Mesa home purchase plan hits snag

Implementing a federal program aimed at bringing back residents into foreclosed homes is proving to be a challenge in a Mesa neighborhood which was initially targeted because of blight conditions owing to the high rate of foreclosure.

The problem? The market appears to be picking up the slack already. And with several extra steps, such as environmental clearances, before the city can buy foreclosed homes and rehabilitate them, Mesa is losing out to investors and regular home buyers, who also are out there right now, taking advantage of the low prices.

"These properties are moving faster than we can reach them," said Ray Thimesch, who's coordinating Mesa's Neighborhood Stabilization Program.

Armed with a budget of $4.6 million, part of which would be implemented through a local nonprofit, Housing Our Communities, Mesa has targeted the 85204 ZIP code for the program. The money is there, but the longer process is the problem.

Mesa already has received queries from residents interested in the program, but not a single home has been bought yet.

The program, authorized last summer, is picking up speed now. Last July, Congress passed the U.S. Housing and Economic Recovery Act of 2008, which allocated nearly $4 billion across the country to help save struggling neighborhoods. Mesa was granted $9.6 million, of which it has allocated $4.6 million for buying and rehabbing homes to then sell to eligible residents.

Thimesch said six months ago the "for sale" signs were numerous, but they're disappearing fast of late.

Investors and first-time home buyers are snapping up foreclosures, especially because of low-interest rates and the $8,000 federal credit for first-time home buyers, said Tom Ruff, analyst with real-estate data-research firm Information Market of Phoenix.

Thimesch said ideally he would have liked to have a pool of homes ready to offer to eligible residents, but "that pool is not happening."

Sporadic or not, Thimesch hopes to buy about 50 homes in the area at a cost of about $125,000 to buy and rehab the homes. The homes would then be sold for a lower price, as part of the federal program.

According to Mike Orr, owner of Cromford Associates LLC, who tracks the real estate market, the average foreclosure sale in the ZIP code is $78,000.

Thimesch said if they see they're not able to spend the money in 85204 by the September 2010 timeline, they could move to a neighboring zip code or even return the unused portion.

Vice Mayor Kyle Jones, who represents the 85204 target area, said he's aware that the process is a challenge.

"Worst case scenario is we don't use it," said Jones.

Environmental reviews have to be done and the property assessed and researched for issues like historic preservation, flood zones and checking for hazardous materials in the area.

Thimesch said he's expressed these concerns to the local HUD office. Local governments and nonprofits involved also had to buy the homes at 15 percent below the appraised value, which made them less competitive than the investors and homebuyers in the market. But because the market for foreclosures has since picked up, the federal government changed the rule to make it 1 percent below the appraised value.

Still, John Smith, president and CEO of Housing Our Communities, which is slated to get about $2.6 million, said having the program limited to 85204 could prove hard. He also anticipates competition from investors, besides the fact that it's a longer process.

More than environmental clearance issues, Stacy Neal, vice president of Housing Our Communities, anticipates lenders that hold these properties may not take their bid, because it may not be the highest bid. Also, investors typically offer cash, which makes it more attractive for banks to accept, said Neal.

Neal said they have families pre-approved and keen on using the program.

"It will help turn these houses back into homes for people," said Neal.

Bounded by Main Street, Val Vista Drive, Baseline Road and Mesa Drive, the 85204 ZIP code was chosen after officials looked at foreclosures, serious incidences of crime and code violation issues.

Orr said the federal program for targeting foreclosed homes is misdirected. He says if at all, it should have targeted short sales or pre-foreclosures, which take much longer to process, as opposed to foreclosures.

"It's hard to see how a city can get involved in a process that's happening so quickly," said Orr.

"Once homes are in foreclosure, the government isn't doing anyone any favor by adding to the competition."

Orr said people assume there are a "flood of foreclosures," but they are getting bought up and the prices are actually even increasing.

In fact, the number of foreclosed homes being bought in 85204 has progressively gone up this year. In January, there were 41 sales, with 49 in February, jumping up to 69 in March, 76 in April, 79 in May and 93 in June.

The number of foreclosed homes actively listed on the market also has gone down. In May there were 95 active listings. As of Tuesday, there were 81. Generally being listed below the $100,000 price tag helps.

"The cheap homes are selling like hotcakes," said Orr.

Ann Miller of Keller Williams Integrity First in Mesa said with first-time home buyers "swooping in" on foreclosures, the city is likely to be on "a losing proposition."

Lynn Murtagh, a broker manager at Coldwell Banker in Mesa echoed that opinion. She noted that according to Multiple Listing Service, the average number of days foreclosed homes are in the market in 85204 is 69 days. "And that's a small time frame for the government system," said Murtagh.

A banking industry official declined comment on the foreclosure market trend.

JP Morgan Chase & Co. spokeswoman Mary Jane Rogers said the bank would not be in a position to comment on the speed with which foreclosures are moving.

To learn more about the program and eligibility requirements, visit the NSP Homeownership Program link on www.mesaaz.gov.