Detroit — A home auction program launched amid great fanfare in May has hit some snags as buyers struggle with financing in whats been a dismal housing market in the city. Detroit Mayor Mike Duggan set out with the goal of auctioning around 400 abandoned homes by the end of 2014 and met it, with a final tally of 394 on Dec. 31. But seven months into the program, figures show that sales had closed on just over a third of the properties, 37 others were delayed, and several dozen had fallen through, according to the Detroit Land Bank Authority. Of the properties auctioned, 295 had bidders who made legal disclosures and signed purchase agreements. Buyers had closed on only 138 properties. Circumstances vary, but the vast majority of non-closings are attributed to financing issues, and in some cases, buyers remorse, says Craig Fahle, a spokesman for the land bank. Some sales remain delayed, but are intended to go through, he added. The auction process, Fahle says, is intended to be an economic driver, not a long-term strategy for Detroit. Its important that people recognize that the auctions are one tool in a big tool kit to help stabilize neighborhoods and rebuild the value there, he said. It takes that kind of a kick-start when the market is as dysfunctional as Detroit has become. The figures come as the City Council is expected to take up a resolution as early as next month to authorize Detroits Planning and Development Department to transfer 30,000 vacant residential properties to the land bank, which would bring its inventory up to more than 70,000 for its various programs. City Councilman Gabe Leland is concerned by the financing challenges and low number of completed auction sales. While he recognizes several of the land banks new programs are just getting off the ground, he says it must strive to do better. In the history of Detroit this program is still in its infancy and I just want to see more properties sold, Leland told land bank officials during a Thursday council subcommittee meeting. How do we get there? In 2014, there were 10,000 recorded residential purchases in Detroit. Of those, only 462 were bought with a traditional mortgage. The rest, Fahle said, were cash purchases. That says something about the value of houses. It also speaks to how difficult it is to qualify for a mortgage in the city, he said. It forces people to move elsewhere. The auction program aims to spur the private market, stabilize neighborhoods and pump up demand, he said. Securing financing has presented challenges in Detroit as the market struggles to rebound from the national foreclosure crisis. Part of the problem rests with the appraisal process, since comparisons are being based on homes sold nearby, often times at values that are disproportionate. That, Fahle said, is the primary reason that some deals have fallen through. To address it, the land bank is working closely with lenders and independent appraisers. It also stepped up efforts to educate prospective buyers on financing and mortgage options and to encourage responsible bidding. The more information we can give people, the more successful bidders we can have, he said. The program requires buyers to meet rigorous requirements and deadlines for rehabilitating and occupying the homes. Within six months of the closing date — nine months for properties in a historic district — the buyer must provide the land bank with a certificate of occupancy and demonstrate that the house has an occupant. The policy allows the land bank to seize properties if new owners dont hold up their end of the deal. Fahle says the deadline for completing repairs hasnt elapsed yet for any of the properties. The land bank has a three-member team working on with homeowners on compliance, to let them know what is needed. There has been an 89 percent compliance rate each step of the way. For the most part, people are working hard to get this done, Fahle said. They are excited about it. Seanita and Don Armstrong won the top bid in May for a 1970 bungalow in the citys Osborn Community. The couple paid $6,600 cash for the fixer-upper for their two sons, 19 and 23. The overall experience has been positive, but not without frustrations over the sluggish closing process, Don Armstrong said. It was discouraging, said Armstrong, who according to land bank records waited about 60 days for a completed closing. The couple planned to acquire a second home in the auction for themselves. Instead, they took another route and found, bought and fixed up a house in the Grandmont-Rosedale neighborhood before the closing process on the Osborn property was complete, they said. he program provided a fresh start for Detroit resident Kayla Rocks-Cureton, her husband and four children. The family had been struggling to get by in a run-down east side rental home. But when Rocks-Cureton was mugged waiting for the bus over the summer, her friends Amber and Sean Hunt stepped in to gift her a home. The Hunts found that negotiating with private investment firms led them only to roadblocks. When they caught on to the home auction program, it provided the solution they needed: a 1,386-square-foot brick bungalow in East English Village. Its probably the most seamless process Ive ever encountered with the city, said Amber Hunt, a finance official with Detroit Metro Airport who put the top bid on the home in August. The Hunts paid $19,200 for Rocks-Curetons new home, not counting upgrades and repairs. Amber Hunt was able to cover the costs, but worries other Detroit residents wont be as fortunate. The city and area financial institutions agree, and are mindful of the challenge. In one case, JPMorgan Chase & Co. formed a partnership over the summer with Liberty Bank and Trust to launch the Home Restoration Program. Through the program, Liberty links future homebuyers with select nonprofits to ensure they qualify and understand the process, its risks and can get funding. Liberty Bank has committed to financing up to $20 million in residential loans. It has approved almost $750,000, said Drex Amy, president of Liberty Banks Michigan region. Separately, Talmer Bank committed up to $1 million in forgivable grants to qualified bidders for renovations in auctioned homes in the Marygrove area. Amy said a continued increase in sales will provide more valuations for appraisers and increase market values. It could take some time, but it looks like its working, Amy said.
Posted on: Fri, 23 Jan 2015 20:03:30 +0000
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