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help, so if you don't have to run off, you can have such a conversation with them.

[The complete statement of Mr. Lehrer-Graiwer and additional material follows:]

STATEMENT OF JONATHAN LEHRER-GRAIWER, WESTERN CENTER ON

LAW AND POVERTY, INC.

ABANDONMENT: DELMANN HEIGHTS, A CASE IN POINT For the past month and a half the Western Center on Law and Poverty, Inc., has been involved in a federal lawsuit aimed at preventing the Department of Housng and Urban Development (“HUD") from abandoning to property speculators the 147 vacant nouses its owns in the Delmann Heights area of the City of San Bernardino. Among the plaintiffs to that suit is the San Berardino West Side Community Development Corporation, headed by its Executive Director, Valerie Pope. This non-profit community-based corporation is dedicated to improving and stabilizing the community in and around Delmann Heights.

The problem of abandoned and foreclosed housing owned by HUD and the Veterans Administration is starkly outlined hy the communities of Delmann Heights and California Gardens located on the west side of San Bernardino. Attached as Exhibit 1 to this presentation are the introductory pages to the Delmann Heights/California Gardens Revitalization Study which was commissioned by the California Youth Authority and which describes in some detail the social tragedy which has occurred in the two subject communities. Out of a total of approximately 650 dwelling units in Delmann Heights, over 300 units are vacant, 133 of which are currently owned by the VA and 147 units have been recently sold by HUD in a bulk “as is” sale to a private speculator.

Although some of the causes of the high degree of abandonment in Delmann Heights and California Gardens were the result of economic and social forces beyond the control of government agencies involved in those areas, it is clear that the continued deterioration of the Delmann Heights area, in particular, can be ascribed to a failure in programs instituted by HUD. This can be seen in tracing attempts by HUD over the past three years to dispose of its inventory of abandoned and foreclosed housing.

In 1972 HUD entered into an agreement with a private developer for the purchase, rehabilitation and resale of HUD-owned vacant properties under the then existing practice by HUD of requiring the repair of units it sold. That first deal did not come to fruition and was abandoned sometime in late 1974. Then armed with new bulk sale regulations contained in the Property Disposition Handbook no. 4310.5 88330, et seq., HUD decided to sell the 147 abandoned and foreclosed properties in a bulk “as is” sale, with absolutely no requirements that the purchaser develop and rehabilitate properties for sale to owneroccupants. The result was the conclusion of such a bulk "as is" sale on June 27, 1975 for $295,000 ($2,000 per house) to a company which simultaneously resold the properties at a profit of $125,000 to three speculators. These speculators, in turn, set up a public auction of those same properties for July 27, 1975. As indicated by Exhibit 2, the newspaper advertisement for the auction, the houses were again to be sold “as is” at prices ranging between $4,500 and $7,000, which again represented a substantial potential profit from the less than $3,000 paid to the first buyer and the $2,000 initially paid to HUD.

Fortunately, as a result of the suit instituted by the Western Center on Law & Poverty against HUD and the subsequent purchasers, and as a result of an ill conceived "get rich” scheme, in general, the auction failed. The plaintiffs to that suit have now been successful in at least temporarily averting the total deterioration of Delmann Heights as a result of a speculative and potentially fraudulent venture by obtaining a federal court order setting some standards of development for the current owners.

However, the lesson is clear that HUD has embarked upon a policy of abandoning the units it has acquired to some of the lowest and basest real estate speculation. This general policy by HUD to make bulk “as is” sales without any rehabilitation requirements or supervision would appear to be in conflict with a variety of national housing policies as set forth in 42 U.S.C. 81701t, 42 U.S.C. $1444, 42 U.S.C. $1441a, 42 U.S.C. $5301 and 42 U.S.C. $1437 and with HUD's own regulations contained in the Property Disposition Handbook No. 4310.5, Chapter 10. However, aided by an internal conflict within the law, between the policies of safeguarding and improving the quality of low and moderate income housing, in particular, and of safeguarding the mortgage insurance fund, HUD has been able to issue internal directions and notices specifying that the primary objective of the property disposition program is to Reduce tne inventory of acquired property in such a manner as to insure the maximum return to the mortgage insurance funds”. (Notice HM 74–57, September 11, 1974.) The previous emphasis on rehabilitation requirements seems to be a dead letter. This policy which implies a complete disavowal of any responsibility by HUD to assure the rehabilitation of dwelling units it acquires and the continued vitality of neighborhoods in which these units are found underlines the critical need for a separate development corporation as proposed in the Abandonment Disaster Demonstration Relief Act—a corporation whose primary function would be to rehabilitate, as quickly as possible, and otherwise develop abandoned housing and to sell such housing to owner residents.

I am including for the committee's information several pages from an affidavit of Ms. Valerie Pope submitted to the district court in Los Angeles and outlining some of the basic causes for the cycle of sale, abandonment, foreclosure, reacquisition by HUD or VA, rehabilitation and resale which has occurred in the Delmann Heights area as many as three and even four times.

COMMENTS AND CRITIQUE OF PROPOSED On the basis of the experience gained from the Delmann Heights and California Gardens communities the following comments are advanced in an effort to increase the likelihood that the proposed act will spawn an effective program for redeveloping and revitalizing abandoned properties. Initially, let me state that the elements which I have concluded are essential to any effective program are (a) that community groups in affected areas participate in the planning and exection of developments : (b) that the corporation assure that the development and/or rehabilitation is substantial, as opposed to cosmetic, and is executed in a workmanlike manner; (c) that the burden of rectifying or suffering the consequences of inadequate rehabilitation be removed from resident owners of properties sold by the corporation; and (d) that sufficient buyer screening and counseling be implemented.

1. In regard to the active participation by community groups, the proposed act does require the corporation to “consult, on a continuing basis, with local officials and affected residents of a selected area with respect to matters of mutual interest and concern”. (Section 5(a)) I believe that this does not go far enough and that the act should strongly encourage the active participation by community groups and residents in the planning and execution of the development and/or rehabilitation of a selected area. If a particular area has a community organization in existence which can demonstrate community support, a commitment to safeguard and revitalize the area and the knowledge and skill necessary to undertake a part or all of the proposed development, it seems that such a group should be given careful consideration in helping the corporation to execute its plans. I stress this point because the existing HUD regulations (Handbook no. 4310.5, $330(b)) actually mandate a preference for profitmotivated developers in the purchase of bulk sales and require a specific finding by the Director that a bulk sale program cannot be successfully concluded with a profit-motivated sponsor before concluding an agreement with a non-profit sponsor. The advantages to the corporation of working as closely as possible with existing community groups are manifest and include (a) the ability to galvanize community support; (b) access to information about the community's desires and needs; (c) access to information about prospective buyers and their qualifications and commitments to maintaining the properties which they buy ; and (d) access to information about local contractors and their reliability.

2. The Act should include a specific requirement that sales and rentals of units by the corporation should be to individuals who will actually reside on the premises which they purchase. Additionally, to deter speculation, restrictions should be placed in deeds that any subsequent sale of properties must also be to resident owners. In the case of the sale of a multi-family dwelling, the corporation may be allowed to sell the property to a non-profit group with adequate restrictions on resale.

3. The Act does not deal with the corporation's responsibility to adequately check the credit and assess individual prospective buyers for likelihood of their success as homeowners. As indicated by Ms. Pope on pages 5 and 6 of Exhibit 3, inadequate screening of buyers by HUD has been, to a significant extent, responsible for the abandonment cycle which has occurred in Delmann Heights and elsewhere. The problem is particularly acute in the case of HUD and VAinsured loans where the private lender has little incentive to adequately screen buyers since his inyestment is completely insured. The object of proper screening is to insure, as much as feasible, that the prospective buyer has some chance of meeting the payments required by home ownership and that the prospective buyer does not have a history of purchasing and abandoning homes or defaulting on mortgages. As stated by Ms. Pope, the people who bear the burden of unqualified buyers and subsequent abandonment are the remaining residents who are left with the vandalized remains of the vacated homes.

4. A concomitant to adequate credit screening is adequate counseling which the Act does mandate in $6(i). However, I believe that the corporation should also be given authority for ongoing counseling where necessary. It is clear that home ownership, in particular, often necessitates a significant change in social and budgetary management by a family—a change which may well require ongoing counseling beyond the initial purchase of the property.

5. The Act provides the corporation with authority to compensate a purchaser for structural or other defects if three specified conditions are met [$6(g)]. I believe that this is inadequate and that the corporation should be held specifically responsible for the quality of the rehabilitation and/or development conducted upon properties it sells. This responsibility should not be dependent upon the second part of the third condition that the defect be one that proper inspection could reasonably be expected to disclose. One of the critical elements for a successful program is assuring, to the maximum extent, that low and moderate income buyers of the dwelling units sold by the corporation are able to maintain their properties and continue to have the desire and incentive to maintain payments on the properties. To this end, every reasonable step must be taken to eliminate unnecessary burdens on low and moderate income home buyers. A burden which has often led to abondment involves defects in the rehabilitation which are discovered some time after purchase. The corporation is in a good position toe xtract quality warranties from rehabilitation contractors and developers and is in a much better position than low and moderate incme buyers to pursue actions against such contractors in the case of improper work. Placing the responsibility on a low and moderate income buyer to collect for improper work would increase substantially the danger of the abandonment as a result of the increased cost on the owner. Consequently, the responsibility of the corporation for rectifying improper work should extend to all defective work without limitation as to whether the defect is one "that a proper inspection could reasonably be expected to disclose”.

6: The proposed Act provides in 86(h) and $7(a) (3) for authority to extend the time for payment of any installment by any mortgagor. I believe that the Act should set some standard under which the corporation would be required to grant an extension of up to three months upon a good cause showing temporary inability to make payments, as a result of illness or some other unforeseen circumstances. Possibly, the Act should allow a mortgagor a one-month payment extension every two or three years if the extension is brought up to date within one year, except where there exists evidnce that the mortgagor is committing waste on the property.

7. Section 7(a) (5) specifies that the operation of the corporation shall be fully self-supporting. I question whether the cost of counseling, if meaningfully implemented, should be included in this self-supporting requirement.

I fear that the managers of the corporation will readily discard the counseling requirement or severely limit its application at the first sign of a budgetary problem. This would be tragic in the sense of undercutting one of the most critical elements necessary for a decrease in the abandonment rate. The counseling program should be independently and generously funded from some other source such as general revenues so that competing budgetary demands do not lead to its demise.

DELMANN HEIGHTS/CALIFORNIA GARDENS REVITALIZATION STUDYAn Experimental and Demonstration Project in Community Crime Abatement

(By Dukes-Dukes and Associates; John Dukes, President; Sammie Dukes, Executive Vice President; L. P. Lewis, Project Manager; Robert Mascolo;

Jerry Varnado; Louise Webb; and Dianne Williams) Prepared for California Youth Authority, Sacramento, Calif., Contract 2-CCA, to be utilized by The San Bernardino Westside Community Development Corporation.

INTRODUCTION A keystone of American democracy is the right of every citizen to participate in the decision making processes that directly affect his life. The basic intent of this study is to establish a framework where the people of Delmann Heights and California Gardens can develop their own decision making processes for the well being of their community.

In 1972 and 1973 Dukes-Dukes & Associates undertook a contract with the California Youth Authority to deal with crime abatement in selected California cities. Among these cities was San Bernardino. The study area there is made up of approximately 80 single family homes, 41% of which are vacant and boarded up. Mortgage insurance on these homes was provided by the FHA or the Veterans Administration and through the process of mortgage foreclosure these agencies had acquired these properties.

Through a nearly devastating process of real estate manipulations stemming from racial bias, economic disinvestment and inappropriate public actions, Delmann Heights and California Gardens had been transformed into deteriorating neighborhoods undergoing the abandonment process. Due to the high rate of mortgage foreclosures and difficulty in remarketing the vacant houses, the FHA had been forced to withdraw these properties from the market.

In this context, it was clear that for Dukes-Dukes & Associates to deal effectively with crime abatement, the issues of housing abandoment and neighborhood revitalization would have to become the major concern. This recognition led to an analysis of community problems and issues which finally resulted in this study.

The materials contained within this study are organized in three basic categories; a description of existing conditions, an analysis of physical facilities and an analysis of social issues. Each sub topic within the physical and social categories is preceded by a summary of recommendations and includes an analysis of formal plans affecting it. In that there are a great number of recommendation contained in this study, capital letters have been utilized to emphasize those of major importance.

It is our deep hope that this study is the correct tool for the citizenry and public officials to chart a course of action that will lead to the revitalization of Delmann Heights and California Cardens.

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