By Karina Ioffee, email@example.com
RICHMOND -- A year after Richmond grabbed national headlines for trying to use social impact bonds to restore abandoned homes, only one such property has been rehabbed and one other is in the process of being restored, underscoring the deep challenge of working on neglected properties tied up with liens and unpaid taxes.
Last year, the Richmond Community Foundation announced a plan to have the city issue bonds, sell them to a bank and use the proceeds to restore up to 100 homes in an effort to revitalize neighborhoods and boost property values. The homes would then be sold to first-time homebuyers who completed a financial education program, and the proceeds paid out to investors.
Richmond was disproportionately affected by the foreclosure crisis and has an estimated 800 abandoned homes, which each cost approximately $7,000 a year to maintain.
The restoration initiative is overseen by the foundation, which is on the hook for recouping its investment. It has encountered unexpected obstacles in acquiring properties, said John Knox, bond counsel for the city and author of the initiative.
"Everybody thinks it's a good idea, but it's a matter of getting the bureaucracy to move," Knox said. "The properties we are dealing with are typically abandoned, and you can't find the owners, or they are deceased. It would be nice if we could walk in and say 'We'll pay you a fair price,' but that hasn't happened. It's a process."
In California, a property has to be tax delinquent for five years before it can be put up for a tax sale or at least three years if it's subject to a nuisance abatement lien. The lien is typically placed on homes that violate municipal codes such as those for overgrown vegetation or trash on the property.
As part of the social impact bond program, the Richmond Community Foundation has met with the Contra Costa tax collector's office to urge it to expedite the sale of the homes but hasn't had much luck, Knox said.
Russell Watts, the county tax collector, said his office has been "very accommodating" to the foundation's efforts and has considered all options that fall within the guidelines of the state's revenue and taxation code.
"We have offered to and have followed through this year with providing a listing of all eligible tax-defaulted properties within city limits that would be up for sale at our annual tax auction, usually held in February," Watts said in an email. Doing anything else would require legislative action at the state level.
The Richmond Community Foundation plans to rehab between 80 and 100 homes over the next five years, which is when the bonds mature. But at the current pace, it has a lot of work cut out for itself, something Jim Becker, the president and CEO of the foundation, is the first to acknowledge.
"We have 15 homes that are going through probate, and the judges and attorneys are working with us to get the titles cleared," Becker said. "Once we get the title, these should come online before the end of the year."
Time is of the essence, not only because the bonds mature by 2021 but because the longer a home sits vacant, the more it costs to clean up. Squatters light fires inside during cold winters, defecate inside the rooms and break windows and doors, sometimes leaving not much more than a plot of land.
Both the home that has already been restored and the one currently being worked on are located in Richmond's Iron Triangle neighborhood, a low-income area that was significantly affected by the foreclosure crisis. No one has yet moved in, according to Becker.
Despite the slow start and significant administrative challenges, Becker is optimistic about the program.
"It is an effective way to finance blight strategies and one potential tool cities can add to their toolkit," Becker said. "If it were easy, somebody would have done it already."
Meanwhile, the U.S. Department of Housing and Urban Development recently announced changes to its delinquent-mortgage sales program after months of advocacy by Richmond Councilwoman Gayle McLaughlin, former mayor, and Mayor Tom Butt. The changes include principal reduction as a first strategy in the loan-modification process and more transparency in home sales.
If foreclosure is unavoidable, HUD has pledged to let the home first be sold to a housing organization to keep it from being scooped up by investor groups.
"Our pressuring of federal agencies to make improvements in their distressed mortgage sales program has made significant progress in the work to protect homeowners, stabilize our neighborhoods and reduce blight," said McLaughlin.
Since 2012, private equity groups, hedge funds and other Wall Street speculators have spent at least $25 billion to buy more than 150,000 houses, according to Keefe, Bruyette & Woods Inc., a financial services company.