it is true that selling the property without the assistance of a real estate broker will save the amount of the commission and have more to apply toward paying off the loan, a skilled broker provides a level of security for the property owner.
The seller’s broker must market your client’s property aggressively at comparable value and ask for comparable values of like properties. Real estate brokers are sometimes reluctant to disclose that a property is a short sale on an MLS listing for fear of attracting inordinately low offers. The thought is that if a prospective buyer knows that the seller is in distress, the buyer will try to take advantage of the seller’s desperation to negotiate a fire-sale price for the real estate.
The flaw in that thinking is that if the buyer is not aware that the real estate is the subject of a short sale, s/he will be unprepared for the 60 to 90 day minimum wait until closing. In addition, if the broker is in the habit of preparing to Offer to Purchase and the first draft of the Purchase and Sale Agreement, explain to him or her that both the Offer to Purchase and the Purchase and Sale Agreements must include provisions that inform the parties of the short sale lender’s right to review the transaction, even after the Purchase and Sale Agreement is executed. Although brokers are typically reluctant to join into Purchase and Sale Agreements, a short sale lender might request them to do so.
186 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
5. Communicating with a third-party short sale negotiator
As mentioned previously, and in light of the promulgation of 940 CMR 25.00, is it ever lawful for a “short sale negotiator” who is not an attorney to operate in Massachusetts and receive compensation for preparing a loss mitigation package and negotiating a short sale with a lender on the seller’s behalf? Looking at the regulations as written, and subject to future comment by the office of the Attorney General of the Commonwealth, it may be possible for a third party who is not an attorney to receive compensation for negotiating a short sale where the negotiator:
• Is disclosed to the lender at the outset and shown on a preliminary and final HUD-1; • Does not accept an advance fee from the seller in default; • Does not require the seller in default to pay for service if the short sale transaction does not close; • Does not market the property for sale, i.e. does not act as a real estate broker unless licensed to do so; • Charges a reasonable fee for service that is shown on the HUD and paid as part of the closing; and • Does not receive any fee or equity interest in the property at or after the short sale closing.
6. Communicating with the loss mitigation specialist
After you send the authorization letter to the short sale seller’s mortgagee(s), request a loss mitigation package from each of them. Ask each lender’s loss litigation specialist:
• what the lender expects to recover from the short sale; • if there is an investor who must review the loss mitigation package; • what the conditions are in the loss mitigation department, and how long the review process will be; and • what the approval steps are: who reviews the package, when is and appraisal requested, when is the package assigned to a loss mitigation specialist, and so on.
The loss mitigation contact may not be able to disclose how much or how little the lender is willing to accept in a short sale. Further, there may be an investor in the wings that must give final approval to your client’s proposed sale.
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VIII. SHORT SALE PROCESS
1. Client intake
The sooner that the seller who is facing default, or who has missed one or two mortgage payments, can request a short sale approval, the better. At an initial intake interview, and after having reviewed section VI above, evaluate the likelihood that the seller will be able to receive short sale approval. Discuss the fee agreement and the authorization letters, find out who the seller’s mortgagees and creditors are, and discuss whether to list the real estate with a broker. Discuss the hardship letter and proof of financial condition, and have your client gather the necessary information for you. Only after your client signs an authorization letter permitting you to communicate with his or her mortgagees will you be able to request a loss mitigation questionnaire from each of his or her mortgagees.
2. Assembling and Submitting the Loss Mitigation Package
Once you have contacted your client’s lenders, you or s/he will receive a loss mitigation questionnaire, which is typically a four-page form that asks for the short sale seller’s hardship statement and documentation of his or her financial condition.
Have your client fill out a draft questionnaire and review it for omissions or inconsistencies. Have your client complete a final questionnaire and append the hardship statement and documentation of financial condition to it.
Treat the loss mitigation package as if it were a record for an administrative hearing. Include the borrower’s name, property address, loan number and Social Security Number on every page. Number the pages of the package.
Once you have reviewed each of the seller’s completed packages, send them by facsimile to the loss mitigation department of each of the seller’s mortgagees.
Within one to five days of sending the packages, call the short sale lender to confirm that the packages have been received. Any time you call the seller’s mortgagees, have the homeowner’s loan number, telephone numbers, address and zip code in front of you before you pick up the phone. Be persistent but courteous to a fault. The loss mitigation contacts deal with unrepresented homeowners who are in distress all day, every day. You do not serve your client well by fumbling through a file for basic information or browbeating the loss mitigation contact.
If you take care to call the lender at the same time, once a week, and manage the mortgagee’s expectations, the likelihood of success increases. In terms of
188 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
managing the mortgagee’s expectations, take care not to make representation to the lender that your client might be willing pay closing costs or sign an unsecured promise to repay part of the deficiency. If you make a suggestion to the lender as to a negotiation point that you have not yet discussed with your client, the lender may make it a condition of approval—thus backing your client into a corner. Always ask what the lender wants, then talk to your client about options, and THEN bring your suggestions back to the lender. This recommendation also holds for legal fees and broker’s commissions; suggesting that the brokers or buyer’s attorney may reduce their fees without consulting them is a mistake.
3. Drafting and Negotiating the Purchase and Sale Agreement
Where Purchase and Sale Agreements that are executed in the context of foreclosure or sale of an REO property are usually not subject to negotiation by the buyer, the short sale the seller and buyer have some latitude to negotiate:
• The amount of the deposit at execution of the Purchase and Sale Agreement;
• The allocation of costs associated with closing;
• Mortgage contingency;
• Requirements for extension;
• Requirements for return of deposit;
• Requirements for performance; and
• Condition of the premises.
Both the Offer to Purchase and the Purchase and Sale Agreement must include provisions that inform the parties of the short sale lender’s right to review the transaction even after the Purchase and Sale Agreement is executed.
Short sales are unusual in that even fully executed Purchase and Sale Agreements, are subject to the short sale lender’s approval. Although brokers are typically reluctant to join into Purchase and Sale Agreements, a short sale lender might request them to do so.
It is not uncommon for the short sale mortgagee to respond with a “counteroffer” asking the buyer to increase his or her offer after the final Purchase and Sale Agreement has been received. Needless to say, the fully
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executed Purchase and Sale Agreement is an integrated contract and the Buyer is under no obligation to increase his or her offer. Moreover, if the offer is a reasonable one in that it reflects the value of the real estate in light of market conditions, the prospective buyer’s refusal to accept the lender’s “counteroffer” does not mean that the lender with reject the buyer’s offer.
Once the “counteroffer” is rejected, however, the loss mitigation specialist is likely to ask that the short sale seller to execute an unsecured note for an amount that is the difference between the purchase price and the “counteroffer.” All Massachusetts mortgage loan notes are recourse notes; the seller is not obligated to enter into such an agreement, and the execution of an unsecured note cannot be a condition of a short sale approval.
Buyer’s counsel should also be sensitive to conditions in the market that may affect the buyer’s ability to perform. Loan products and rates change. Investors may change guidelines, pull loan products, or go out of business while the buyer is waiting for the seller’s mortgagee to approve a short sale.
IX. SHORT SALE OUTCOMES: DEFICIENCY, DEBT CANCELLATION, GAIN OR LOSS ON SALE
1. Deficiency
A deficiency occurs when a mortgagee accepts an amount that is less than the outstanding balance due on the mortgage loan. The Lender has the choice of treating the deficiency as an ongoing, unsecured debt or to cancel the debt and consider it a loss. If the lender elects to treat the deficiency as an ongoing, unsecured debt there is no loss the lender.
If the borrower is unable or unwilling to make payment on the deficiency under the promissory note, the lender may file suit in a collection action against the short sale seller to obtain a judgment in the amount of the unpaid balance of the loan. In a foreclosure, the mortgagee who intends to seek a deficiency judgment from the mortgagor must send a notice of intent to do so must be sent by registered or certified mail at least 21 days before the date of the sale. G.L.c.244, §17B. In a short sale, however, it may be sufficient for the lender to state its intention to pursue a deficiency in the short sale approval letter.
2. Debt Cancellation
Because all Massachusetts mortgage loans are recourse loans, residential borrowers are always personally liable for the underlying mortgage loan under the terms of the Note signed at closing. Prior to the January 1, 2007, the Internal Revenue Code treated amount of forgiven mortgage debt as ordinary income that was taxable to the mortgagor. The Mortgage Forgiveness Debt Relief Act of 2007, P.L. 110-142,
190 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
effective January 1, 2007, eliminated taxation as ordinary income any “ indebtedness discharged [on a] qualified principal residence indebtedness which is discharged before January 1, 2010.”
Prior the enactment of the Mortgage Forgiveness Debt Relief Act of 2007, P.L. 110- 142, the amount of the forgiven debt was treated as ordinary income unless:
• the deficiency was discharged in Bankruptcy; • the borrower was insolvent, as defined under the Internal Revenue Code (liabilities exceed assets) at the time of the cancellation of the debt; • the debt was secured by a nonrecourse loan; or • the tax liability from the cancellation of debt on an investment property that could be offset against other business liabilities and expenses.
3. Gain or Loss on Disposition of Property
Just because the short sale seller’s debt is cancelled does not mean that the seller is not liable for payment of any tax on the transaction. The Internal Revenue Code treats any disposition of real estate, be it by sale, short sale, foreclosure, delivery of a Deed in Lieu of Foreclosure, as a voluntary conveyance that gives rise to a taxable event. 12 A rough calculation of gain or loss follows the definitions below:
Selling price is the gross amount that seller receives from sale.
Selling expenses are commissions, fees, legal fees, loan charges.
Amount realized is the net amount, i.e. Selling price less Selling expenses.
Adjusted basis is the amount that the buyer pays to purchase property, including some, but not all, settlement costs.
The calculation is expressed as follows: If amount realized is more than the adjusted basis, the difference is a gain to the seller. By contrast, if the amount realized is less than the adjusted basis, the difference is a loss to the seller. If the real estate disposed of is the debtor’s primary residence, a loss is not deductible, but a gain is taxable.
It is probable that sellers who purchased real estate within the past five years did so with a relatively high adjusted basis such that the amount realized in a short sale
12 Source: IRS Publication 523 (2006)
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may not yield much of a gain. This may not be the case for sellers who have owned the real estate many years.
If you are not well-versed in taxation, urge your client to speak to his tax return preparer as soon as possible to determine whether or not he will be subject to tax on his/her short sale transaction.
X. BANKRUPTCY
In addition to seeking tax counseling, counsel for sellers in default should evaluate whether filing for Bankruptcy relief is appropriate. Bankruptcy was originally intended to provide “the honest but unfortunate debtor . . . a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” Local Loan Co. v. Hunt , 292 U.S. 234, 244 (1934). Bankruptcy releases debtors from personal liability from specific debts and prohibits creditors from taking any action against the debtor to collect those debts. That said, the decision to file for Bankruptcy protection should only be made after consultation with a qualified Bankruptcy attorney.
1. Chapter 7 Liquidation
When an individual may files for Bankruptcy protection under Chapter 7, the debtors’ assets are subjected to the jurisdiction of the Bankruptcy court. The Chapter 7 trustee reduces the debtor’s assets to cash and makes distributions to the debtor’s unsecured creditors to satisfy debts. The distribution of the debtor’s assets are limited by the priority rights of secured creditors to the debtor’s assets and by the debtor's right to retain property that is shielded by statutory exemptions, such as a declaration of Homestead. Chapter 7 Bankruptcy cases are typically no-asset cases where there is little or no nonexempt property, and the Massachusetts homestead declaration shields up to $500,000.00 of the equity value of the debtor’s principal residence. G.L.c. 188, §§1, 1A. As a result, liquidation of assets is not usual, and the debtor receives a discharge from personal liability for certain debts within a few months after filing the Bankruptcy petition.
Chapter 13 Adjustment of Debts of an Individual with Regular Income
Because the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA) requires the application of a means test to determine whether the individual debtor qualifies for relief under Chapter 7. A debtor may instead be obliged to file a Chapter 13 petition, which is designed for an individual debtor who has a regular source of income.
Chapter 13 enables the debtor to keep a valuable asset, such as a house, and allows the debtor to propose a plan to repay creditors over a specified time period, which is typically three to five years. At the inception of a Chapter 13 case, the court holds a confirmation hearing to review and the Debtor’s proposed repayment plan. If the
192 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts) plan is approved, the Debtor must make payments to creditors through the trustee. The benefit of such a filing is that creditors may not pursue lawsuits, garnishments, and other debt recovery actions against the Debtor while the plan is in effect. Once the debtor completes the payments set forth under his repayment plan, the court issues a discharge from liability for personal debts.
A. Bankruptcy in the Context of Foreclosure
The effect of Bankruptcy is that it wipes out any personal liability for deficiency under the mortgage note. However, the Bankruptcy does not necessarily relieve the debtor from tax liability resulting from a gain incurred by the disposition of real estate.
With regard to the timing of Bankruptcy filing, a pre-foreclosure Bankruptcy triggers an Automatic Stay of Foreclosure. Because a mortgagee must obtain a judgment of Relief from Automatic Stay from the Bankruptcy Court to proceed with a foreclosure, some debtors choose to file a pre-foreclosure Bankruptcy to delay relocation. By contrast, other debtors may wait to file for Bankruptcy protection until after the foreclosure is completed in order to hasten the process.
B. Bankruptcy in the Context of Short Sale
If a debtor files for Bankruptcy protection prior to a short sale, the disposition of the real estate that is not abandoned will require the Bankruptcy Trustee’s approval. In general, the Trustee’s approval will not be withheld if there is no equity to be had for other creditors. In addition, the Trustee will probably not avoid mortgage payments, condominium fee payments and the like as preference payments.
C. Pending Bankruptcy Legislation
There are several bills pending that would amend BAPCA, which I list in the chronological order of their filing below:
The Emergency Home Ownership and Mortgage Equity Protection Act of 2007 introduced by Representative Brad Miller, D.-N.C., on September 20, 2007, as H.R. 3609, limits the exemption that prevents bankruptcy courts from modifying a mortgage on a debtor's principal residence and eliminates the credit counseling requirement when foreclosure has been initiated. On Oct. 4, H.R. 3609 was referred to the full House Committee on the Judiciary. 13 Latest Major
13 1-2 Mealey's Mortgage Lending 21 (2007) Volume 1, Issue #2 (November 2007)
193 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
Action: 12/12/2007 House committee/subcommittee actions. Status: Ordered to be Reported (Amended) by the Yeas and Nays: 17 - 15.
The Helping Families Save Their Homes in Bankruptcy Act of 2007 , was filed on October 3, 2007, by Senator Richard Durbin, D-Ill., as S. 2136. The bill would eliminate the prohibition on modification of a mortgage on a debtor's principal residence and would permit the bankruptcy court to modify or “cram down” a mortgage on a debtor's principal residence by determining the repayment period and interest rate. Latest Major Action: 12/5/2007 Senate committee/subcommittee actions. Status: Committee on the Judiciary. Hearings held.
The Home Owners' Mortgage and Equity Savings Act or HOMES Act also introduced on October 3, 2007 by Senator Arlen Specter, R-Pa., as S. 2133, would amend Section 1322(b)(2) of the U.S. Bankruptcy Code so that a bankruptcy court could reduce the principal amount of a loan secured by a debtor's principal residence if an income test is met. Senate Bill 2133 would also permit the court to waive prepayment penalties and prohibit adjustments to the interest rate of adjustable-rate mortgages. However, S. 2133 is would only allow the reduction of principal if the lender and the homeowner agree. Latest Major Action: 10/3/2007 Referred to Senate committee. Status: Read twice and referred to the Committee on the Judiciary.
The HOMES Act , introduced on October 9, 2007 by Representative Steve Chabot, R-Ohio, as H.R. 3778 is substantially the same as S. 2133 above. Latest Major Action: 11/2/2007 Referred to House subcommittee. Status: Referred to the Subcommittee on Commercial and Administrative Law.
Foreclosure Prevention Act of 2008 , submitted as S. 2636 on February 13, 2008, is Senate Majority Leader Harry Reid’s, D-Nev., bill which incorporated provisions of Senator Richard Durbin’s S. 2136, , into a broader piece of legislation. The bill includes $200 million dollars for pre-foreclosure counseling and authorization for state housing finance authorities to issue $10 billion in additional mortgage revenue bonds to refinance subprime loans and provide mortgages for first-time home buyers. Latest Major Action: 2/14/2008 Read the second time. Placed on Senate Legislative Calendar under General Orders. Calendar No. 577.
For current status on these bills, see http://thomas.loc.gov/ .
194 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
MODEL FEE AGREEMENT LETTER
Date Mr. /Ms. Seller Client 123 Main Street Municipality, MA 00000
Re: Preparation of Purchase and Sale Agreement and Deed for Short Sale 123 Main Street, Yourtown, MA 00000
Dear Mr./Ms. Client:
Thank you for your request to have me assist you with the “short sale” of your 123 Main Street, Municipality, MA 00000 (the “Property”). I will do all I can to help you obtain approval of the short sale of your Property from both lenders, but I cannot guarantee that your mortgagee(s), will approve your request.
This letter describes the terms under which you and I have agreed that I will provide legal services to you. This letter also serves to summarize what service I have been able to complete on your behalf as of today.
Cost of Legal Services and Time of Payment of Fee :
I have agreed to represent you for [a flat fee of ______/for a fee of ______hour.] I [will/will not] bill you for administrative tasks, travel, postage, copying done in the ordinary course of corresponding with you, or for maintaining your file.
I will, however, bill you for services provided to you as they are rendered, and I will furnish you with a statement of charges to you on the 15 th of each month. My service to you will terminate upon the closing of your short sale, subject to the conditions in this letter.
You have the right to question my fees within a reasonable time once you receive my invoice. If you have a question concerning my fee, I will make every effort to resolve any questions that you may have promptly. In accordance with 940 CMR 25.00 et. seq. and the Massachusetts Rules of Professional Conduct, specifically Rules 1.5 and 1.16, I will not ask you for an advance fee or legal retainer in this matter. An advance fee is any money or consideration paid in advance of actually receiving services.
Summary of Service :
I will: prepare loss mitigation packages for your first mortgage holders, and submit them to your lenders for their approval;
195 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
prepare a Purchase and Sale Agreement and Deed for your review, making additions or corrections to them, and making sure that the Purchase and Sale Agreement and Deed are properly executed by you;
communicate by telephone and in writing with the real estate brokers in this transaction; negotiate with your mortgage holders; and communicate with the buyer’s counsel and the settlement agent who represents the buyer’s purchase money lender;
assist you at closing;
refer you to Bankruptcy counsel to discuss whether filing a petition for Bankruptcy relief is appropriate for you.
Costs Associated with Your Short Sale Transaction:
Your mortgage holders may agree to accept a payment from you that is less than the total amount due under the Notes that you signed when you purchased the Property, but I cannot guarantee such a result. You must also understand that even if each of your lenders should agree to a short sale of your Property, there may be costs associated with the closing that you must pay in order to deliver the Property to the buyer free of liens. Generally, the seller of real estate is required to pay:
Condominium Fees : Prior to closing, you must pay the condominium fees through the date of closing. You may be required to pay the condominium fees at least five days before the closing so that the Buyer’s attorney can obtain a certificate to show that no condominium fees are owed on the Unit.
Real Estate Taxes : Prior to or at closing, you must pay past due and current real estate taxes that were not covered by your tax escrow account.
Utilities : Prior to or at closing, you must pay all water/sewer, electric, gas, telephone, trash, cable fees through the date of closing. You may be required to bring statements to the closing showing that these bills have been paid.
Recording fees : The cost of obtaining and recording such instruments as may be necessary to clear record title, such as Mortgage Discharges, are the Seller’s responsibility. These costs are paid out of the proceeds of the sale, and will be shown on the HUD-1 Settlement Statement that you will execute at closing.
196 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
Deed excise stamp : The cost of the Deed excise stamp is the Seller’s responsibility. This cost is paid out of the proceeds of the sale, and will be shown on the HUD-1 Settlement Statement that you will execute at closing.
Brokers’ commission : The real estate brokers’ commission, which must be disclosed to the short sale lender and should be shown in the listing agreement for the Property, is paid out of the proceeds of the sale and will be shown on the HUD-1 Settlement Statement that you will execute at closing.
Please be aware that while it may be possible to negotiate that the buyer pay some or all of these charges on your behalf, I cannot guarantee such a result.
You may also be required to pay :
Taxes : Internal Revenue Service treats any disposition of real estate, be it by sale, short sale, foreclosure, delivery of a Deed in Lieu of Foreclosure, as a voluntary conveyance that gives rise to a taxable event. I strongly advise you to speak to your tax return preparer as soon as possible to determine whether you will incur a gain or loss on the sale of your real estate and whether you will incur tax liability on this transaction.
Deficiency : Each lender who accepts a short sale may reserve the right to collect the difference between the amount that you owe and the amount that you paid, which is called a “deficiency.” I will request that the lenders include a written statement that they will not attempt to collect a deficiency from you, but I cannot guarantee such a result.
My Commitment to You :
I am committed to providing you with excellent legal representation. I will consult you if it appears that the novelty or difficulty of any matter or the circumstances of your short sale closing require further discussion about my ability to represent you. Just as you value my time and effort on your behalf, I will take care to consult you before I proceed on any matter. Please bear in mind that my ability to represent you depends upon your responsiveness to my communication with you.
Communication with You/Continuation of Services:
If we are unable to reach agreement or to communicate with one another, or if you indicate that you wish to discontinue my services prior to your closing, I reserve the right to withdraw as your counsel, to discontinue services to you, and to receive payment for services rendered to you in accordance with this fee agreement Letter. If you have any questions at all, please do not hesitate to call me.
197 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
Sincerely,
______Attorney
The undersigned hereby acknowledges receipt of a copy of this fee agreement letter from ______dated ______, understands and agrees with its terms and acknowledges that no payment has been requested by ______, or tendered to him/her, for undertaking the above-described matters.
______Client
198 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
MODEL DISCLOSURE REGARDING THIRD-PARTY NEGOTIATION OF SHORT SALE AND PROHIBITED PRACTICES UNDER 940 CMR 25.00
I ______, Esq. am an attorney licensed to practice in the Commonwealth of Massachusetts, with an office address of ______.
I am the Settlement Agent representing the purchase money lender, ______, in the sale of the property located at ______by ______to______under the Purchase and Sale Agreement dated ______.
I have informed you, the Seller, orally and in writing that you may consult with an attorney of your choice to represent you in this transaction.
All fees related to this transaction are shown on the HUD-1 Settlement executed at closing, all parties to this transaction are disclosed on the HUD-1 Settlement Statement for this transaction, and no separate or alternate HUD-1 Settlement Statement has been executed in connection with this transaction.
I have provided you with a copy of 940 CMR 25.00 regarding prohibited “foreclosure rescue practices” printed here:
25.01: Definitions “Foreclosure Rescue Transaction ” shall mean a transaction (a) by which residential property is conveyed where the person conveying the property (hereafter “homeowner”) maintains a legal or equitable interest in the property conveyed, including, without limitation, a lease interest, an option to acquire the property, or other interest in the property conveyed; and (b) that is designed or intended by the parties to avoid or delay actual or anticipated foreclosure proceedings against a homeowner’s residential property. “Foreclosure-Related Services ” shall mean any goods or services related to, or promising assistance in connection with: (a) avoiding or delaying actual or anticipated foreclosure proceedings concerning residential property; or (b) curing or otherwise addressing a default or failure to timely pay, with respect to a residential mortgage loan obligation. Foreclosure-Related Services shall include the offer, arrangement or placement of a residential mortgage loan, or other loan, when those goods or services are advertised, offered or promoted in the context described in (a) and/or (b) immediately above.
25.02 Prohibition on Foreclosure Rescue Transactions and Advance Fees for Foreclosure- Related Services (a) It is an unfair or deceptive act in violation of M.G.L. c. 93A, § 2(a) to, for compensation or gain or for potential or contingent compensation or gain, whether at the time of the transaction or in the future, engage in, arrange, offer, promote, promise,
199 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts) solicit participation in, or carry out a Foreclosure Rescue Transaction in the Commonwealth or concerning residential property in the Commonwealth. Nothing in this subparagraph (a) shall be interpreted to prohibit Foreclosure Rescue Transactions that are not carried out for compensation or gain or for potential or contingent compensation or gain, including, by way of example, such transactions engaged in between or among family members or arranged by a non-profit community or non- profit housing organization.
(b) It is an unfair or deceptive act in violation of M.G.L. c. 93A, § 2(a) to solicit, arrange, or accept an advance fee in connection with offering, arranging or providing Foreclosure-Related Services; provided, however, that this subsection shall not prohibit a licensed attorney from soliciting, arranging or accepting an advance fee or retainer for legal services in connection with (i) the preparation and filing of a bankruptcy petition, or (ii) court proceedings, to avoid a foreclosure. Provided further, however, that a licensed attorney accepting an advance fee or legal retainer must comply with all applicable laws and regulations pertaining to such fees, including the Massachusetts Rules of Professional Conduct, specifically Rules 1.5 and 1.16. For purposes of this section, an advance fee is any money or consideration paid in advance of actually receiving services. If the Foreclosure-Related Services at issue concern the offer, arrangement or placement of a residential mortgage loan by a licensed mortgage broker or licensed mortgage lender, then this section (b) shall not prohibit the solicitation, payment or acceptance of a loan application fee provided that the fee conforms with all applicable laws and regulations, including any rules or regulations of the Commissioner of Banks.
25.03 Marketing of Foreclosure-Related Services It is an unfair or deceptive act in violation of M.G.L. c. 93A, § 2(a): (a) to advertise, offer or promote the availability of Foreclosure Rescue Transactions or services related to Foreclosure Rescue Transactions; (b) to advertise, offer or promote Foreclosure-Related Services if the person so promoting intends to provide Foreclosure-Related Services by offering, engaging in, arranging, promoting, promising, or soliciting participation in, a Foreclosure Rescue Transaction; (c) to advertise, offer or promote Foreclosure-Related Services without disclosing, clearly and conspicuously, (i) the precise goods and/or services offered and to be provided by the promoter of Foreclosure-Related Services, and (ii) a precise description of how the promoter will assist persons in avoiding or delaying foreclosure or curing or otherwise addressing a default or failure to timely pay a residential mortgage loan obligation.
200 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
(d) for a licensed mortgage broker or licensed mortgage lender to advertise, offer or promote Foreclosure-Related Services, where the goods or services promoted concern the offer, arrangement or placement of a residential mortgage loan ( i.e. , replacement financing), without complying with all laws and regulations that apply to the marketing of mortgage loans, including, without limitation, the regulations of the Commissioner of Banks ( 209 CMR 32.00 et seq .) and the Office of the Attorney General ( 940 CMR 8.00 et seq .).
______Attorney/Settlement Agent
I, the undersigned Seller, hereby acknowledge that I have received, read, and understand the above DISCLOSURE REGARDING THIRD-PARTY NEGOTIATION OF SHORT SALE AND PROHIBITED PRACTICES UNDER 940 CMR 25.00 given to me by Attorney/Settlement Agent.
Date: ______Client
201 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
MODEL AUTHORIZATION TO COMMUNICATE WITH LENDER ON BEHALF OF SELLER IN DEFAULT
Date By facsimile only First Bank 1010 Default Way San Diego, CA 00000-0000 Attn.: Loss Mitigation Department/Default Risk Management
By facsimile only Second Bank 1010 Recourse Lane Dallas, TX 00000-0000 Attn.: Loss Mitigation Department/Default Risk Management
Re: Mr. /Ms. Seller Client, 123 Main Street, Yourtown, MA 00000-0000 First Bank Loan No.: Second Bank Loan No.: SSN:
Dear Sir or Madam,
This letter follows my telephone conversation with you regarding the negotiation of the “short sale” of the property that I own at 123 Main Street, Yourtown, MA 00000.
I am the signatory on the note that is secured by the Mortgage dated ____ and recorded ______. I have received an offer to purchase my property from ______in the amount of $______, contingent upon written approval by ______as the first mortgage holder and by ______as the second mortgage holder.
By this letter, I authorize you to communicate with my attorney, who is ______, Esq. by telephone, facsimile, e-mail, and in writing so that I may complete this sale no later than ______. His/her contact information is as follows:
Ms. Counsel, Esq., 123 Her Office Location, Yourtown, MA 00000 Telephone: Facsimile: e-mail address:
If you have questions regarding this letter, please contact me at the telephone numbers below:
Home:______Cell:______
Sincerely,
______Mr./Ms. Client
202 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
MODEL SELLER’s RIDER TO PURCHASE AND SALE AGREEMENT
BUYER understands and agrees that the sale of the Premises is the subject of a “short sale” meaning that the SELLER has made a request to his first mortgagee, ______, and to his second mortgagee, ______, to accept loan payoff amounts for each loan that is less than the amount due under the terms of each lender’s Note.
BUYER further understands and agrees that SELLER’s performance under this Purchase and Sale Agreement is conditioned upon:
1) first mortgage’s approval of the BUYER’s offer in the amount of $______;
2) second mortgagee’s approval of the BUYER’s offer in the amount of $______;
3) that the amount of proceeds due SELLER or the amount of cash due from SELLER shown on Line 603 of a final HUD Settlement Statement at closing shall not exceed zero and 00/100 dollars ($0.00), meaning that SELLER shall neither take proceeds from the sale of the Premises nor be required to bring funds to closing to consummate the sale of the Premises to the BUYER; and
4) SELLER shall not under any circumstances be obligated to pay real estate taxes, condominium fees, utilities or other expenses related to the maintenance of the premises prior to closing.
BUYER understands and agrees that SELLER may extend performance under this Purchase and Sale Agreement until approval of the “short sale” is obtained from each lender.
BUYER understands and agrees that SELLER may continue to accept so-called “back up” offers until SELLER receives written confirmation of BUYER’s unconditional purchase money mortgage loan approval.
BUYER understands and agrees that if SELLER is informed that one or both of his mortgagees do not approve a “short sale” of the Premises, this Purchase and Sale Agreement shall be null and void, SELLER shall not be obligated to perform, and BUYER’s deposit shall be promptly returned to him in full.
BUYER understands and agrees that s/he shall diligently comply with lender’s requests for information needed to approve his or her purchase money mortgage loan application, and in the event that s/he is unable to obtain a mortgage loan commitment by the date set forth in Paragraph 26, or the
203 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts) extension of such date as mutually agreed by the BUYER and SELLER, BUYER shall not be entitled to the return of his deposit unless s/he provides SELLER with lender’s letter stating that: 1) BUYER complied with all of lender’s requests for information; 2) that the mortgage loan application was declined; 3) that the lender declined the BUYER’s applications for conditions beyond BUYER’s reasonable control; and 4) the conditions that BUYER was unable to meet. BUYER understands and agrees that his/her failure to respond timely to lender, refusal to provide information to lender, or failure to pursue a commitment for a purchase money mortgage loan shall not entitle him/her to the return of his or her deposit.
204 Appendix 8.3 Managing Residential Short Sales (Nuts and Bolts)
MODEL BUYERS’s RIDER TO PURCHASE AND SALE AGREEMENT REGARDING EXTENSION OF CLOSING
BUYER understands and agrees that SELLER may extend performance under this Purchase and Sale Agreement until written approval of the “short sale” contemplated under this Agreement is obtained from each lender.
In the event that BUYER’s rate lock should expire such that the BUYER’s rate of interest is increased by more than .25% or in the event that BUYER’s lender shall require a down payment for the purchase of the Premises greater than 5% of the Purchase Price accepted by the SELLER’s first and second mortgage holders, then, provided BUYER shall provide SELLER with a copy of the lenders letter setting forth said changes within 24 hours of having received communication of said change(s), this Purchase and Sale Agreement shall be null and void, BUYER shall not be obligated to perform, and BUYER’s deposit shall be promptly returned to him in full.
205 Appendix 8.4 REO Donation Programs
8.4 REO Donation Programs
206 Appendix 9: Survey of Task Force Participants
Appendix 9: SURVEY OF TASK FORCE PARTICIPANTS
9.1 Survey Results -Foreclosed Properties Task Force Questions 1. Please choose the category(ies) that best describe you : 2. Did you ever use the Task Force's Project Center website? 3. How often did you use Project Center? 4. Did you find it easy to use and find documents? 5. Did you find Project Center useful? 6. Do you think that the overall structure of the Task Force (performance driven goals, design...test...redesign methods, and use of test communities) is a useful model for dealing with future issues? 7. Was the focus of the Task Force clear? 8. Did you feel that the Task Force communicated effectively with its members? 9. Did the focus on using test communities to shape the work of the Task Force result in better recommendations? 10. Did the Task Force produce outcomes that will be useful? 11. Which outcome(s) will be the most useful for your work? 12. Were there areas that you wish the Task Force had focused more attention on? 13. Did you participate on a subcommittee? 14. Which one(s)? 15. Did you find the subcommittees useful to your own work on foreclosures? 16. Please give us any other comments that were not addressed in the questions above .
Number of Responses: 31
207 Appendix 9: Survey of Task Force Participants
Responses 1. Please choose the category(ies) that best describe you:
Non-profit agency 11 35.48% Municipal employee 5 16.13% Lender 6 19.35% Attorney 1 3.23% Tenant advocate 1 3.23% State or quasi-state agency 7 22.58% Consultant 2 6.45% Other 1 3.23% # of people who answered question 31
2. Did you ever use the Task Force's Project Center website?
Yes 23 74.19% No (if No, skip to Question 6) 8 25.81% Total 31 100.00
3. How often did you use Project Center?
Very often 0 0.00% Occasionally 10 43.48% Not very often 13 56.52% Total 23 74.19
208 Appendix 9: Survey of Task Force Participants
4. Did you find it easy to use and find documents
Yes, very easy 6 26.09% Somewhat easy 7 30.43% No, I had a hard time using the site 10 43.48% Total 23 74.19
5. Did you find Project Center useful?
Yes 18 81.82% No 4 18.18% Total 22 70.97
6. Do you think that the overall structure of the Task Force (performance driven goals, design... test... redesign methods, and use of test communities) is a useful model for dealing with future issues?
Yes 28 93.33% No 2 6.67% Total 30 96.77
209 Appendix 9: Survey of Task Force Participants
7. Was the focus of the Task Force clear?
Yes 27 90.00% No 3 10.00% Total 30 96.77
8. Did you feel that the Task Force communicated effectively with its members
Yes 27 90.00% No 3 10.00% Total 30 96.77
9. Did the focus on using test communities to shape the work of the Task Force result in better recommendations?
Yes 21 84.00% No 4 16.00% Total 25 80.65
210 Appendix 9: Survey of Task Force Participants
10. Did the Task Force produce outcomes that will be useful?
Yes 24 96.00% No 1 4.00% Total 25 80.65
11. Which outcome(s) will be the most useful for your work?
Acquisition loan pool 17 58.62% Foreclosed properties database with Warren Group data 16 55.17% Online information clearinghouse on foreclosures 9 31.03% Redevelopment and rehab models 15 51.72% Code and receivership approaches 10 34.48% Matching homebuyers and sellers 4 13.79% Property management costs 5 17.24% Other outcomes 2 6.90% # of people who answered question 29
211 Appendix 9: Survey of Task Force Participants
12. Were there areas that you wish the Task Force had focused more attention on? Individual Responses 7 22.58%
1. legislation, press 2. I thought the time commitment was burdensome, but that may say more about my workload then the Task Force. 3. The preservation of existing tenancies and working with lenders to prevent them from evicting tenants from foreclosed properties. 4. GRANT funding / subsidy 5. Political Action 6. Could have been a little less non-profit/cdc driven and more focused on broad based housing market solutions to the issue of foreclosure. 7. did not have time to participate 8. acquisition strategies and finding decision makers quickly after foreclosure notices and process had begun
13. Did you participate on a subcommittee?
Yes 12 40.00% No 18 60.00% Total 30 96.77
14. Which one(s)?
Funding subcommittee 1 8.33% Acquisition subcommittee 9 75.00% Exit Strategies subcommittee 1 8.33% Holding subcommittee 3 25.00% Matching homebuyers subcommittee 0 0.00% # of people who answered question 12
212 Appendix 9: Survey of Task Force Participants
15. Did you find the subcommittees useful to your own work on foreclosures?
Yes 16 84.21% No 3 15.79% Total 19 61.29
16. Please give us any other comments that were not addressed in the questions above. Individual Responses 8 25.81%
1. I think the results are still to come... 2. overall great job, process moved with appropriate speed - lets hope the organizations in the community can now start moving on these issues and start acquiring properties and putting them back in productive use 3. I'm not sure that it could have been done any better, but it is somewhat disappointing that we didn't make more progress. It is a complicated issue without clear resolution and I'm thankful that MHP and CHAPA took it on. 4. I am sorry but I could not navigate the website. I could not obtain the goals or mission from the website. 5. I think the Task Force struggled with communication (it is not a yes/no question.) There was fairly good transparency on one level but the decisions would get made or appear to be made by a much smaller set of people. Sometimes I was part of that smaller group and sometimes not, but I think for people less involved than me it often felt a bit odd and confusing. Also, while we kept saying that everything would be driven by the needs of local groups, at times it has not felt like the most important decisions (structure of loan fund, allocation of Living City grant funds) are made somewhat independent of the local groups. And the most important issue coming up is the allocation of the federal money and it is not clear whether the Task Force will have much role in that at all - especially if we disband. I am not sure how much value was provided by some of the research products by the holding committee and exit committee. Are practitioners using them? The final comment is I wonder if there were/are some opportunity for shared capacity among the local groups - one person who is expert at negotiating with these large lenders and cultivates the relationships and systems for several local groups rather than each local group learning the ropes with each major company. 6. Very helpful forum for sharing and learning how to deal with an overwhelmingly difficult issue. 7. Would be more effective if State funders were more engaged at middle management level. Could have had more participation from municipal leaders/funders. 8. we will primarily be focused on implementing new HUD foreclosure acquisition/rehab funding program
213