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HomeMy WebLinkAbout08-03-2007 Commission adopts contracts for $1 home effort soa Ta,& � d W PEACE a 1565 Office of the Mayor NEWS RELEASE August 3, 2007 3 p.m. Commission adopts contracts for $1 home effort Contact: Mikki Dobski, Director of Communications&Special Projects, 235-5855 or 876-1564 or Jeff Gibney,Interim Director of Community and Economic Development, 235-9371 Raffles among credit-qualified prospective homebuyers for Mayor Stephen J. Luecke's $1 home initiative could begin as early as October, after the Redevelopment Commission today authorized contracts with three nonprofits selected to administer the program. Contracts between the Redevelopment Commission and Near Northwest Neighborhood Ind., Northeast Neighborhood Revitalization Organization and South Bend Heritage Foundation authorize each nonprofit community development corporation to act as the city's purchasing agent for the $1 home initiative. The contract for each entity begins Aug. 1. It includes a 12.5 percent administrative fee and resources for the acquisition and sale of up to five homes each. Average acquisition costs will range from $25,000 to $35,000, and the nonprofits' maximum purchase price for any single property is not to exceed $45,000. Each nonprofit will have $166,000 available for the project in its area. While the contracts were being drawn up, the nonprofits already have identified most of the 15 total properties they intend to purchase, according to Jeff Gibney, interim director of community and economic development. He expects the nonprofits to start purchases in August and publicize this year's $1 home properties in September. During that time, the nonprofits will also work with interested $1 homebuyers to help them prepare to be credit-qualified for a raffle that will take place for each property as early as October to select the eventual $1 home buyer. "Prospective homeowners will be drawn to these $1 homes because of the city's heritage and the quality of life afforded by the front-porch neighborhoods in which they are located," Luecke said. "They will indeed be diamonds in the rough, waiting for an inspired and committed homeowner to make them shine." -more- 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- Luecke and city officials gathered May 29 to introduce a three-year, $6.825 million strategy to reduce South Bend's vacant houses by more than one-fifth, with most of the focus aimed at reducing abandoned houses by 72 percent. The comprehensive strategy includes the demolition of 400 derelict houses and the revitalization of 45 distinctive properties in targeted neighborhoods. The effort grew out of City Plan, the city's 20-year comprehensive plan based on resident input, and is one of five directives Luecke issued to staff in his 2007 State of the City address. Vacant and abandoned housing is a nationwide problem with such properties accounting for about 15 percent of the area of the typical large city, more than 12,000 acres on average, according the Brookings Institution. South Bend has 621 houses that are both vacant and abandoned, according to a May 2006 survey by the city's Department of Code Enforcement. They represent 28 percent of all vacant houses throughout the city. The city distinguishes between vacant properties —which have no code enforcement violations and up-to-date taxes—and abandoned properties. Vacant properties that don't have activity for three months are considered abandoned. This strategy's plan to end the abandonment of 445 houses would represent a reduction of 72 percent of the city's 621 abandoned houses. Of the overall figure of 2,183 vacant homes, it represents a reduction of 20.4 percent. - 30 -