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Community Developments Investments (February 2018)

Purchase-Rehabilitation Programs Can Transform Communities

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Rae Malis, Resource Analyst, NeighborWorks America, Crystal Cosentino, Chief Operations and Compliance Officer, Home HeadQuarters Inc., Amy Wright, Consultant, NeighborWorks of Western Vermont

More than 240 community development and affordable housing nonprofit groups across the nation are part of NeighborWorks America's network. Among the range of services these groups offer is rehabilitation of homes in neighborhoods most in need of revitalization. Instead of allowing vacant homes to further decay or become hotspots for crime, purchase-rehabilitation programs are restoring them to become safe, healthy homes that are sources of pride for residents in the community. Along with improvements to individual homes, NeighborWorks organizations typically engage in activities intended to improve whole neighborhoods—working with residents, securing infrastructure improvements, and engaging local resources.

This house at 318 Marcellus St. in Syracuse was abandoned. Its rehabilitation included a new porch and Victorian front, helping revitalize the historic Salt District area. (Home HeadQuarters)
  This house at 318 Marcellus St. in Syracuse was abandoned. Its rehabilitation included a new porch and Victorian front, helping revitalize the historic Salt District area. (Home HeadQuarters)
This house at 318 Marcellus St. in Syracuse was abandoned. Its rehabilitation included a new porch and Victorian front, helping revitalize the historic Salt District area. (Home HeadQuarters)

NeighborWorks organizations (charter members of NeighborWorks America's network) recognize that the financial burden of purchasing and rehabilitating a house is typically too great for their clients to handle alone. Many of the properties in distressed neighborhoods require a capital investment that exceeds the current fair market value of the home. Strategic investments in key properties, along with other neighborhood improvement activities, are intended to benefit current homeowners and increase the future market value of properties in the neighborhood.

When blight is eliminated, the housing market improves and private investment follows. Without a concentrated and comprehensive effort of neighborhood stabilization, many properties will languish and neighborhoods will become more costly to rehabilitate.

The following success stories illustrate the benefits of purchase-rehabilitation solutions and demonstrate the way organizations can tailor their programs and offerings based on the needs of their clients and communities. These examples—from Home HeadQuarters of Syracuse, N.Y., and NeighborWorks of Western Vermont—are just a few of many. The physical changes to rehabbed homes help ensure better health and security for the individuals and families who occupy them, and the relationship-building outreach by the nonprofit organizations helps restores pride and confidence in communities as a whole. This two-pronged neighborhood approach—a focus and investment in homes as well as in the people who live there—is at the heart of NeighborWorks' mission and success.

Syracuse Sees Turnaround

For the past 20 years, Home HeadQuarters (HHQ) has purchased vacant or blighted properties in New York State's Onondaga and Cayuga counties to substantially rehabilitate and sell them to owner-occupants. In Syracuse, the organization has invested heavily in four areas of the city—Near Westside, Southside, Skunk City, and Northside. These areas are located in Neighborhood Revitalization Strategy Areas designated by the city's Department of Neighborhood and Business Development as a part of its comprehensive community revitalization strategy.

These areas encompass Syracuse's most distressed communities, which struggle with low rates of homeownership, large numbers of abandoned or vacant properties, and high unemployment. HHQ has taken a multifaceted approach to property redevelopment, working to improve homeownership rates and increase quality, affordable rental opportunities.

HHQ has invested more than $30 million in neighborhoods across Syracuse that are distressed or in transition. The organization also has purchased strategically located properties from the local land bank (a land aggregator) and the National Community Stabilization Trust to redevelop and sell to first-time home buyers.

HHQ is typically able to purchase properties through the city of Syracuse or the local land bank at nominal costs. In addition, HHQ works with local lenders to purchase bank real estate owned inventory that is in need of rehabilitation within the strategy areas. "These properties are often sold at a nominal cost and can also come with bank funds to help with the rehabilitation," said Kerry Quaglia, HHQ's Chief Executive Officer. HHQ expects that with the recent passage of the "zombie properties"1 legislation in the state of New York, the nonprofit group will see its relationship with local lenders develop further, since HHQ is interested in these assets as part of its community redevelopment efforts.

HHQ has struggled with a gap in available financing for its base clientele—low-income households, minorities, and single, female heads of household—wanting to purchase vacant/foreclosed properties. This has resulted in HHQ offering more first-mortgage financing to the core base, traditionally low- and moderate-income (LMI) consumers who sought pre-purchase education and counseling at HHQ's U.S. Department of Housing and Urban Development-certified Homeownership Center. This is another area HHQ believes will provide opportunity to develop more meaningful relationships with local lenders. HHQ plans on selling its first mortgage portfolio to these local lenders once the loans have been seasoned.

As a certified community development financial institution (CDFI), HHQ is exempt from the Consumer Financial Protection Bureau's ability-to-repay (ATR) requirements, provided the group meets certain other applicable requirements.2 Lenders can therefore purchase HHQ loans and not be subject to conditions in the ATR rule. Further, HHQ has created Superior Servicing LLC, a subsidiary that will continue to service these first mortgages for the lender, allowing HHQ to maintain the quality, personal servicing they have been providing to their borrowers.

HHQ provides a full suite of services to those purchasing the rehabbed homes. Clients can participate in home buyer education classes and receive down-payment and closing-cost assistance, as well as help clearing up their credit issues and preparing for homeownership. HHQ often seeks local lenders to participate as trainers in their home buyer education classes. These classes produce more than 400 graduates a year. These graduates are great candidates for affordable first mortgages, with flexible underwriting and low down payments. HHQ also provides participants with a flyer on affordable mortgage products available from banking partners.

Salt District Revitalization

In conjunction with Syracuse University and the Gifford Foundation, HHQ's Near Westside Initiative revitalized the Salt District area of Syracuse. With help from federal, state, and local grants, as well as construction financing from banks, HHQ purchased 64 houses at the center of the Near Westside neighborhood. The organization demolished some units, rebuilt some homes, and sold others "as is," with low-interest financing for renovations. While poverty persists in the greater community, these efforts have culminated in reduction of crime, code violations, and vacancy rates.

One of HHQ's clients first heard about the organization through a classmate at the State University of New York College of Environmental Science and Forestry while in graduate school. He was tired of renting and believed he was ready to buy his first home. He started looking at homes in the city and registered for HHQ's certified home buyer education course, which helped him understand his responsibilities as a homeowner and made ownership seem possible. Right away, the client was drawn to the Near Westside neighborhood. He enjoyed its diversity, hardworking residents, and proximity to excellent services and the downtown district.

Meanwhile, as he searched for his future home, HHQ had just begun renovating a new property. The rehabilitation included roof installation, updates to the plumbing and electrical systems, new windows, a fresh paint job, and a complete rebuild of the interior, converting the building back into a single-family home. The house appraised and sold for $75,000. The property was eligible for a variety of local, state, and federal subsidies to write down the cost to make it affordable to the buyer. The initial acquisition of the property, purchased from an estate, was $19,171. It was roughly assessed at $30,000 when HHQ purchased it. The organization invested a total of $226,305 to complete the project. The financing components required to purchase and rehabilitate this home are described in the following table

Syracuse, N.Y., Salt District Rehabilitation Case Study—318 Marcellus Street

Sources of Funds
Restore New York grant $80,332
First mortgage from HHQ $75,000
HUD Neighborhood Stabilization Program grant $50,973
New York State Neighborhood Stabilization grant $20,000
Total, sources of funds $226,305
Uses of Funds
Construction/rehabilitation costs $187,033
Acquisition of property $19,171
Carrying costs (insurance, taxes, maintenance, line of credit) $14,793
Consultant fees (architect/environmental testing) $5,308
Total, uses of funds $226,305

Source: Home HeadQuarters.

Now the homeowner enjoys the benefits of energy-efficient windows, a new heating system, closed-cell spray-foam insulation, and the joy of a brand new kitchen and bathroom. In addition, the rehabilitation retained some of the home's original character, including the front staircase and the detail on its curved wall.

Purchase-Rehabilitation Transforms Vermont Neighborhood

This three-bedroom home at 39 Pine St., in Rutland, Vt., was gutted and renovated to include new solar roof panels, an open floorplan, eat-in kitchen, and two new porches. (NeighborWorks of Western Vermont)
This three-bedroom home at 39 Pine St., in Rutland, Vt., was gutted and renovated to include new solar roof panels, an open floorplan, eat-in kitchen, and two new porches. (NeighborWorks of Western Vermont)

NeighborWorks of Western Vermont (NWWVT) has been purchasing properties in LMI communities since 1986, when it first opened its doors. The organization has used a "scattered-site" model, purchasing homes in need of repair in three counties spanning about a quarter of Vermont. In 2009, in conjunction with other civic groups, NWWVT began a more concentrated effort to meet the challenges that were coming to a head in a 10-square-block of the Rutland, Vt., neighborhood known as Northwest Rutland. Once a neighborhood of worker housing, the area had transformed over a 20-year period into a place known for drug use, abandoned homes, and crime. NWWVT and its partners wanted to help residents regain their lost neighborhood and the equity in their homes. A Community Development Block Grant was secured by the city of Rutland and NWWVT to support this effort.

As a part of a multi-pronged initiative called Project Vision, NWWVT secured capital to remove blighted properties and worked with residents to market the strengths of the neighborhood. These efforts were supported by community policing and a more comprehensive approach to opiate addiction, among other initiatives.

NWWVT targeted 11 of the 27 vacant homes in the neighborhood. Four of the targeted homes were blighted beyond repair and required demolition. The first of the demolition sites has been transformed into a park—the neighborhood's first new park in 47 years. Another lot, now owned by the city, has outdoor movie nights, informal ball games, and other events where residents show up in droves, and where community police interact with the neighbors informally as a part of community-building neighborhood activities.

NWWVT purchased and rehabbed seven homes in the worst condition, with the intent to refurbish and sell them to low-income homeowners. Two properties have been sold, and five others are in the rehabilitation process.

Local banks contributed construction, permanent financing, and bridge loans. Grants were also provided by the state of Vermont, the city of Rutland, Green Mountain Power Company, and the Vermont Housing and Conservation Board. The financing sources and uses needed to purchase and rehabilitate this home are described in the following table.

Rutland, Vt., Project Vision Case Study—39 Pine Street

Sources of Funds
Grant funds to NWWVT from Vermont Community Development Program, City of Rutland, Green Mountain Power $122,320
Home buyer mortgage from People's United Bank $103,000
Home buyer equity $5,000
Homeland grant from Vermont Housing and Conservation Board $22,000
Total, source of funds $252,320
Uses of Funds
Construction $174,330
Other development costs $39,300
Property acquisition $18,690
Cost to install solar system $15,000
NWWVT development fee $5,000
Total, uses of funds $252,320

Source: Source: NWWVT.

The seven properties were selected to send a signal of confidence to the neighborhood. A prime example of this is the rehabilitation of three notorious properties seized by the federal government as the location of drug activities. When the U.S. Marshals Service seized these properties, it brokered an agreement to sell the homes to the city of Rutland and NWWVT. The city provided tax forgiveness so that NWWVT could improve the properties and return them to single-family ownership. "This type of effort reassures neighbors," said Ludy Biddle, Executive Director of NWWVT, citing the fact that for the first time in many years, a neighboring property owner secured a loan for repainting his home. "The fact that locals are interested in giving their own homes a facelift is a promising sign for the neighborhood."

NWWVT has invested considerable time and effort into transforming the acquired homes into bright spots in this Rutland neighborhood. Some were in such poor condition that the houses had to be lifted off their foundations, transported to the back of the property, and later moved back. The organization's goal is to ensure that each home is retrofitted to need absolutely no updating for at least 10 years. In addition, thanks to a Green Mountain Power grant, solar energy panels have been installed on three of the houses to minimize energy costs.

One thing NWWVT staff say they're most proud of is the community spirit they help foster. A community coordinator on NWWVT's staff is almost always out in the neighborhood—not at a desk. Community gardens have been created to benefit the residents and their children. Several block parties were held over the summer, and beyond enjoying food and fun, residents got to know their local police officers, the mayor, and each other.

These connections already have made a difference in Rutland. When Morgan Overable, head of NWWVT's building team, realized that all of her tools had been stolen out of a near-finished rehabilitation property, neighbors took action. The stolen items were quickly recovered because residents felt comfortable working with the law enforcement officers they had met through community events. This collaboration remains a source of pride for law enforcement and residents alike, and illustrates how far the Rutland community has come.

"It's one thing to fix up the houses," said Ms. Biddle. "It's another to build trust between neighbors and fix the feelings about the neighborhood."

For additional information about the Home HeadQuarters Inc., please contact Crystal Cosentino at For additional information about NeighborWorks of Western Vermont, please contact Amy Wright at

1 The term "zombie property" refers to a residential property abandoned by a homeowner after the initiation of a foreclosure action but before the completion of such action.

2 Ability-to-repay requirement under the Truth in Lending Act (Regulation Z), 12 CFR 1026.43 (a)(3)(v)(A).

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On the Cover

Before-and-after image of a home in New Orleans rehabilitated by Redmellon Restoration & Development, a mission-driven real estate development company.

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