Good News for NSP: Redefining “FORECLOSED” and “ABANDONED”

On April 2, 2010, HUD announced changes to the definition of "foreclosed" and "abandoned" under NSP to help accelerate the purchase and rehab of foreclosed and abandoned properties. HUD will change how it defines foreclosed and abandoned to include properties in mortgage default and uninhabitable homes with lingering code violations. These expanded definitions, effective immediately, will increase the reach of NSP by allowing more properties to qualify. This will help state and local grantees to meet a Congressional requirement that they obligate all of their NSP1 funding by September of this year.

You can read the 14 page Notice of Change in Definitions and Modification to NSP here.

 In HUD’s press release, Secretary Shaun Donovan noted that "The original NSP rules this Administration inherited through language from the 2008 legislation limited the impact of the Neighborhood Stabilization Program and we've heard that clearly from our partners on the ground. The rules needed to be more flexible so our local partners can put taxpayer dollars to work quickly to stabilize neighborhoods hard-hit by foreclosure. It is my goal to make HUD the kind of federal partner that listens and responds to the needs of communities, so that we can work together to rebuild our neighborhoods and our economy."

Redefining "Foreclosed"
HUD previously defined the term foreclosed to apply only to properties where the foreclosure process was completed. Local communities suggested this narrow definition was not a good fit for market conditions since many properties were lingering in the foreclosure process and beyond the reach of NSP. The original definition limited a grantee's ability to intervene strategically when a lender initiates but does not complete foreclosure, or where a default is allowed to linger. In addition, many lenders are transferring properties to aggregators or loan servicers, which then arrange for final disposition. In some of these cases, the previous policy did not consider the properties to retain their foreclosed status after title is transferred to the aggregator or servicer.

Properties will now be eligible for NSP assistance if any of the following conditions apply: The property is at least 60 days delinquent on its mortgage and the owner has been notified; or the property owner is 90 days or more delinquent on tax payments; or under state or local law, foreclosure proceedings have been initiated or completed; or foreclosure proceedings have been completed and title has been transferred to an intermediary aggregator or servicer that is not an NSP grantee, subrecipient, developer, or end user.

Redefining "Abandoned"
When the NSP program was originally designed following passage of the Housing and Economic Recovery Act of 2008, the term abandoned was defined as a property that had been foreclosed upon and was vacant for at least 90 days. This definition effectively excludes properties abandoned by owners but where tenants are still in place thereby precluding local communities from assisting the properties with NSP funding or protecting the tenants' occupancy. HUD determined this limitation was a substantial barrier to the preservation of existing affordable housing.

To address this limitation, HUD is expanding the definition of an abandoned property to include homes where no mortgage or tax payments have been made by the property owner for at least 90 days or a code enforcement inspection has determined that the property is not habitable and the owner has taken no corrective actions within 90 days of notification of the deficiencies.