Gov't, Nonprofits Get First Dibs on Foreclosures

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It used to be that mortgage lenders gave first crack on foreclosed home purchases to private investors. Not so much anymore. Big banks like Bank of America (Stock Quote: BAC) and Wells Fargo (Stock Quote: WFC) now offer a 48-hour window for local nonprofit groups to buy foreclosed properties before private investors get a sniff. It’s all about leveling the playing field, but some private investors may not like it.

Banks are offering the deal via the federal government’s National Community Stabilization Trust, a group operating under the direction of the U.S. Health and Urban Development Department. According to itsweb site, the NCST “facilitates the transfer of foreclosed and abandoned properties from financial institutions nationwide to local housing organizations to promote productive property reuse and neighborhood stability.”

With an estimated 1 million U.S. homes in foreclosure this year (many of them in limbo right now due to the robo-signing scandal) there are plenty of options for the NCST to choose.

They’ll do so with that 48-hour head start, which big banks are giving the agency’s service partners (all nonprofit groups) before private investors get a chance to review and bid on the foreclosed properties. The federal government figures it can sell about 100,000 properties to nonprofits operating within the 48-hour “first look” program.

The government hopes that public-private partnerships like the NCST can “clean up” neighborhoods and communities blighted with foreclosed properties.

“This groundbreaking agreement will help rebuild neighborhoods that have been struggling with blight and declining home values due to foreclosures,” said HUD Secretary Shaun Donovan. “Local communities will now get an exclusive option to buy foreclosed properties in targeted neighborhoods so they can turn the homes into affordable housing or, in some cases, tear them down. This agreement helps us level the playing field to give communities a better chance to stabilize these neighborhoods.”

By “leveling the playing field,” Donovan means giving local nonprofits, who often can’t compete financially or organizationally with deep-pocketed private investors, a leg up in the foreclosure purchase process. Nonprofits will be given access to HUD’s REO Match web-mapping and property management software program (developed by the NCST) so they can more easily identify bank-owned properties on a real time basis.

Private lenders may not appreciate being invited to the party two days late, but for local community groups, the NCST program provides an opportunity to address foreclosure blight in their neighborhoods on their own terms – and not those of a private developer.

How that situation will play out is way up in the air – but nonprofits will no doubt relish getting their turn at bat first for once.

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