Post-Foreclosure Task Force Makes a Difference

Gregg Lombardi, Executive Director

Some times, when you have good, practical problem-solving skills you can make a giant difference.

A great example of this is the problem solving work that Legal Aid’s Michael Duffy and the Post-Foreclosure Task Force that he leads has been doing lately. One of the projects that the Task Force has been working on lately has been to assist local community development corporations (“CDC’s”) in overcoming obstacles to their use of $7 million in federal stimulus funding that was provided to Kansas City to rehab blighted, foreclosed properties in the City’s urban core. The City sub-contracted with the CDC’s to do this work.

This funding presents a race against the clock. If the developers fail to have commitments to use the funding by October 1 this year, all of the uncommitted funding must to be returned to the federal government. On the other hand, if the funding is committed to rehabbing specific houses by October 1, then, when the houses are sold, the proceeds will be placed in a revolving fund to rehab more houses. So, if properly and timely used, the funding will actually do much more than $7 million of rehab work.

One of the major obstacles that the CDC’s found in doing this work was that HUD policies for the project prohibited them from spending any money toward the purchase of a house until their plans for renovation of the house had been approved by the City. This process takes approximately 6 weeks and sometimes longer. HUD’s policy meant that the CDC’s would often find a house, negotiate a price with the seller, then having tentatively established a price, prepare plans and submit them to the City for approval. Once the plans were approved, they would return to the seller, only to find that the house had already been sold.

Not only was this a tremendous waste of resources for the not-for-profit developers, it threatened to keep them from meeting their October 1 deadline. Furthermore, the problem, in theory, was easily solvable. If the CDC’s could offer the owners of the houses some sort of contingency or option agreement, that provided the sellers with minor compensation (say $500 per house) in exchange for a commitment to sell the property if City approval came through (which it consistently has), then they could eliminate the risk of the house being sold during the approval process. HUD’s policies for the project, however, prohibited this, not only in K.C., but nationally.

Michael brought this problem to the attention of the Post-Foreclosure Task Force, which includes members of the City Council of Kansas City, representatives of the Federal Reserve, the FDIC, neighborhood organizations, bankers and other major stakeholders who have been impacted by the blight that foreclosures have caused in Kansas City’s urban core. It’s essentially a think-tank for reducing the blight caused by foreclosures.

The Post-Foreclosure Task Force saw the solution to the problem and negotiated with HUD attorneys in Washington for a change of the policy. After lengthy debate, HUD agreed to a change in the rules, nationally. This means that the CDC’s in Kansas City will be able to use all of the $7 million in federal stimulus funding to rehab foreclosed properties and use the proceeds from the sale of those properties to create a revolving fund to rehab even more properties. And developers around the country will be able to do the same. The result is that tens of millions of dollars, and perhaps hundreds of millions dollars, can now be used nationally to rehab blighted urban core properties.

That is good problem solving with a great impact.