Suburbs use federal grants to buy, fix up foreclosed houses

It's a study of contrasts, these two homes on the 400 block of East Chicago Street in Elgin.

One is an ornate 1872 Italianate style house that was featured on one of Elgin's neighborhood house tours a few years ago.

The other house, next door, was carved into two rental units and is now vacant - save for the fleas in the basement and squirrels in the ceiling.

A bathroom shows evidence of an aborted rehab project - a white cast iron tub rimmed with tile, surrounded by rooms infested with mold, reeking of cat urine and yellowed by water damage.

Joe Kjellander, who has lived in the Italianate since 2000, said the landlord next door at 463 E. Chicago was only interested in milking the property for rent. It's been foreclosed on twice and the city bought it this summer after a public auction failed to attract a buyer.

The city has committed $228,706 from a $2.1 million federal grant to restore and later resell it.

"A lot of people have said, 'That's a lot of money' but if the city doesn't use the federal funds on it, no one will. That's the way I look at it," said Kjellander. "It's given me a lot of hope. There are things you can't put a price on, one of them being quality of life."

Direct, indirect effectsIn all, the U.S. Department of Housing and Urban Development has doled out $104 million to Chicago, Elgin, Aurora and five collar counties as part of the first round of its $3.9 billion Neighborhood Stabilization Program.About $20.6 million went to Aurora, Elgin and the counties of DuPage, Kane, McHenry and Lake. Each entity had to follow HUD guidelines - such as mandating an 8-hour course for potential buyers and allocating 25 percent of the funds for low-income housing.While Elgin is racing to meet the Sept. 30 deadline to spend its money, other counties have shown varying degrees of progress. Some of homes already have been rehabbed and new families are enjoying them.County and city planners believe that the injection of federal money helps to improve neighborhoods, inspire other homeowners to invest in their homes, and bolster the struggling construction industry. They even believe it could result in trickle down benefits to cities in the form of sales taxes collected on construction materials and property taxes garnered as values on the previously foreclosed homes rise over time.Roger Dahlstrom, a senior research associate with the Center for Governmental Studies at Northern Illinois University in DeKalb, said construction workers probably will buy gas or lunch in Elgin or the cities where they now work. "I would take it even a step further. The direct employment from the work, there's going to be some spinoff from that as well," he said. "That's called induced economic impact. It's not necessarily direct. It's indirect."Karen Christensen, Neighborhood Redevelopment Division manager for the city of Aurora, said the program works toward several goals. "It is an injection of positive energy, besides the cost, at which time our country has a very negative mindset," she said. "We're not looking at this just as rehabbing homes. We obviously want to stabilize neighborhoods. We're selecting properties we don't think investors will be interested in because of the level and scope (of renovation needed). We're going after things that are more difficult and we did that intentionally."Elgin's approach has mirrored Aurora's in some respects, and the city has emphasized it picked "the worst of the worst" homes.Many homes, like the ones at 463 and 457-459 E. Chicago St., were carved up into multiple apartment units and are now an anchor dragging down a street or neighborhood.Not a moneymakerMost Elgin City Council members support the city's approach and signed off on $657,164 worth of contracts last week to fix up three homes.Councilman David Kaptain preferred the city buy smaller homes, such as bungalows, that didn't need six figures worth of work. Councilman John Prigge, the only "no" vote on the council, says because the final selling price of the home will be less than what the local and federal government put into it.But county planners say the program wasn't set up to make money."The program is designed to lose money," said Carrol Roark, administrator of Community Development for DuPage County. "In DuPage County, the ones that aren't that bad are being bought by private people. If you could do it for a profit, an investor would be doing it. It's a unique situation for everyone who got the money to figure out what to do."The deadline for cities to commit the money is September, but the program doesn't end there. Cities and counties are to use the money recouped from the sale of first round of homes to buy a second batch of homes and complete the process again.All the money must be spent by 2013."We think of this as a revolving loan program with diminishing returns," said Scott Berger, director of the Kane County Office of Community Reinvestment. "We anticipate this is going to be done in rounds. We're still on round one, but thinking ahead of how to use the proceeds. We saw this as an opportunity to choose the worst properties on the market, the properties that would not be chosen by the private sector. We were looking for properties near schools, parks, on a corner - properties that would likely bring down the block, if you will, if they weren't sold."Same mission, different methodAdding to the costs are requirements by HUD for rehabbed properties to comply with new energy efficiency requirements. Elgin took it a step further by planning to install tankless hot water heaters to dovetail with its efforts to be a greener community.Elgin will handle its project in-house and selected contractors through a bidding process. Four homes were turned over to the Habitat for Humanity of Northern Fox Valley.Some counties partnered with cities, villages or agencies that specialize in lower income housing.For example, Lake County leaders got some homes for $1 by working with the city of North Chicago."If we can assist one homebuyer, we can assist a whole neighborhood," Lake County Community Development Administrator Joel Williams said. DuPage and Kane counties, along with Aurora, worked with the Community Housing Association of DuPage to buy some homes to be used as rentals.While 25 percent of funds must be used for low-income housing, applicants to buy the other homes may have incomes up to 20 percent greater than the area's median income.For a family of four, that's a yearly income of just over $90,000, or $72,100 for a family of two.Future buyers could avoid some of the pitfalls associated with someone trying to "flip" a home for a quick profit because work is done by licensed professionals and inspected along the way."I definitely think it makes (the homes) more desirable," said Faith Taylor, a community development specialist for McHenry County, which partnered with the Corporation for Affordable Homes of McHenry County to contract and bid the projects."You know somebody's been in and inspected it for anything that can go wrong. It's a good program. It's a win-win situation. The houses are good quality," she said.Elgin city officials hope rehabbing two homes side by side will help improve the block along East Chicago Street. Kjellander, co-owner of the immaculate Italianate, and his neighbors say they are very pleased with the city's decision and can't wait for work to start.But NIU's Dahlstrom warned it could take time to see if the Neighborhood Stabilization Program really works in Elgin."The bottom line is there are a lot of different issues from community to community and neighborhood to neighborhood. The decision to spend the money is tough because no matter how much you have, it's not enough," Dahlstrom said. "Even if you don't get a dollar per dollar return on it, what you've done is set it up for greater property values in the neighborhood. None of us will really know how successful any of these expenditures are until after the fact. And it's somebody's money. It's all of our money."Homes: Officials hope work on houses helps local economyFalse20001500Elgin city leaders will spend $281,000 to buy and rehabilitate this foreclosed home at 318 South Street through a federal program.Harry HitzemanFalse <p class="factboxtext12col"><b>How the money is being spent</b></p><p class="factboxtext12col">The U.S. Department of Housing and Urban and Development doled out more than $20 million to Elgin, Aurora and the counties of Lake, DuPage, Kane and McHenry through the federal government's Neighborhood Stabilization Program. Some of the funding must be used for homebuyer counseling and 25 percent must be allocated to homes geared toward low-income residents. Each entity has until 2013 to spend the entire amount, including proceeds from sales of the initial round of homes.</p><table width="300" class="News"><tr><td><b>Entity</b> </td><td> <b>Amount</b> </td><td> <b>Homes<br> purchased</b></td></tr><tr><td><tf>Aurora</td><td> $3,083,568 </td><td> 13</td></tr><tr><td>Elgin</td><td> $2,159,623 </td><td> 10</td></tr><tr><td>DuPage County </td><td>$5,176,438 </td><td> 27 </td></tr><tr><td>Kane County</td><td> $2,576,369 </td><td> 13</td></tr><tr><td>Lake County</td><td> $4,606,800 </td><td> 25<b>*</b></td></tr><tr><td>McHenry County </td><td>$3,085,695 </td><td> 15</td></tr></table><p class="factboxtext12col">Suburban Cook County not available</p><p class="factboxtext12col"><b>*</b> also purchased an 18-unit apartment building</p><p class="factboxtext12col">Sources: U.S. Department of Housing and Urban Development, Daily Herald interviews</p>