The Mortgage Meltdown

Nonprofits get chance to buy homes in foreclosure

  • Article by: STEVE BRANDT , Star Tribune
  • Updated: March 23, 2011 - 1:12 PM

Developers in Minneapolis and St. Paul will get first crack at bargain prices, which will help revamp neighborhoods.

Twin Cities housing officials will announce today that four major national lenders have agreed to give them first dibs on hundreds of discounted homes coming out of foreclosure.

That means that Minneapolis and St. Paul, working with key nonprofit developers, will be able to pick off strategic properties for their efforts to rebuild neighborhoods. Some could be discounted by 10 to 15 percent off current market values to reflect what lenders save by avoiding holding costs.

The program will be coordinated by the Greater Metropolitan Housing Corporation in Minneapolis and Dayton's Bluff Neighborhood Housing Services in St. Paul. It is the pilot for a national program expected to expand soon to Cleveland and New York.

The two organizations already have looked over more than 200 properties, according to Carolyn Olson, president of Greater Metropolitan. Jim Erchul, executive director for the Dayton's Bluff group, said he is assuming that eventually "hundreds and hundreds" of houses will eventually be available through the program.

The two nonprofits will offer properties to the two cities, other nonprofit developers working within their borders, and private developers with a track record.

Some properties need only minor repairs and can be sold as-is to families. Others will be offered to private or nonprofit rehabilitation groups for more extensive work. Minneapolis is planning to use some of its recent dose of federal housing recovery money to subsidize the gap between the purchase-rehab cost of a home and its value in a depressed market.

"This is a significant step forward," said Tom Streitz, housing director for the Minneapolis development agency.

Still other homes will be snapped up by cities to either be held until the market improves, or demolished and the land banked for future housing development.

"The most important thing is that there's more efficiency in having a bulk look at properties, rather than a one-by-one, case-by-case thing," said Tom Sanchez, a development team manager for the city of St. Paul. Cities and nonprofits are sometimes frustrated in finding lender contacts for foreclosed homes.

In St. Paul, the focus will be on homes in the city's Invest St. Paul area, which includes much of the East Side, Frogtown and North End plus other scattered areas. The Minneapolis focus will be on the North Side, northeast Minneapolis and the Phillips-Powderhorn areas.

"Our hope is that the discounts will be pretty steep," said Cecile Bedor, St. Paul's planning and economic development director.

Local officials said that the pilot is originating in the Twin Cities because they are ahead of other areas nationally in responding to the blighting influence of vacant foreclosed homes. For example, Minneapolis already is funneling state, city and nonprofit money into the purchase of strategic properties on the North Side, the hardest-hit foreclosure area in the state.

Nonprofits participating in the new program are expected to pick off homes they regard as pivotal to developments they already have built or have planned.

In Minneapolis, Olson said Greater Metropolitan will be choosy about the private developers with whom it works. She'll be looking for developers that do quality work, demonstrate financial capacity and will meet rehab standards.

The pilot is the brainchild of four national organizations representing the nonprofit sector, who have formed the National Community Stabilization Trust. Lenders supplying the foreclosed properties include Wells Fargo, Fannie Mae, JPMorgan Chase and CitiGroup, which will save holding costs if the properties are bought.

Steve Brandt • 612-673-4438

  • about this series

  • This is an occasional series examining the effects of the collapse of the housing market.
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