Kane County uses stimulus money to fix 'worst of the worst'
With 3,900 foreclosures in the first six months of 2010, Kane County knew it had a problem.
When county officials took a closer look, they realized the problem wasn't just people losing their homes. Once lost, those homes were sitting untended for months at a time.
Lawns grew into jungles. Moisture festered into black mold so thick it looked like the insides of some of the homes had caught on fire.
Rot became ruin. Homes that families had once cried over losing had now become structures no one wanted to buy, much less live in.
When that happens, neighboring properties also suffer in value. Who wants to live near a house that looks like it's falling apart?
It's a problem not unique to Kane County, but one that is plaguing the six-county region, as community leaders try to stop foreclosed homes from having a domino effect on neighborhoods.
In a neighborhood with a house no one wants, other homes suffer both in their value and in their ability to be redeveloped or sold.
In Kane County, leaders decided to tap into federal funds to bite off a chunk of the foreclosed homes in the area proving to be the biggest stumbling block to revitalization after the housing bubble burst.
It takes money
That's where the federal stimulus plan came into play. Part of the stimulus was $2 billion for a “Neighborhood Stabilization Program.”
Kane County applied for some of the money. It received about $2.6 million to purchase and repair foreclosed vacant housing and get it back on the market.
Scott Berger oversaw the spending of that money in Kane County. As it turned out, purchasing and rehabbing a foreclosed home wasn't as easy as he thought.
Working from a weekly updated list of foreclosed homes, Berger and his staff zeroed in on highly visible properties near parks, schools and major roads that were already slipping into blight. Nearly all of the homes were owned by a mortgage lender or bank.
The foreclosure process can take up to two years to conclude and push an owner out of a home. In some cases, owners may abandon the homes much sooner. That meant many of the foreclosed homes were in disrepair long before they ever hit the market.
“You would think buying these homes would be easy,” Berger said. “Trust me. It's not. Banks are really not in the business of owning and selling property. And that really shows when we're working with them to purchase these properties.”
The county identified 13 homes — “the worst of the worst” — to purchase and rehab.
“Basically, we were interested in the properties that were overlooked by the private sector,” Berger said.
That meant identifying the foreclosed homes that had been on the market the longest.
It also meant concentrating a lot of effort in Carpentersville. County officials soon found the ironically named town contained many of the foreclosed homes that needed the most work. They soon found an ally in that process.
Roeser helps out
Tom Roeser leads Otto Engineering, the largest employer in Carpentersville. The company is well known as a manufacturer of control switches, grips and joysticks, as well as two-way radio accessories. Roeser's father, Jack, founded the company. Locals may recognize him as a political benefactor, leader of the conservative Family Taxpayers Network and publisher of local school district salary numbers.
They also own quite a bit of foreclosed property in Carpentersville.
“If I can see it from my roof, I'll buy it,” Tom Roeser recently told Kane County Board members.
Roeser owns 68 foreclosed properties in the area near Otto Engineering's historical yellow brick headquarters on the banks of the Fox River on Carpentersville's Main Street. Many of them are foreclosed properties that now serve as rental units for his employees. He's sold about 15 of the properties he's purchased, stripped down to the studs and rebuilt. Roeser said the only profit he's seen is a better neighborhood around his business.
“I consider Otto as a catalyst in this,” Roeser said. “I expect when I'm all done, I will be (financially) whole. We'll just turn the crank. As many homes as you can afford to have us fix, we'll turn the crank until it's all done. These Neighborhood Stabilization grants are a terrific thing.”
Kane County purchased 13 foreclosed homes to rehab and sell with the $2.6 million it received from the federal stimulus program. Seven of those homes are in Carpentersville.
Roeser, along with Mercy Housing Lakefront (a nonprofit affordable housing developer), is a partner with the county in redeveloping all seven of them.
The result of that partnership is a complete makeover of the foreclosed homes. Houses with floors so rotten that they sagged as much as 8 inches are now level. Living rooms that had become party rooms decorated in graffiti and beer bottles by trespassers now have brushed nickel light fixtures and new coats of paint. Kitchens that had become petri dishes for mold now have new stainless steel appliances.
In general, all the homes cost between $45,000 and $65,000 to purchase. They will eventually go up for sale in the range of $110,000 to $200,000. But usually all the potential profit is lost in the middle with the remodeling. Almost all the homes needed more than $80,000 in repairs.
That's where the financial viability of the Neighborhood Stabilization Program starts to lose the stability part. Kane County will recoup some of the federal dollars it plunked down on the foreclosed homes once they sell. But every home the county takes a loss on means fewer dollars coming back into the program to purchase a second round of homes. Eventually, all the money will be gone. The question is if the money will evaporate before the foreclosure problem does.
End in sight?
Kane County Board Chairman Karen McConnaughay isn't convinced foreclosures are going away any time soon. In fact, some real estate experts believe 2011 will see an overall 20 percent increase in the number of foreclosures.
McConnaughay said she's interested in engaging county board members in diverting some of the riverboat proceeds the county receives into beefing up the Neighborhood Stabilization Program fund. In that way, the county can really make the program its own. McConnaughay said she believes that's what the federal government intended when it made local government the administrator of the federal funds for the program.
“What they were looking for was local leadership to make strategic investment in their communities,” McConnaughay said. “They wanted us to decide where the reinvestment should take place to ensure the highest and best impact to the community.”
Berger said the beauty of the program is the extra caution taken to ensure the rehabbed homes don't end up in the vast foreclosure pool a second time. All potential buyers must qualify as a middle-income family to be eligible to purchase the homes. That equals a household income of about $90,000 for a family of four. But that family must also attend a four-part, eight-hour homebuyer course to fully understand the financial obligations and paths to help if needed.
To sweeten the deal, the county is offering qualified homebuyers a $20,000 no-interest loan to help with the purchase. The loan is only repaid when the purchaser leaves and sells the home to a new buyer.
And, just like that, homes that neither buyer nor developer would once touch will soon become hot items on the real estate market, Berger said.
“With incentives like that, we really feel like these houses are going to sell themselves,” Berger said.
Village hopeful
For elected officials in Carpentersville, a hot real estate market can't come fast enough, even if they initially doubted the federal government's ability to make it happen.
“I'm not a big fan of federal government programs,” Carpentersville Village President Ed Ritter said. “The fact that it works as a revolving loan program is what sold me. It seems like a lot of government programs are, ‘Here's some money, take advantage of it to make some money for yourself.' This was not that kind of program.”
Hollie Lindgren represents Carpentersville on the Kane County Board. She said the rehabilitation of foreclosures means more than fixing dangerous, vacant homes. Residents need to see something — anything — positive happening with the real estate in their neighborhoods.
“This work brightened up so many people,” Lindgren said. “It really gave us hope in our community.”