Flip this house: City of Lancaster buying foreclosed houses

Good morning. Worth noting: The City of Lancaster has embarked on a $4-million buy-and-renovate program to purchase foreclosed houses that have been languishing on the market.

The city hopes to purchase and renovate 41 houses for $4.1 million, which by my math means the total budget for each flip is roughly $100,000. From Ann Simmons' story in today's L.A. Times:

The city took ownership of the first six  properties beginning in May....

The city primarily targets foreclosed houses that are in extreme disrepair and have been vacant at least a year. "The houses we are acquiring are the ones that have suffered the greatest amount of damage during the time they were owned," said Lancaster housing official Elizabeth Brubaker. Bob Schack, president of the Greater Antelope Valley Assn. of Realtors, said the city's effort to buy mainly older, poorer-quality homes that had been languishing on the market was a "win-win" situation for all involved....

Lancaster's program mainly targets depressed neighborhoods. The city is paying between $80,000 and $110,000 for the properties and will accept bids from contractors to renovate them. Proposed repairs would include environment-friendly features such as drought-tolerant landscaping and tankless water heaters. When sold, the city hopes to recoup the price paid for each home, including the cost of renovation.

Analysis/bloviation: There is a strong market right now for foreclosed houses in Lancaster and Palmdale, and it's not clear that government intervention is necessary.  A house that has been vacant and for sale for a year is, almost by definition, overpriced. A house priced at $80,000 that does not sell for a year is not worth $80,000. Is it possible there are no buyers for homes like this at any price, and the city is the only possible buyer? Possible, but not proved.

Your thoughts? Comments? E-mail story tips to Peter Viles

--Peter Viles

Photo credit: Los Angeles Times

Comments

[k2polo]

Yes, it is very possible they are not worth even what they are paying. I live in the low desert, and know that the areas of Lancaster.."high desert" are hardest hit of all. If these homes were worth $80-110,000, they'd be gone! So many vacancies..it's shocking to see. The over-development was rampant and small minded. North and East Indio, Desert Hot Springs..you can pick them up cheap. This Lancaster "solution" doesn't sound like one at all to me. Auction them off to highest bidders and let them fix and flip if possible. At least you'd potentially get rid of them..but no reserves on the auction block..

[Michael Snyder]

Let's just call this for what it is; WPA projects for distressed Lancaster contractors. The lien holders should be investing in their own properties but it's much easier to convince some politician to spend taxpayer dollars that should be going to little things like education & health care to bail their sorry lazy butts out of the sling they hung themselves in. Seems there just aren't enough politicians pandering at the national level, now the locals are in the game too. I wonder who's going to bail out the City of Lancaster in two years...

[Keith]

Does McCain's VP pick look like a stripper dressed as a secretary to anyone else?

Nice plan to spend $100k per home. I agree with K2Polo. Auction them. As it is, they're going to drop $100k on a house, put it on the market, and get $100k for it. Genius.

If lancaster will give me a home and $100k, I'll take them both off of their hands, and fix the house up to boot.

[Laker]

"....a "win-win" situation for all involved. ..."
1) Realtards win as they get commissions.
2) Contractors win as they get work
3) City official win as they get kick backs from "preferred contractors"
3) City official family members/friends as they get "first" choice in purchasing the flips.
4) Banks, as they get the dumps offloaded from them at THEIR wishing asking prices. (nobody else wants to pay this other than the city...)

Losers:
1) City tax payers as they sponsor this activity for the benefit of few individuals.
2) General tax payers.
3) Plane ol' Joe sixpack, that want to buy a house in Lancaster, and now will need to pay somewhat more, because there is a "new" demand by "new" buyer in town....

[orcadrvr]

It would probably make more sense economically to buy the dilapidated wrecked homes and demolish them, thus reducing inventory and improving neighborhoods at the same time.
"Flipping" them is just going to increase inventory, and thus put downward pressure on home prices generally. It's hard to see how this helps solve the housing crisis in the Antelope Valley.

[sfvrealestate]

Two things. Let me be one of the first here to state the obvious: the devil is in the details. But philosophically, I believe "the market" can't solve all such problems, and this is where "the government" needs to step in and assist. I think it's worthwhile to note that the money for this program is coming just from the city of Lancaster, and not from any other government entity.

Secdond, the article also notes that the city will place the newly renovated homes with Realtors to sell. I'm sure that's infuriating to most of you who hate the idea of middlemen in a sales transaction. For those of you that hate Realtors, here's a suggestion: why don't you get a r.e. license, join the mls, and offer your sales services to Lancaster City. For free! You can report back to this blog on how it works out for you.

[Syscom3]

Importing poor people into your community is a sure fire recipie for success! LOL!!!!

[PeonInChief]

This is just what I said would happen--cities would go around buying up the drek de la drek. It would be much more sensible to buy up properties that had some potential as permanent affordable housing.

And tankless water heaters have real problems in retrofits, as the gas line often isn't big enough to actually heat the water.

[mbob]

Don't forget to pay your taxes!

Your government is hard at work overpaying for stuff nobody else will touch.

Support our dupes!

[The Original RZ]

I worry that this will keep housing prices way up rather than letting the market correct.

[Anonymous]

Someone who can finally afford a lower end property is unlikely to have a lot of spare cash to fix it up and make it habitable. So, could see some rationale here on focusing on those that need some extreme fixing.

[sheila]

if the lending environment is as tight as all the news stories say, it is likely to be impossible for a "normal" civilian buyer to borrow the kind of money it would take to purchase a borderline tear-down and rebuild it, so it's either gonna big a mega - investor doing this or a govt agency doing this. don't forget- if the house is not already "habitable" per code, they will not lend on it. it sounds like these are not, so they would have to pay cash. not that many individuals have that kind of cash (and want to live in Lancaster), even if they could get them for $75K plus repair costs.

even if a civilian could get past the underwriting standards for "habitability" imposed on lenders by purchasers of loans like Fannie and Freddie, the appraisal is likely to come in extremely low, so the buyer would have to have a lot of cash on hand for repairs.

or, the buyer would then have to go through the arduous process of finding and hiring a contractor, trying to get a EXPENSIVE construction loan, which means an instant re-fi ($$$), manage 18 mos. of construction while working full time (meanwhile, their loan and insurance was probably contingent on them occupying the property), while trying to raise their kids, keep their jobs and pay their bills.

this sounds like a lot of hurdles for a young family to jump through, and if any were capable and interested, why aren't they already doing it? nobody's stopping them, and meanwhile, the houses are attracting vermin, mosquitoes, crime, and dragging the whole neighborhood down, so innocent neighbors are paying the price for these disasters. is that more fair?

[Doug in Toronto]

At least they'll have no delays in getting permits.

[dr]

"Lancaster's program began well ahead of a federal housing bill signed in July by President Bush that will award almost $4 billion in Community Development Block Grant funds to local governments to buy and rehabilitate foreclosed properties."

So Lancaster is using Federal money? It ain't no skin off their necks!

I

[Maggie Knowles]

Peter I agree with you, let the prices fall until they reach a point where buyer's can afford them. I looked at 20 homes under $320,000, 3+ bedrooms, 2+ baths all over San Fernando Valley on Sunday - most are crappy little houses that are still overpriced when you consider their condition.

[mucker]

I agree with Maggie. I also noted in the article that Lancaster is targeting the homes at families of four that have an income of $71,000.00. I have an income in that range and am certain I would not buy on of these distressed properties in a distressed neighborhood in a city a far commute from the real world ( ie; where I work). And think about the median income and the income of poor people. It's well below the sales prices based on what Lancaster is investing in the properties.

[Nick]

News flash for sheila: the city could/should just fine the property holder for disrepair every day until it gets fixed. They will either fix it, or sell it (at market) to someone who will. Problem solved, no money out from the city, enough income to pay for the program. Oh, and as a bonus, more affordable housing.

The only reason lenders sit on properties is because it doesn't cost them much to do so. Add in some fines, and they will move, and get fixed up. Why does the liberal "solution" always have to be complicated and cost the responsible taxpayers more money?

[CD]

Who in their right mind would move there? Hemet is white- trashville. It's a cristal meth heaven... Desert Hot Spring is home for the parolees from LA county jails. Huge rise in crime in the Palm Spring area. Let it all rot and go to pieces.
It is like " Escape from LA" starring Snake Plisskin.
Hummm ...it could become a new ultimate theme park...
The 10 freeway is already an interesting ride these days...

[Mary C.]

Usually, for a property to wind up in major fixer-upper status, it reflects many years of deferred maintenance or unaddressed issues. Since most foreclosed properties were bought in the past few years, they must have already been in very poor shape when the mortgage lenders made those loans (I can't think it's all just vandalism by disgruntled people, a lot of the homes are just old and worn out). I'm always reading banks won't make mortgages on homes in poor shape, but they must have. Why, then, did they lend on these properties in the first place, and why should taxpayers have to pay to fix things that should have been fixed before a loan was ever made on these properties? The more I read about the bad shape of foreclosure properties, the more I think the problem wasn't just lending to the wrong people with the wrong types of loans. They were lending on properties that normally would not have been considered for a conventional mortgage in a normal market, and the appraisers were overlooking things (or AVMs were used and appraisers never even inspected conditions at the properties) and backing properties that were bad collateral due to poor condition. And I don't think Lancaster is a market that will work well for this, becase it's so far from job centers. Maybe even inner-city LA would, but not a place where people are forced to make long commutes with $4 gas.

[SV]

It doesn’t take a lot of effort to check the California department of real estate license check website to find out that the city officials in charge of using tax dollars to flip a bunch of overvalued properties coincidently happen to be realtors.

“Bob Schack, president of the Greater Antelope Valley Assn. of Realtors, said the city's effort to buy mainly older, poorer-quality homes that had been languishing on the market was a "win-win" situation for all involved.”

Speaking of “languishing” homes, the photo in the article shows the city owned house “languishing” with boarded up windows.

“Realtors had generally been unsuccessful in moving such properties. But once the city renovates the houses, Realtors will help market and sell them, Schack said”

That’s nice all of the realtors are helping each other out.