Scattered-Site Rental Housing: Challenges and Solutions

Christine Moran

Director of Multifamily Finance

September 28, 2015

An Important Housing Need

• 1.6 percent of all homes with a mortgage in Illinois are in some stage of the foreclosure process, more than the national average.

• Foreclosed properties can become magnets for crime, violence and public safety issues.

• A single foreclosed and abandoned property can impose up to $34,000 in direct costs on local government agencies.

Abandoned and Foreclosed Single-Family Housing

• Mortgage or tax payments are at least 90 days delinquent.

• Code inspection determined the property is not habitable and the owner has taken no corrective actions within 90 days.

• Property is subject to court ordered receivership related to abandonment.

• Foreclosure proceedings have been initiated.

• Foreclosure proceedings have been completed and the title transferred to an aggregator or servicer that is not an end user.

New Requirements for a New Challenge

• Applications that intend to renovate abandoned and foreclosed homes are given latitude in how they achieve IHDA’s mandatory requirements in several key areas:

– Site Control

– Architectural and Construction Scope

– Budget Flexibility

Selecting the Properties – Site Control

• Site control requirements are replaced with a more flexible set of conditions that do not require ownership to file a LIHTC application.

• Applicants submit Multiple Listing Service or Real Estate Owned listings that show an adequate number of available sites.

• Includes price of potential sites and tax assessors Property Identification Numbers.

• With no site control, it is not possible to provide specifics on the properties that will be purchased or the scope of work required to bring them up to code at the time of application.

What Makes a Good Candidate for Purchase?

• Homes built after 1920:Older homes have problematic layouts and stone foundations that require extensive and expensive renovations.

• Home size is critical:Ideal homes are not too large, both because of the cost of rehabilitation and the cost of maintenance and utilities.

What Makes a Good Candidate for Purchase?

• Homes with extra rooms: Ranches with extra family rooms or a large number of bedrooms offer flexibility in achieving handicap accessibility.

• Homes should be concentrated: Properties in close proximity will maximize the neighborhood stabilization impact.

Acquiring the Properties

• Once an application is approved, there is limited time for the developer to acquire the scattered-site properties.

• A standardized procedure for due diligence from the HFA and the developer is critical to ensure the process moves forward quickly for a large number of properties.

• Short timeline for property inspections, appraisals, surveys and environmental reports for lead, mold, asbestos and termites.

Lessons Learned

• Separate funding for acquisition needs to be lined up in advance to purchase the properties.

• IHDA’s first approved developer found that acquiring REO properties from banks is faster than purchasing short sales.

• Sheriff Sales can be a quick source for acquisition if research is done in advance.

• Negotiations with local governments to reduce utility bills, taxes and liens are time consuming but important to keep costs in line.

Determining the Scope of Work

• Due to the timeframe and high number of properties, it can be difficult to conduct a thorough property needs assessment for every home. Many problems were not discovered until the homes were purchased.

• It is also difficult for the Authority’s architecture and construction staff to review plans and scopes of work for a large number of buildings quickly.

Determining the Scope of Work

• With uncertainty regarding the conditions of the homes, budgets need to account for substantial gut rehabs when necessary.

• IHDA provided flexibility in budget line items and allowed money saved on one property to be moved to another that required more extensive renovations.

More Budget Flexibility

• Some properties were in such disrepair that rehabilitation was not financially feasible.

• IHDA allowed applicants to tear down and build new homes when rehabilitation costs were prohibitive.

• Extra costs were also permitted to save properties with historic value.