Reuse Strategies

Once a property is reclaimed, the owner needs to determine the best way to transition that property back into productive use. Although vacant property issues are a challenge, they present opportunities to rehabilitate run-down units and make them more energy efficient, healthy, and safe. The focus on these properties can also increase a neighborhood’s vitality and make it more marketable by turning unused properties into major areas for housing, businesses or mixed-use redevelopment.

Reuse strategies include:

• Sale
• Rental
• Lease purchase
• Purchase rehab
• Selective demolition
• Community land trusts
   

Sale

Once a nonprofit owns a foreclosed-upon property, it should tap into all of the financing tools available so potential buyers in their target markets can afford to purchase and maintain them. Solidify partnerships with federal, state, and local governments to take advantage of financing opportunities such as:

• Local economic development and housing set-aside funds;
• Tax-exempt bonds that can provide first-mortgage financing at 200 basis points or more below conventional mortgage rates for qualifying nonprofit organizations;
• Community Development Block Grant (CDBG) funds that are provided to local governments from the federal government, and can offer direct equity investment or cover pre-development expenditures;
• Federal HOME funds;
• Federal Reserve Bank Affordable Housing Program (AHP) grants;
• FHA loans.;
• Low Income Housing Tax Credits (LIHTC); and
• Bank loans that satisfy banks’ Community Reinvestment Act (CRA) obligations. These typically cover both conventional first- and second-mortgage loans underwritten with less stringent guidelines and more favorable mortgage rates than typical mortgage loans.

Nonprofits should work with buyers to help them find the right financing. Most housing agencies already have programs in place to educate potential buyers about homeownership and help them find financing. For information and numerous best practices on purchase programs, go to NeighborWorks America’s Winning Strategies series.

Purchase-rehab program

Many housing agencies have purchase/rehabilitation programs already in place for homebuyers to tap into. These programs generally allow the buyer to work with the contractor, with support and guidance from the nonprofit.

Sources of purchase/rehab loans include:

• Local lenders
• City governments
• NeighborWorks America
• Just Price, a program of Neighborhood Housing Services of America
• State Housing Finance Agencies (HFAs)
• HUD’s 203k program

Other key partners are banks, credit unions, and lending institutions that can work with nonprofits to devise financing strategies for acquiring, rehabbing, and selling these properties.

Rental

Nonprofits that acquire housing may also decide to rent it. Some have rental programs already in place, and foreclosed properties can typically transition smoothly into that program.

The owner may also want to consider certain HUD rental assistance programs that benefit lower-income residents. For example, HUD helps apartment owners offer reduced rents to low-income tenants through its Housing Choice Voucher program (formerly known as the Section 8 program).

HCV details. The role of the landlord in the voucher program is to provide decent, safe, and sanitary housing to a tenant at a reasonable rent. The dwelling unit must pass the program's quality standards and be maintained up to those standards as long as the owner receives housing assistance payments. In addition, the landlord is expected to provide the services agreed upon as part of the lease signed with the tenant and the contract signed with the public housing authority (PHA), which administers the program.

For information on this program, see the Housing Choice Voucher Fact Sheet .

Lease Purchase

Lease purchase agreements are often used when a property is hard to sell. Benefits to sellers and buyers can include:

• Sellers generally get market value for the property and relief from paying a mortgage on a vacant property.
• Although the lease payments may exceed market rent, the buyer is building a down payment and assuming that the property will appreciate beyond the agreed-upon purchase price.
• Buyers generally make a small down payment, with little or no qualifying terms, which make the lease purchase an attractive way to ease into the benefits of homeownership.
• Buyers also receive a forced savings plan since part of the lease payment is applied toward the purchase price at the end of the lease option agreement.
• If the buyer defaults, sellers do not refund any portion of the lease payments nor the option money and may retain the right to sue for specific performance.

Options to purchase, lease options and lease purchase agreements are three different financing documents. The variances are state specific and not all states have identical laws. Click here for detailed information about Lease Options-Lease Purchase Sales.

Selective Demolition

In some cases, the best way to address a severely dilapidated home and promote revitalization is to demolish it and turn the land into a small park or side yard for neighbors. Sometimes the lot may be used for infill construction.

Community Land Trusts

Some nonprofits may choose to turn a property over to a community land trust. Community land trusts (CLTs) are nonprofits that own the land and lease it for a nominal fee to people who own the building(s) on the land. Homes on these parcels offer homeowners the same permanence and security as conventional purchase agreements, and the homeowner can use the land as landowners do. CLTs make it possible for low- and moderate-income families to become homeowners while preserving affordability. This is possible because:

• By owning the land, CLTs are able to greatly reduce the initial housing cost to the potential buyer.
• The land lease contains a resale provision which ensures that if the house is sold, it goes to another low- or moderate-income person.

Some CLTs also provide housing by operating affordable rental properties and co-ops, while developing community facilities, preserving open space, and working with other community groups to promote economic opportunities.  Currently there are over 5,000 community land trust homes across the country.

For more information on land trusts, see The National Community Land Trust Network.