More foreclosed and vacant homes ahead. How can local governments respond?

About the Author

Tyler Mulligan

Tyler Mulligan is a School of Government faculty member focusing on community development, economic development, public-private partnerships for revitalization, and development finance.

2009 was a record year for foreclosures in North Carolina. Now it looks like 2010 is going to be worse. In the first five months of this year, North Carolina experienced 35% more foreclosure starts as compared to the same period in 2009. (2012 update: a GAO report on vacant homes and foreclosures can be found here).

The challenge is to rehabilitate foreclosed properties and return them to full occupancy before they fall into disrepair and cause further neighborhood decline. How are local governments responding to this challenge?

The hardest hit areas obtained federal funding through the Neighborhood Stabilization Program (NSP) for the purchase and rehabilitation of foreclosed homes. Funding through that program is no longer available, and no additional funding has been proposed (more information on the program in North Carolina can be found on the NC Department of Commerce website here). For local governments who did not receive NSP funding, are other options available?

Three programs illustrate potential local government responses to homes left vacant and in disrepair as a result of the foreclosure crisis. Each program intervenes at a different point in time following a foreclosure-related vacancy. This post will work backwards, starting with programs that intervene later in time (e.g., after a home has become so dilapidated that the local government demolished it) and work toward programs that intervene at earlier stages (e.g., before a home falls into disrepair). A comprehensive program would incorporate the full spectrum of approaches described below.

After demolition: forgive demolition liens when owners construct affordable housing

Durham encourages owners to build new housing on properties where an unfit home was demolished. These empty lots are hard to sell because each is weighed down by a demolition lien, which in some cases can exceed the value of the lot itself. In order to get property owners to build a new home on the empty lot, Durham will forgive the demolition lien provided that housing for low- or moderate-income persons is constructed on the property. The program is discussed in a news article here. I had the opportunity to work with local government officials to determine the city’s legal authority to implement the program. My colleague Chris McLaughlin wrote a post on the lien forgiveness aspect of the program.

Dilapidated housing: acquire property through the exercise of eminent domain and use it for affordable housing

The cities of Rocky Mount and Winston-Salem obtained special statutory authority to acquire dilapidated housing through the exercise of eminent domain. The new authority may only be exercised on properties with a dilapidated home that has been closed for at least two years due to being unfit for human habitation. Any property acquired through this eminent domain procedure must be used to provide housing for low- or moderate-income persons.

Can other cities implement a program along the same lines without requesting special authority from the General Assembly? Probably yes. North Carolina’s housing authority law permits housing authorities to exercise the power of eminent domain for the provision of housing for low- and moderate-income persons. Cities can exercise that housing authority directly pursuant to G.S. 160A-456(b), regardless of whether or not they have established a separate housing authority. Counties possess the same authority under G.S. 153A-376. The exercise of eminent domain in order to develop low-income housing projects has long been permitted under North Carolina law (see, e.g., In re Housing Authority of City of Charlotte, 233 N.C. 649 (1951)).

Repair homes before they must be demolished

A prior post explains how local minimum housing codes can be employed to repair houses before they become dilapidated and must be demolished. Local governments possess authority to repair homes that are unfit for human habitation, provided those homes can be repaired at a reasonable cost. The costs of repairing a home become a lien on the property and are collected by the same means as a property tax, as described in this post. Liens for repair costs stand a better chance of being collected, because they are attached to rehabilitated properties rather than empty lots.

Establish a monitoring program for vacant homes

The key to early intervention is monitoring homes to ensure that they do not fall into disrepair in the first place. One means of tracking vulnerable housing is through enactment of a local vacant property registration program. These registration programs require an owner of a vacant property (including a bank that takes ownership following foreclosure) to register the property with the local government and to hire a management company to maintain the property during periods of vacancy. I had the opportunity to assist the Town of Warrenton as it implemented the first vacant property registration program in North Carolina. More details on such programs and a discussion of the legal authority to implement them in North Carolina are provided in my law review article here.

What other programs have been developed by North Carolina local governments to deal with increasing numbers of foreclosed homes?


2 Responses to “More foreclosed and vacant homes ahead. How can local governments respond?”

    • This suggestion could provide a partial solution, but I’m afraid it would be incomplete on its own. For example, it would miss any homes that were vacated prior to foreclosure, so a house could sit vacant for months waiting for a judgment to be rendered. It would also miss houses that were vacated before the foreclosure process had even been initiated (some owners vacate immediately upon receiving a notice of default). Sometimes houses are left vacant when they are passed to heirs without a will, because the resulting ownership structure makes it difficult to manage the property. The law review article mentioned in the post discusses a policy option that would work in all of these situations. Thanks for your comment — you have raised an important point for policy-makers to consider.

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