Lenders and local governments tend to have common interests because owners of neglected properties often default on their mortgages, causing lenders to lose interest revenue and local governments to lose tax revenue. Large national banks, regional banks, local community banks, and finance companies that operate nationwide can all be lienholders on neglected properties. Moreover, some of these institutions may have programs devoted to community revitalization that could form the basis for a partnership with local government or a nonprofit organization to promote adaptive reuse. In addition to financial institutions, local governments might establish productive partnerships with owners of property adjoining neglected properties, redevelopers, and redevelopment agencies.
Partnership goals could include:
- forgivable or low-interest loans to individuals or developers with the capacity to rehabilitate neglected properties;
- agreements to transfer neglected properties to new owners for free or at a low cost with the requirement that the new owners rehabilitate or redevelop neglected properties;
- agreements by banks with mortgages on foreclosed properties to maintain or rehabilitate neglected properties; and
- other joint efforts to facilitate funding options, incentivize property owners to make improvements, and return neglected properties to productive use.
Thanks to our partners, and Wells Fargo, a fresh start has been given to a single mother and her daughter, fresh air has been blown into the bones of a home destined for abandonment and demolition, and energy has filled a cul-de-sac that has been forgotten.
– June 15, 2015, post to the Facebook page of the Business Development Corporation of the Northern Panhandle
- Relatively simple and inexpensive
- Realizing common goals between financial institutions and local governments can streamline processes, saving time and resources
- Can keep local government from holding the title to problem properties for long periods of time
- Lenders who agree to transfer properties to local governments may also be willing to include a stipend for maintenance costs
- Potential for collaboration, particularly with local institutions, may be easier in small communities where residents are familiar with one another
- Positive publicity for the institution may motivate participation
- A partnership between a local government and a financial institution addressing neglected properties may lead to other partnerships, such as financial literacy programs that may help alleviate poverty and contribute to higher rates of homeownership
- Financial institutions often have relationships with developers that can help identify potential collaborators for redeveloping particular properties
- Communicating with large institutions and nonlocal lenders may be difficult
- Lending institutions themselves may be the neglectful owner or uninterested in cooperating
- Some problem properties are treated like “hot potatoes” because all potential owners are concerned about maintenance costs or issues like asbestos
- It may be more difficult to secure loans for properties in blighted areas
Forming formal partnerships with banks may have incidental costs, such as paying attorneys to negotiate and draft agreements. Over the long-term, returning neglected properties to productive use increases tax revenue for local governments.
No standard procedures apply to forming partnerships with financial institutions, particularly because these institutions have varied structures, roles, and goals. However, as a first step, communities should consider calling the organization and asking to speak with a community development specialist. Any formal agreements should be put in writing.
Usage in West Virginia
Many communities and developers around West Virginia have partnered with or received funding from financial institutions to pursue redevelopment and revitalization projects. For instance, in 2011, FHLBank Pittsburgh, a congressionally created, privately owned wholesale bank—through its Affordable Housing Program— partnered with member banks throughout West Virginia (including PNC Bank, WesBanco Bank, United Bank, and Pendleton Community Bank) to fund rehabilitation projects in Charleston, Fairmont, Martinsburg, Wayne, Wheeling, and White Sulphur Springs. 1
Wells Fargo, an “international banking and financial services company,” has played an active role in working with the Business Development Corporation of the Northern Panhandle (BDC) based in Weirton, West Virginia, to address problems with dilapidated housing stock. Wells Fargo “acquires some houses after they have been foreclosed and, through its Community Urban Stabilization Program, partners with faith-based and other nonprofit groups to eliminate blight and make housing available to people with low- to moderateincomes.” 2 Wells Fargo has additionally deeded numerous foreclosed homes to the BDC’s housing initiative for repurposing. 3
The BDC uses market studies to strategically determine which properties to rehabilitate and which to raze. For several properties, Wells Fargo has provided a stipend for maintenance. However, even stipends may not cover all of the costs for problem properties. With funds set aside from its diverse programs, the BDC is able to absorb the costs of problem properties that require expensive maintenance or sell them for less than the cost of renovation.
The BDC has also partnered with CHANGE, Inc., a “community action and health agency that serves northern West Virginia.” 4 The BDC tends to renovate homes in transitional neighborhoods where potential homeowners often have low- to moderate- incomes. For one house the BDC renovated, CHANGE, Inc., screened applicants, provided credit counseling to prepare applicants for homeownership and credit approval, and provided down payment assistance. The partnership allowed the BDC to sell the home to a single mother working multiple jobs.
The groups that are best equipped to handle these types of properties are the ones with layered partnerships,says Pat Ford, the BDC’s Executive Director.
They’re not on the hook by themselves. They say it takes a community to raise a child—it takes a community to deal with a property lot. As long as you’ve got a wide variety of resources to tap into, you can do it.
- Affordable Housing Program: 2011 Funding Round Recipients, West Virginia, FHLBANK, http://www.fhlb-pgh.com/housing-and-community/programs/ahp_recipients_11. html#wv (last visited Jul. 21, 2015).
- The State Journal, BDC Helping Communities in Brooke and Hancock Counties Eradicate Blight, Claude Worthington Benedum Found. (May 7, 2015), http://www.benedum.org/ about/news.shtml.
- See, e.g., Linda Harris, Leadership Weirton Class to Tour Abandoned WV Properties, See Benefits of Revitalization, The State Journal (Jul. 9, 2015, 11:14 AM), http://www. statejournal.com/story/29275486/leadership-weirton-class-to-tour-abandoned-properties-see-benefits-of-revitalization.
- Change, Inc., http://www.changeinc.org (last visited Jul. 21, 2015).