Emergency Foreclosure Funding
Neighborhood Stabilization Program funds for state and local governments
On September 26, 2008 HUD released the allocation amounts for the $3.92 billion Neighborhood Stabilization Program (NSP) directed to states and local governments for the redevelopment of abandoned and foreclosed homes. HUD published the final notice of the allocation formula and program regulations in the Federal Register on Monday, October 6, 2008. It is highly recommended that grantees thoroughly review the Federal Register notice and contact their local HUD field office with any and all questions and concerns.
The State of Michigan as a whole received $263.5 million in NSP funding (third highest funded state behind Florida and California). Seventeen local communities in the SEMCOG region received a combined $137 million (52%), the Michigan state program received $98.6 million (37.4%), and local governments outside of the SEMCOG region received $27.8 million (10.6%).
Each grantee has until December 1, 2008 to complete and submit an action plan substantial amendment to HUD in accordance with the Federal Register notice. However, action plans are required to be posted on the grantee's Web site for citizen comments for 15 days prior to submission to HUD. Grantees will have 18 months to use their allocations. Use of funds is defined as obligated (orders placed, contracts awarded, or services received).
Local entitlement communities will receive their grants directly rather than having to rely on the discretion of the state. However, states are allowed to allocate their funding to both entitlement and non-entitlement communities. Because of capacity constraints and cost efficiency concerns, HUD encourages NSP grantees to consider developing joint agreements with the state or other NSP grantees in the same MSA region. Grantees interested in this option should contact the local HUD field office and/or MSHDA.
Local government action plans
Grantees (i.e. local governments) must submit an action plan to HUD no later than December 1, 2008. Local governments are advised to review HUD's "pre-grant process" requirements within the NSP notice. Specific information on action plans submission and requirements:
Given the specifics of HUD's requirements for grantees, SEMCOG recommends that local governments begin to construct action plans, detailing targeting strategies and comprehensive data collection as soon as possible. As local grantees begin to create an action plan for implementing NSP funds, it may be helpful to review best practices and current strategies from around the nation. Local governments are encouraged to consider using green building techniques and environmental compliance where possible and follow Uniform Relation Act (URA) requirements in designing their action plans. Additionally, HUD is encouraging local governments to coordinate and collaborate with each other and with the state, to make the most effective use of available funds.
Use of NSP funds
Awarded funds from the Neighborhood Stabilization Program (NSP) to local governments can be used for the following:
- Creation of financing mechanisms to purchase and redevelop abandoned and foreclosed properties through soft-second loans, loan loss reserves, and shared-equity loans;
- Purchase and rehabilitation of abandoned and foreclosed homes to re-sell, rent, or redevelop;
- Establishment of land banks for foreclosed homes;
- Demolition of blighted structures;
- Redevelopment of demolished or vacant properties;
- Public services for counseling for those benefiting from the NSP funds; and
- Construction and rehabilitation of commercial and industrial buildings.
Key provisions
Because the funding through the CDBG Neighborhood Stabilization Program is considered "emergency funding" certain provisions have been included that differ from traditional CDBG program including:
- Grantees will be able to spend up to 10% of their grant, plus program income, on administrative costs (traditionally CDBG entitlement grantees are allowed to up to 20% on administrative costs);
- All funds and resulting revenues from funds must be used to address the low- and moderate-income national objective (individuals and families at or below 120% of area median income), and NOT for slums and blight or urgent needs;
- Grantees must document that at least 25% of funds that are received have been aspect on housing for persons at or below 50% of area median income;
- Grantees will NOT be allowed to use funding for foreclosure prevention or demolition of non-blighted structures or allow purchase of homes that are not abandoned or foreclosed;
- Foreclosed upon homes or residential properties may only be rehabilitated to the extent necessary to achieve compliance with laws and codes relating to safety, quality, and habitability;
- Funds may not be spent on the cost of boarding up, lawn mowing or property maintenance; and
- Homeowners that are assisted with the funds must undergo eight hours of pre-purchase counseling form a HUD-approved provider.
Additional Foreclosure Resources
SEMCOG's Foreclosure Web page for local governments
SEMCOG's report "Battling foreclosures and saving neighborhoods"
SEMCOG is currently tracking additional best practices from throughout the country. These best practices will be crucial as local governments begin to devise plans for targeting awarded funds. For additional information:
Naheed Huq, Manager, Community and Economic Development
Kevin Vettraino, Planner, Community and Economic Development
Key definitions
Abandoned property — a property in which the mortgage or tax foreclosure process has been initiated for the property and no mortgage or tax payments have been made in 990 days and the property has been vacant for 90 days.
Blighted structures — structures that have objectively determined signs of deteriorated conditions to be a threat to health, safety, and public welfare.
Current market appraised value — the value of a foreclosed home established through an appraisal made in conformity with the requirements of the URA (at 49 CFR 24.103) and complete within 60 days prior to an offer to purchase.
Foreclosed property — a property that is at the point, as defined by state or local law, where the mortgage or the tax foreclosure is complete and the title for the property has been transferred under a foreclosure proceeding or a transfer in lieu of foreclosure.
Land bank — a governmental or non-profit entity that assembles, temporarily manages and disposes of vacant land for the purpose of stabilizing neighborhoods and encouraging redevelopment. Such land may be held for no more than 10 years.