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Heard about the federal program where the government is selling foreclosed homes for a dollar? It sounds like a scam. It's not.
But the catch is this: You can't buy one. Only cities and towns can.
It's the Department of Housing and Urban Development's Dollar Homes program, one of the ways HUD is unloading its growing inventory of houses financed by failed Federal Housing Administration mortgages. Here's the fine print:
- Only houses that HUD tried and failed to sell for at least six months are eligible.
- Not many houses are available.
- Cities and towns have just 10 days to buy a house or lose the chance at it.
"Rather than continuing to recycle these properties that really can't sell, we want to get them into the hands of local communities, and they can determine what is done with them," says Laurie Maggiano, the official in charge of Single Family Asset Management for the FHA.
For years, the program -- HUD's smallest -- wasn't well-known. Between 2001, when it got off the ground, and last year, only about 100 homes a year changed hands. Few cities or towns have experience buying residential property. "When we first rolled this out, we had not a lot of interest from governments," Maggiano says.
This year, though, demand is growing. With foreclosures sweeping the country, HUD's backlog is swelling. Of the 380 Dollar Homes bought by cities and towns this year, 150 were in Michigan and 140 in Ohio. Some communities use federal grants to rehab them and rent or resell them to struggling families. Each community has its own criteria. But in the Rust Belt, with populations shrinking and abandoned homes everywhere, sometimes the best use of a Dollar Home is to knock it down.
Eliminating eyesoresThe city of Akron, Ohio, only recently decided to get into the relatively complicated business of purchasing the Dollar Homes, says Darryl Kleinhenz of the Akron planning department. With 1,500 to 1,700 homes in foreclosure in Akron -- about 800 of them are HUD homes -- the city's strategy is to buy every property it can, then decide later whether to rehab it, at a cost of about $30,000, using federal grant money.
The recent Housing and Economic Recovery Act of 2008 provides about $4 billion in grants to fix them up. The money has begun landing in cities and towns. HUD distributes it using a formula that takes into account a community's foreclosures, subprime loans, mortgage defaults and delinquencies.
In Akron, when Dollar Homes are beyond repair, the city will raze them, Kleinhenz says. That relieves some of the stress and liability that the abandoned homes put on police and neighborhoods. Some empty lots can become parks, Kleinhenz says. And in old neighborhoods with very small lots, the city plans to split the newly vacant lots among surrounding neighbors.
Akron has 208,000 residents and about 90,000 homes -- too many. "Probably over 50% of the homes on the market are foreclosed or bank owned," Kleinhenz says. "Just driving around the neighborhoods, you see so many signs. Judging from the amount of houses for sale, it's got to be 30% to 40% of the homes in Akron are for sale."