Federal grants to be used to buy up South Florida foreclosures

South Florida governments are gearing up to spend more than $161 million in federal grant money to stimulate the housing market.

The buyer of that ramshackle foreclosure down the street just might be the government.
In coming months, South Florida cities and counties will be armed with more than $161 million in new federal grant money and a mandate to stabilize falling home values and decay in neighborhoods hardest hit by the real estate downturn.

Their spending plans include buying and rehabbing, reselling or renting out property repossessed by banks through foreclosure, a first for many small municipalities without housing authorities. Cities may also use money to develop new projects and tear down neighborhood eyesores.

Miami Gardens' plans include using homes to help young adults aging out of foster care. Miramar wants to give financial aid to middle-income home buyers
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Hialeah wants to build more $300-a-month rental units. And Miami-Dade plans to use some money on the once fraud-wracked redevelopment of the Scott Carver housing project in Liberty City.

The funds represent South Florida's share of a $3.9 billion pot offered as part of a larger housing stimulus plan passed by Congress this summer.

The stimulus money comes as the state's housing market continues to slog along under historic foreclosure rates, unsold homes and growing economic malaise. In all, Florida will get $541 million, with $91 million going to state government.

When it comes to house hunting, governments don't lack for choices. As of Oct. 31, banks owned 10,725 homes in Miami-Dade and 10,234 in Broward, according to RealtyTrac data released Thursday.

And foreclosures keep rising: In October, foreclosures were up 53 percent in Broward and 97 percent in Miami-Dade over a year ago, RealtyTrac reported. The figures mean one of every 114 homes in Broward is either headed into foreclosure or already bank-owned. In Miami-Dade, it's one of every 93 homes.

Lenders have already begun knocking on doors at Miami-Dade agencies, county officials said. The county will get $62.2 million, the largest share of any locality in the country.
''This is not a whole lot of money in reality, but I think there will be a whole broad spectrum of people we can help. The magnitude of the problem is really huge,'' said Robert Cruz, chief economist for Miami-Dade.

NEW UNITS

Housing administrators' tentative plan is to spend almost $37 million buying bank-owned single- and multi-family properties, hoping to add roughly 342 new units to its affordable housing stock. The county now owns 10,000 units. There are 71,000 people on the waiting list for those as well as privately owned units through Section 8.

The rest will be spent demolishing 80 blighted structures as well as on homeownership counseling and mortgage assistance for about 130 families. The county will leverage nearly $9 million for infrastructure needed to complete work on the Scott Carver HOPE VI housing project, which will help bring 236 new units online when finished. In all, they expect to directly aid 1,500 families.

The County Commission will vote on the plan next Thursday. Broward approved its plan Thursday.

FORMULA USED

To decide how much money communities get, the U.S. Department of Housing and Urban Development used a formula accounting for the number of subprime loans, bank-owned homes and defaults. How they use the money is largely up to them, provided they create more affordable housing for low- to middle-income families.

''The fact you got a large amount indicates the size of the problem in your community,'' said Dan Rosemond, Miami Gardens' community development director. The city will get $6.86 million it will use to buy 25 homes. Code enforcement officers have already identified 25 that will be demolished.

Four other Miami-Dade cities qualified -- Miami, North Miami, Hialeah and Homestead, widely known for their foreclosure problems.

Other municipalities could get money from the state's entitlement.

Thirteen jurisdictions in Broward will get money, including the county's $17.76 million. Miramar gets more than $9 million, which it plans to use to help an estimated 75 new buyers with financing and grants.

Some government administrators who are entitled to far less question how much good the money can do.

North Miami housing manager Tom Calderon said with only $2.84 million, the city may be able to buy 12 bank-owned foreclosures among the roughly 1,000 within its boundaries.
Calderon said ideally the money would be used to target areas with the most foreclosures. Studies have shown a single foreclosure can lower the values of all homes within an eighth of a mile by 0.9 percent. The impact is amplified as the number of foreclosures on the block increase. But in North Miami they are everywhere, Calderon said.

''The money is for neighborhood stabilization, but how do you stabilize an area when there might be three or four on the same block and you can only buy one or two? You still have the vacant homes,'' Calderon said.

CHALLENGES

Cities face other challenges in using the money as prescribed, such as suddenly bearing the burden of owning and managing property.

''The city of Homestead does not want to be a landlord, I'll tell you that right now,'' said Laurin Yoder, the city's community development manager. Homestead was considering hiring a property management company or deeding their foreclosures to a nonprofit that would maintain the homes until they could be sold.

Miami Gardens plans to hire real estate agents to do the negotiating.

Cities will be responsible for their homes' upkeep, property taxes and insurance. Another challenge: The homes must be sold to income-eligible buyers who intend to live there. The sluggish housing market and credit crunch could make that difficult.

''Are we going to get banks to loan to people? Because money is still tight. And we have to find qualified individuals,'' said Dan Keefe, assistant to the Plantation mayor.

To line up homes with potential buyers, Keefe said Plantation would likely start by reaching out to city employees first. North Miami plans on doing the same, since financial help can be offered to households making 120 percent of the area's median income, or up to $72,350 for a family of four. The income limits are high enough to help people like police officers and teachers, Calderon said. In Broward, families of four making as much as $85,440 are eligible.
EARNINGS OBSTACLE

A separate obstacle comes, though, in making sure 25 percent of city grant money goes to families of four earning less than roughly $30,000 in Miami-Dade and roughly $36,000 in Broward.

''It's difficult to put a family of four making $30,000 into a home because even if you gift it to them, there are taxes, insurance and the regular cost of owning a home,'' said Homestead's Yoder. ``We're not exactly sure how we're going to make it work.''

Hialeah's solution is to use its entire $5.38 million to build a rental complex similar to a recently finished 300-unit affordable housing project on Okeechobee Road, said Fred Marinelli, director of the city's grants and human services department.

''We would rather get it close to the people, rather than turn around and give it to the banks,'' Marinelli said, adding the grant allows the city to develop these units on Hialeah-owned land. He expects to build around 45 units that will be leased to residents on the county's affordable housing waiting list for $300 a month.

HUD RULES

Cities that have decided to buy, though, are also concerned about adhering to HUD rules requiring them to negotiate a 5 percent discount with lenders for each property and a 15 percent discount for all properties combined. Smaller cities, who may be able to buy only a handful of homes, wonder if lenders will cooperate.

''The county's $62 million is a lot different than our $7 million, and banks have a little more economy of scale in terms of trying to negotiate with the county,'' Miami Gardens' Rosemond said.

Of the many obstacles cities must navigate in spending the grant money, perhaps the most daunting is the time in which to get it all done. Local governments had six weeks to pull together their spending plans to meet a Dec. 1 deadline. After they get the green light, all the money must be obligated in 18 months and projects done in four years.

''The government expects us to act quickly, so we're not going to have time to create a new program because those need to be tested, and time is of the essence,'' said Gus Zambrano, Miramar's economic development director. The city will use a program that is already in place to distribute its $9.31 million in grants and loans to individuals who will buy foreclosures, in some cases sharing future profits with homeowners.

The biggest flaw Calderon of North Miami sees is that none of the grant money may be used to help people currently at risk of foreclosure, a point of confusion for many current homeowners.

''We're not allowed to use one penny for prevention,'' Calderon said, ``It's for neighborhood stabilization. But how do you stabilize a neighborhood better than making sure people stay in their homes?''