Vacant Property

Vacant Properties: Reversing the Tide

The end of the foreclosure process marks the beginning of a new set of problems that arise as a consequence of vacant and abandoned homes. Foreclosed properties are referred to as bank-owned or real estate owned (REO). Vacant property can have devastating effects in urban, suburban, and rural communities.

The number of vacant homes has skyrocketed as a result of the foreclosure crisis:

  • In July 2008, the U.S. Census Bureau reported that just under 2.2 million homes were vacant and listed for sale.
  • This constitutes a record 2.8% of all homes, excluding rental properties.
  • Newer homes had a much higher vacancy rate (9.8%) than those built before April 2000. This is more than triple that of houses constructed earlier.
 
Homes that housed families—sometimes for generations—are suddenly left empty. Neighbors wonder what is happening to the community as houses nearby are either boarded-up or vandalized. Local businesses close up shop as their customer base shrinks, taking jobs with them. And local governments experience a dramatic increase in demands for fire, police, and code enforcement services as the property tax base shrinks. Loss of tax revenues also hurts local schools. Homeowners still living in the neighborhood try to flee but find it more and more difficult to sell their houses even as their property values drop.
 
Community development organizations, like those in the NeighborWorks network worked hard, sometimes for decades, to reverse decline in low- and moderate-income neighborhoods. Now they are fighting to maintain their accomplishments and protect hundreds of millions of dollars of investment. Vacant properties can quickly undo what residents, city leaders, nonprofit organizations, and for-profit partners were able to achieve.
 

Although foreclosed properties present real challenges, they also present opportunities to: 

  • Rehabilitate housing to make it more energy efficient, healthier and safer;
  • Create or preserve housing affordability;
  • Encourage mixed-income communities;
  • Promote sustainable homeownership and provide quality rental housing;
  • Enhance neighborhood viability; and
  • Selectively use demolition to create side-lots and green space.

Community development organizations and their public and private partners can take action in a number of ways.

 

Acquisition Strategies

One approach nonprofit community development organizations or local governments can take is to purchase REO property and rehabilitate it in order to return it to productive use through homeownership or quality rental housing. The large numbers of vacant homes and falling house prices mean a new, more affordable opportunity for organizations to take action to reverse the situation.

Find Property

Many banks and servicers offer special programs and incentives to encourage nonprofits to purchase REO property.  Review current funding and transfer programs or search the REO listings of most major banks.

Non Acquisition Strategies

Community development organizations have an arsenal of time-tested community revitalization strategies available to them that have been adapted to various crises over the years. These strategies take advantage of the organizations’ strengths, which include bringing stakeholders to the table to find solutions, creating targeted revitalization plans, and preparing people for successful homeownership. Nonprofit organizations can use these same strategies to stabilize communities in the wake of the foreclosure crisis.

Reuse Strategies

Given the current strain on the housing market, a nonprofit organization or local government that has acquired a foreclosed property may not be able to immediately find an eligible homeowner and resell the property. The rapidly changing market makes absorption rates difficult to predict. Therefore, organizations must think creatively about how to reuse REO property if they are unable to sell. Strategies may include creating a land bank or land trust, converting the home to rental property, offering lease-purchase agreements, or selectively demolishing blighted properties.