08-03-2007 Commission adopts contracts for $1 home effort

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Buyers of the $1 homes will be required to invest sufficient resources to bring the properties in full compliance with current code requirements. While previous experiences by these nonprofits have demonstrated that it may take as much as $75,000 to do so, Gibney said the amount will vary with each home and will be specified in the purchase agreement. He anticipated that rehabilitation costs will range between $45,000 and $75,000, depending on the anticipated market value of the home. As the purchasing agent for the city and the Redevelopment Commission, each nonprofit will: • Get two appraisals on the property, clear all liens and conduct a site survey. • Represent the Redevelopment Commission at closing. • Complete rehabilitation specifications, including a total renovation to code standards, as well as materials and labor estimates for each property. • Consider whether to prepare the home for marketing its sale by cleaning out or securing each property. • Insure the property during the holding period. • Compile a list of prospective purchases based on a satisfactory credit-capacity profile. (Although there are no income restrictions, $1 home purchases may not have a record of existing code violations. If a purchaser is later discovered to have existing violations, the sale is subject to forfeiture.) • Select the eventual $1 home purchaser through a random drawing from a list of all credit-qualified buyers interested in each specific property. • Assist the purchaser in securing a construction loan that will convert to a permanent mortgage. • Conduct inspections for draws from the construction loan and for occupancy permits at final inspection. The contract stipulates that all improvements must be complete within one year of closing on the $1 home sale. • Secure a second lien on each home in the amount of the original acquisition price for five years. The lien's balance will decrease 20 percent annually as long as the purchaser is the resident occupant. (Individual homebuyers are required to reside in the home for five years, while developers would have to complete all rehabilitation work before sale, and a five-year occupancy requirement would apply to the subsequent buyer.) In addition, purchasers through sale will agree to bring the property up to code specification, and secure the construction loan and a first mortgage. If purchasers fail to meet these requirements, they will forfeit the property. The nonprofit agent then would complete the rehabilitation and sell the property to another owner-occupant. The contracts are funded by South Bend's 2007 county option income tax revenue. The $1 home initiative is the centerpiece of a three-year strategy to reduce abandoned houses in South Bend by 72 percent. This public-private effort is expected to attract all income levels of homebuyers to targeted city neighborhoods, initially concentrated in the service areas of the nonprofits administering the program. Over three years, the city would make available 45 homes to nonprofit community development corporations. The city has budgeted $500,000 each in 2007, 2008 and 2009 to acquire 45 abandoned or vacant houses for the $1 home initiative. -more-