New plan gives government first dibs on foreclosures

Kyle Clark

9WANTS TO KNOW
AURORA - A new program allows government agencies and their partners to have exclusive purchase rights on foreclosed homes before families, investors and the rest of the private market is allowed to bid.

9Wants to Know has learned the initiative, called First Look, is touted as a tool to maximize an effort funded with federal taxpayer dollars to fix-and-flip homes in distressed neighborhoods.

Critics argue First Look is government intrusion into the real estate marketplace that will impact families looking to purchase and live in a foreclosed house.

Charles Roberts, a Realtor with Your Castle Real Estate in Denver, called the recently-announced government initiative "appalling."

"They're changing the rules. They're tilting it in their favor," Roberts said. "They actually get an opportunity to buy a house before a homeowner, which doesn't make any sense to me at all."

First Look will be utilized by grantees in the Department of Housing and Urban Development's Neighborhood Stabilization Program (NSP).

Since 2008, the NSP has used billions in federal tax money with the aim of shoring up troubled neighborhoods plagued by foreclosures and abandoned homes. The homes are resold to low-income and moderate-income families at or below the cost to the government or participating non-profit.

First Look offers NSP grantees including state and local governments and non-profitorganizations an exclusive one to two day window to express interest in a property. Those governments and nonprofits will have five to 12 days to close the deal before the property is opened to the private market.

The initiative is a partnership between HUD, the Stabilization Trust and financial institutions holding an estimated 75 percent of the bank-owned properties in the U.S.

An additional $1 billion in taxpayer money was recently infused into the NSP by a financial reform bill passed by Congress. At a Sept. 8 news conference in Aurora, HUD officials announced $17.3 million of that funding is designated for use in Colorado.

"This first look is really a game changing approach, market-oriented and cost-effective," Regional HUDDirector Rick Garcia said.

Realtor Jude Sandvall laughed at that description.

"I don't understand how the government having the ability to purchase properties before individuals and families is a market-oriented approach," Sandvall said. "They're taking those families' taxpayer dollars and purchasing properties before those families even have an opportunity to look at those properties and purchase them."

At the HUD news conference, Garcia defended giving governments and their partner organizations exclusive first access as an issue of "who knows best."

"Who knows best but the local people running these programs, and particularly those in the City of Aurora, about how to get these properties back on the market?" Garcia said.

"I would ask the same question: 'Who do you think knows best?'" Roberts said. "I think the answer is exactly the opposite of what he would like you to think."

The latest $1 billion in NSP funding is expected to impact 14,000 foreclosed homes nationwide. Colorado alone had 20,437 foreclosures in 2009. HUD officials say sheer numbers mean the impact of First Look will be limited.

"There are still a tremendous number of foreclosed properties that are available on the market to the private sector," Garcia told 9Wants to Know investigator Kyle Clark.

HUD spokesman Brian Sullivan says the foreclosures purchased through First Look will only be in troubled neighborhoods, but acknowledged that local governments and nonprofits will determine which neighborhoods qualify.

"It's a preference that serves a larger public purpose," Sullivan said of First Look, calling it a "minor and highly temporary inconvenience" to those in the open market.

Critics say they're not concerned about local governments and their partners taking a large quantity of the foreclosed properties. Their concern is rooted in issued of principle and priority.

"The government has mandated they get the best properties," Roberts said. "It seems incredibly unfair."