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Home My WebLink About01-Community Development CIC OF SAN BERNARDOO - REQUC..)T FOR COUNCIL AC"JON From: Kenneth J. Henderson, Director Subject: HOUSING WORKSHOP Dept: Community Development Date: September 24, 1987 Synopsis of Previous Council action: In May, 1986, the Mayor and Common Council approved a Comprehensive Housing Policy. In March, 1987, the Mayor and common Council commissioned housung market study by Empire Economics, Inc. In August, 1987, the Mayor and Common Council set a date and time certain for housing workshop. Recommended motion: That the Mayor and Common Council conduct a housing workshop including, but not limited to, discussion of the Housing Market Study, the Acquisition/Rehabiliation/Resale component of the 1nfill Housing Program and housing strategies for the City of san Bernardino. ~Y{ V. ~\I Contact person: Ken Henderson/Maurice Oliva Phone: 5065 Supporting data attached: Staff Report Ward: 1-7 FUNDING REQUIREMENTS: Amount: N/A Source: (ACCT. NO.) N/A (ACCl. DESCRIPTION) N/A Finance: Council Notes: 75.0262 Agenda Item No, ~ I, cO OF SAN BERNARDC::JO - REQUO FOR COUNCIL AC'~N STAFF REPORT As a result of previous actions taken by the Mayor and Common Council starting in December, 1985, today the Mayor and Common Council will discuss the assumptions, methodology, findings, conclusions and recommendations relating to the housing market study conducted by Empire Economics, Inc. Also to be discussed are current housing programs administered by the Community Development Department and the acquisition/rehabilitation/resale component of the City Infill Housing Program. As noted in previous staff reports to the Mayor and Common Council, the building moratorium affecting the City as it relates to residential construction and the General Plan Revision process currently underway provides the City a unique opportunity to address housing needs, planning and development for years in the future. It is hoped this opportunity is seized for the benefit of all citizens of the community. I recommend adoption of the form motion. Kenneth J. Hen erson Director of Community D velopment KJH/lab 0507 9/24/87 75-0264 , \..." 1""..... l . .- :) \ .j PROPOSED CONCEPT PAPER CITY OF SAN BERNARDINO ACQUISITION/REHABILITATION PROGRAM FOR HUD-ACQUIRED PROPERTIES September 28, 1987 Backaround The problem of abandoned and boarded-up homes in San Bernardino has been an issue for the City for number of years. In the recent past, the incidence of boarded-up homes has been increasing. A number of homes seem to be in a cyclical pattern: abandonment, vandalism, board-up, rehabilitation, short-term occupancy and abandonment which begins the cycle anew. Abandoned properties are of three (3) types: HUD repossessions, VA repossessions, and foreclosures on uninsured properties by private financial institutions. Rough unconfirmed estimates are that there are currently approximately one-hundred (100) HUD repossessions, fifty (50) VA repossessions and another one-hundred (100) or more uninsured foreclosures, suggesting that there are at least two- hundred fifty (250) vacant homes in the City of San Bernardino with the majority located on the west side. The preponderance of such homes is a blighting influence on the affected neighborhoods, providing havens for drug traffic and inhibiting private reinvestment in these areas. Whv pronerties Are Abandoned There are a number of factors which, alone or in combination, contri- bute to this problem: A. Hiah Vacancv Rate -- The vacancy rate on the west side of the City is high, resulting in a buyer's market for rental housing which tends to keep rents low, thereby depressing property values and discouraging good maintenance and reinvestment in existing properties. B. Low percentaae of Homeownershin -- Many occupants of homes on the west side are renters who do not have a vested interest in the properties in which they live. When properties are not main- tained, either by the occupant or by the owner, renters will leave the property to find a better place to live. C. Poor Securitv and Hiah Vandalism Rates -- Properties which are vacant are targets for vandalism since there is not sufficient police protection in the area. D. Attractiveness of the Other Areas -- Rents for apartments or homes are not significantly higher in other areas of the city, so many families with upward financial mobility who rent their homes will move as soon as their financial situation permits. ~posed Concept Paper Acquisition/Rehabiliation Page :-2- /""' '- proqram .:) -) Compounding the problem is the presence of unscrupulous developers, some of whom have found a way to make money at the expense of the Federal government. Such developers bid on HUD and VA-owned properties, acquire these properties for low prices, perform very minimum amounts of rehabilitation, secure an inflated appraisal and apply for an FHA loan which will not only cover their initial investment but provide for a healthy profit. They will then "deed over" these properties to unqualified low income families for little or no money. When these families cannot make the mortgage payments on the FHA-insured loan, the property goes into foreclosure and the cycle of abandonment repeats. Another common scenario also occurs when a low or moderate income family is successful in purchasing an abandoned property from HUD. Most of these sales are "as is", meaning that properties are not rehabilitated prior to sale. Upon taking title, the City's inspection reveals a number of code violations and the owners are given a certain time period to complete rehabilitation or the occupancy permit will be revoked. When these families come to the Community Development Department for assistance with rehabilitation, the appraisal reveals little or no equity in the property and, there- fore, no security on which to approve the applicant for a the rehabilitation loan. In these cases, some families have been forced to "walk away" from their homes, also contributing to the cycle of abandonment. The City Community Development Department staff approached the U.S. Department of Housing and Urban Development (HUD) with respect to the possibility of implementing an urban homesteading proqram in the City of San Bernardino whereby boarded-up homes would be sold for one dollar ($1.00) to qualified first-time homebuyers. These buyers would promise to rehabilitate the properties with rehabilitation assistance from the City. Subsequently, permanent financing would be arranged which would pay back the rehabilitation loan. The U.S. Department of Housing and Urban Development was not interested in such a program since the "recovery rate" (meaning rate of reimbursement to HUD's insurance fund for the outstanding mortgage balance) is quite high in California and properties are selling at or above appraised value as determined by the HUD Area Management Broker. What is clearly needed is an innovative program which would result in boarded-up homes being rehabilitated and sold to new, qualified homebuyers who would live in and maintain the properties and thereby break the abandonment cycle. ~posed Concept paper Acquisition/Rehabilitation Page -3- C Program o ~ Proaram ConceDt A program concept for an acquisition/rehabilitation program for HUD- acquired properties is outlined below. If successful, this program could be expanded (with some modifications) to include VA and private foreclosures. The program would work as follows: Step 1: The City would pre-qualify a pool of potential low and moderate income first-time homeowners. These would be families searching for a way to own their own home and looking to the City for assistance. step 2: Concurrently, the City would establish standards with HUD for identifying HUD-acquired homes located in target areas designated for the program. Initially, these would be abandoned and boarded-up homes which are scattered through- out certain areas of the west side (rather than homes which are concentrated in the Delmann Heights or Muscoy areas), since the program is likely to be more successful initially in addressing a limited number of homes in a few neighbor- hoods rather than many homes in blighted neighborhoods. One prime criteron for selection would be that the homes are structurally sound, thereby reducing the cost of rehabilita- tion and expediting occupancy. The City would work closely with HUD's Santa Ana Office and the local Area Management Broker to determine which of the HUD-owned properties might be available for the program. The City would establish target areas for the program and HUD would inform the Community Development Department on an ongoing basis of any properties acquired by HUD which are located in the target area. Together with property location, HUD would provide the Community Development Department with an estimate of appraised value. Upon receiving this information from HUD, the Community Development Department will inspect the properties to determine which ones might be suitable for this program. For those that appear suitable, Community Development staff will prepare an independent estimate of rehabilitation work required to bring these properties up to City code and occupancy requirements. After internal review, the City will inform HUD of its interest in certain properties and the corresponding rehabilitation estimates for each property. Step 3: Upon receipt of our rehabilitation estimates, HUD staff will review these estimates. Any questions or discrepancies will be resolved by discussions between HUD and City staff. Following concurrence with the rehabilitation estimates, HUD will draw up a contract with the City for purchase of the property. The sale price will be: ~posed Concept Paper () Acquisition/Rehabilitation proqram paqe -4- :) .J a) Ninety percent (90t) of appraised value less the rehabilitation cost estimate. Terms of the sale will be "as is", all cash to the seller (HUD). The U.S. Department of Housing and Urban Development is willing to enter into this arrangement because HUD supports the City's intention to rehabilitate these properties and sell them to low and moderate income families. Step 4: The City will review and sign the contract and return it to HUD, together with a deposit of one dollar ($1.00). Follow- inq HUD's signature, all efforts will be made to close escrow within thirty (30) days following contract execution, per HUD's request. The Department of Housing and Urban Development and the City will work out appropriate escrow arranqements to meet this thirty (30) day timetable. HUD will provide title insurance. Step 5: Through a "Request for Proposals" (RFP) process, the city will select local non-profit or for-profit agencies for participation in the program. Selection of one or more agencies will be done throuqh a competitive bidding process. Arrangements would be made with HUD to allow the city to purchase these properties and immediately pass ownership to the designated agency. Step 6: The local aqencies selected will enter into an agreement with the City to purchase and rehabilitate these properties. Below-market rate acquisition and rehabilitation loans will be provided to the aqency for this purpose. Acquisition (and subsequent rehabilitation) loans will be made at one (1) or two (2) points below market for regular construction loans. In addition, acquisition loans may be made available for the agency through an arrangement with a local lender so that the City's cost of acquiring these properties from HUD can be immediately reimbursed. Upon completion of rehabilitation, and followinq inspection and granting of an occupancy permit, the agency will sell the homes to pre- qualified low and moderate income homeowners. Sale of the property will payoff the City's acquisition and/or rehabilitation loan, providing funds for future acquisition/rehabilitation activities. The City will take back a $5,000 lien on each property (which is possible due to the initial price concessions from HUD) which will be forqiven at the rate of $1,000 per year for each year the family remains on the property. The purpose for this lien is to provide an incentive for the family to remain on the property for at least five (5) years. (:Dposed Concept Paper Acquisition/Rehabilitation paqe -5- C proqram .-. V ", .....I step 7: Resale controls will be placed on the properties. In essence, the City will require first right of repurchase of the property should the homeowner wish to sell or have to default on the loan. The purchase price will be based on a formula tied to the CPl. Should the city decide to re- purchase the property (in order to keep the property out of the hands of speculators) then the property will be resold to another qualifying low and moderate income family. The purpose for the resale controls is to assure that these properties remain in the ownership of low and moderate income families and not pass into the hands of speculators. The U.S. Department of Housing and Urban Development will review and approve the resale controls proposed so that these properties can still be sold with FHA insurance. * * * * * * Community Development staff has had several meetings and numerous telephone conversations with HUD officials and the local HUD Area Management Broker regarding this program. While specific details of program implementation still need to be developed, HUD has stated its agreement with the program concept as described above. Program implementation awaits Mayor and Common Council approval of this concept paper. Following approval, a detailed implementation plan will be developed together with estimates of the necessary funding to support the program from the city's twenty percent (20%) housing set aside fund. JRT/lab 0279 c r \. 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