URBAN HOMESTEADING IN NEBRASKA

NTF Issue paper: ccwatch25.doc. 6-14.

NEBRASKA TAXPAYERS FOR FREEDOM ISSUE PAPER:
URBAN HOMESTEADING IN NEBRASKA.

THE PROBLEM. Vacant and blighted houses negatively impact their neighborhoods in many ways. The property tax base erodes from lower values of deteriorated buildings or vacant lots where demolished homes once stood. Slums depress surrounding property values. Slumlords ignore back taxes, leaving additional abandoned properties ripe for vandalism and arson. Loss of tax revenue from tax delinquent and tax forfeited properties. Decent property owners will not invest or reinvest in surrounding properties. Maintenance costs continue for city and neighbors trying to maintain or secure property. Condemnation by eminent domain takes years. Demolition costs for leveling buildings. Public health and safety concerns. Safety hazards arise from children entering deteriorated structures or vagrants using vacant buildings for criminal activity. Harm to the overall physical appearance of the neighborhood and its attractiveness as a place to reside. Increased middle class flight from the area.

BACKGROUND. Urban homesteading is a program designed to return vacant and abandoned houses to private homeownership and provide alternatives to families or individuals exhibiting traits of independence and willingness to rebuild. Urban homesteading began in Wilmington, DL. in 1974, as local officials sought to reduce their inventory of tax-delinquent properties. This endeavor quickly mushroomed into a national program under the Housing & Community Development Act of 1974, whereby Congress authorized an urban homesteading program by transferring vacant VA and FHA-foreclosed properties to 23 state and local agencies at no cost. Urban homesteading is a process whereby the government transfers abandoned properties to those willing to rehabilitate and inhabit them for a specified period of time. The City of Omaha stopped requesting Section 312 funding in 1995, the same year that the Homesteading and Neighborhood Restoration Act began providing grants to cities and organizations that help facilitate the development of self-help home ownership opportunities. Many other cities like Ogden, UT. and Richmond, VA. have implemented these urban homestead programs. Their objective is to help moderate and lower income prospective homebuyers obtain affordable financing for a home purchase or rehabilitation of decrepit or vacant housing/lots. On vacant rebuildable residential lots, the city aggressively pursues title to property and markets it via foreclosure of special assessment liens and title action. The city retains a list of city-owned vacant lots suitable for single-family residential construction. It can combine 2 or more adjacent lots to sell as one parcel, if 1 lot size is too small to build a modest, modern home. Federally-owned properties the city can select and purchase as suitable for homesteading and rehabilitation. HUD-foreclosed properties provide available vacant houses. Homesteading increases the total and rate of home ownership in a municipality. It saves existing housing stock and recaptures and improves the city tax base. Most of these areas already have the necessary infrastructure and access to municipal services like fire and police protection, trash collection, and utilities. Infill development revitalizes existing areas.

PROMOTION. Omaha owns many vacant lots, costly to maintain and generating no tax revenue. Media releases and communications to builders and developers with dates of offerings can publicize this program. City inspectors create an inventory of homestead-eligible houses in concentrated areas, to repopulate and rebuild neighborhoods filled with tax-foreclosed homes and abandoned properties. Inspectors would visit the properties and approximate how much it would cost to bring each up to city code. Universities could provide cities with a source of labor to help design and implement surveys of abandoned dwellings and vacant lots. The city then would conduct an advertising blitz and provide a phone number and email address for the interested. Signs on designated properties direct inquirers to offices to apply. Lots sell on a first come, first ready to buy basis. The city lists a purchase price for each available parcel, unless parcel required for a public purpose like a park. Non-profit and similar groups could advise potential buyers about the loan counseling and assessment process to prequalify homesteaders for home improvement loans based on assets. Hundreds of possible owner-occupants could fill decimated neighborhoods, pumping in millions in private investment and thus rebuilding fabrics of neighborhoods. Prospective homeowners probably are not adept at navigating their own financing but will have needed resources available for dreams of home ownership. Young professionals, couples, families, and the elderly all could revitalize a community. In homesteaded cities, many homeowners decades later are the original owners. Cities could offer loan forgiveness in exchange for revitalization and residency. Moving the decent element in moves the wrong kind of element out. This process rids neighborhoods of absentee slumlords and people who inherit houses but do not want them. A city council could pass an ordinance that requires property owners to register their land, if structures on their property are vacant for over 6 months. A major objective is to attract private reinvestment in blighted neighborhoods by using city resources to stabilize neighborhoods. Cities can use a number of financial resources like rehab loans, tax credits, tax abatements, and waivers of municipal liens. Technical assistance includes streamlining of the entire process, flexible rehab codes, and referrals to private consultants and contractors on an approved list and nonprofit and similar local agencies.

ELIGIBILITY. Applicants cannot have earned a sentence or been imprisoned within the past year for a felony, not on probation or parole for a felony, and have not earned a conviction for violation or attempted violation of a criminal sexual conduct offense. Applicants must pass a required drug abuse test. The process would terminate automatically, if a qualified buyer earned a felony conviction during the process. Applicants must have paid all current city property taxes, water bills, and user fees, be free of code violations on property already owned and free of liens. To minimally qualify, a buyer must verify to the city that annual household income meets the minimum limits determined by the U.S. Department of Housing and Urban Development. Purchasers can be in several income ranges. Those who meet income, credit, and other requirements can receive financial assistance to purchase and rehabilitate homes as they become available. Buyer must have sufficient income to obtain financing for the purchase price. Credit history with documentation must indicate substantial evidence of buyer ability to pay. Applicants may not have filed or completed a bankruptcy in the past 2 years. Household head must be at least 21 years old. Applying households must fit the size of the house, usually no more than two persons per bedroom. Working families who now receive rental vouchers for subsidized housing under Section 8 can convert the vouchers into ones that allow them to buy homes. Section 8 families must be 1st-time homebuyers, have earned income from jobs, contribute toward a down payment, and use their own money to pay monthly mortgage payments. Down payments can include “sweat equity,” labor in building or rehabilitating a house.

APPLICATION PROCESS. After screening and verification, the applicant and city enter into an urban homestead agreement. That agreement contains detailed descriptions of program procedures and requirements. Prospective borrowers fill out an urban homestead program application and return it to the city with verification of income. Applicants receive information about available construction financing, contractors, and building designs. A city committee reviews the application for compliance with guidelines and notifies the applicant in writing of preliminary approval status. After notification, a drawing selects the first eligible applicant to win a chance to purchase a home. Only 1 lot is available per applicant. All applications will become ranked based on this drawing. Subsequent applicants will have a chance to purchase a home, a process quickened if applicants ahead of them in priority do not qualify for financing. A winning applicant must submit a non-refundable $50 application fee, which will apply towards a credit report. The urban homestead agreement is a purchase contract. If the applicant meets all program requirements, including obtaining bank financing for a portion of the purchase price, the city will transfer ownership to the applicant. Applicants must provide construction and financial plans viable to erect or rehab and maintain a residence. The new owner then will complete required repairs within 3 years and must agree to live in a house as a permanent resident for at least 5 years. At that time, if owner meets all program requirements, the city gives the owner clear title to the property, and the owner continues to make monthly payments on the purchase and rehabilitation loans according to the agreement. Prospective homeowners must finish an education program on topics such as how to select the right house and mortgage, household budgeting, managing credit, and home maintenance and repair and receive a certificate of completion. Real estate professionals and community development groups can offer workshops and other educational opportunities to instruct owners about the fundamentals of home ownership. Those who complete such counseling programs are less prone to default on their mortgage payments.

FINANCING. Banks will accept a specific amount of risk. Non-profit organizations and national foundations contribute funding. Applicants are responsible for their own financing arrangements through 3rd party lenders, meeting lender credit and income requirements. Financial assistance comes through mortgage rehabilitation loans to homeowners, who must make repairs or improvements to their homes. The city would require that the buyer provide evidence of financing to purchase a home within 60 days of signing the agreement, only fixed-rate FHA, VA, or conventional financing, obtained from a reputable lending institution, which obtains the usual verifications of equity, property title, and borrower income and credit.

HOMESTEADING. Successful applicant homesteaders can purchase city-owned vacant lots and construct single-family dwellings or purchase single-family homes owned by the city. The city can purchase houses suitable for rehabilitation and resale through foreclosure of city liens. Lots sell for assessed value set by the county assessor. The buyer pays a $500 deposit toward the purchase when signing the contract, $500 more at closing. The balance due becomes secured against the property under a 5-yr. deferred payment lien, forgiven at the rate of 20% per full year of owner residence. A deed document would allow title to revert to the city, if construction not started within 6 months of closing. Other funds paid by a buyer would forfeit to the city. Title would revert to the city, if property not used for homesteading. The balance on the 5 yr. urban homesteading lien would come due immediately for payment if 1) homesteader dies; 2) homesteader sells or transfers property title; 3) property no longer the principal residence; or 4) property not maintained at minimum housing standards. Homesteaders must clean and upgrade vacant housing stock by performing repairs which will remove hazards, conform house to current building codes, promote energy efficiency, extend the life of the house, and stabilize or improve neighborhoods. The buyer must maintain the home in compliance with all city building codes and zoning ordinances within 18 months of occupancy and then throughout the term of financing. All other required rehabilitation work must finish within 3 years of purchase. The homesteader must repair, within 1 year from the date of conditional conveyance of the property, defects that pose a substantial danger to health and safety, make additional repairs and improvements necessary to meet the applicable local standards for decent, safe, and sanitary housing within 3 years from the date of conditional conveyance of the property, permit reasonable inspections at reasonable times by city employees to determine compliance with the agreement, and surrender possession of the property upon material breach of the homesteader agreement (including default on rehabilitation financing secured by the property), as determined by the city. The city offers technical assistance and authorized payments to approved contractors. Major construction work must finish within 6 months, and after 18 months a resident, homesteaders receive house deeds. Increased home ownership rebuilds urban neighborhoods, increases economic responsibility, and promotes stability and pride in areas. This program will create quality housing to attract middle-class people to the city core and preserve historic structures.

TAKE ACTION NOW. Urban homesteading is very successful and popular, safe and affordable housing, a basis for economic development. Omaha and other NE cities can become national models. Many more urban Nebraskans are becoming irate at the increased placement of subsidized housing units in their neighborhoods. People in these units often do not maintain or upgrade these properties and cause social problems like crime. Adjacent property values plummet. Taxpaying citizens lose equity in their homes. Home resale prices drop. Urban homesteading offers a viable alternative to government scattered-site subsidized housing and urban renewal, as it allows those needing residential placement to buy or build their own homes in their own neighborhoods, homes in which they can show pride. Contact your city councilman today to accelerate the initiation and implementation of an urban homesteading program in your municipality.

Research, documentation, and analysis for this issue paper done by Doug Kagan. This material copyrighted by Nebraska Taxpayers for Freedom, with express prior permission granted for its use by other groups in the Nebraska Conservative Coalition Network. 6-14. C

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