This past October, Bank of America earned a considerable amount of negative publicity after it announced it would pay $7,500 to tear down foreclosed houses in a handful of Midwestern cities.

As it turned out, these were some of the most decrepit houses in cities such as Cleveland and Detroit and probably should have been torn down a long time earlier. It was more expensive to maintain the buildings than they were worth.

This past October, Bank of America earned a considerable amount of negative publicity after it announced it would pay $7,500 to tear down foreclosed houses in a handful of Midwestern cities.

As it turned out, these were some of the most decrepit houses in cities such as Cleveland and Detroit and probably should have been torn down a long time earlier. It was more expensive to maintain the buildings than they were worth.

Not all foreclosed houses, of course, warrant such rough treatment, which is a good thing because five years after the start of the recession, LPS Applied Analytics estimates there are still more than 6 million borrowers who are 30 days or more delinquent on their mortgage, with another 2 million homes already in the foreclosure process.

Most foreclosed homes will eventually be resold as REO properties, but there are probably hundreds of thousands that will have a tougher time coming back into the marketplace. While not in great shape or in wonderful locations, they still don’t deserve to be torn down. What happens to these homes?

For a long time now, this column has featured social service organizations that supply housing to a segment of the population in need and how these groups have been able to raise monies to buy unwanted homes at much cheaper prices than at any time in the recent past.

One group I had not written about was Habitat for Humanity International, probably the most well-known housing charity in the world. Habitat renovates or builds new homes and sells them as affordable housing to low- and moderate-income families.

Back in July 2010, Habitat announced it had formed a partnership with the National Community Stabilization Trust (NCST) to help turn foreclosed and abandoned homes into affordable Habitat homes.

The idea being that Habitat affiliates would have the opportunity to purchase foreclosed and abandoned properties from participating financial institutions on a first-look basis, before the properties were broadly marketed and listed for open sale.

Toward the end of the last year, I decided to see how well this partnership was performing and called Stephen Seidel, Habitat’s senior director of global program design and implementation.

"There’s been quite a bit of success," Seidel said.

Habitat, through its local affiliates, had looked at more than 1,000 properties that the NCST referred to the group. Usually, from the point of first look to actually closing on a home comes out to a ratio of about 20-to-1. In other words, for every 20 homes looked at, only one will go all the way to a closing.

"That’s actually not a bad ratio," Seidel said. "So, we have acquired over 50 homes that were referred to us by the trust. It’s been over a year now and we continue to work with the organization."

What happened with the other 19 homes that weren’t chosen or couldn’t be closed?

As it turned out, it was the usual problems: cost, location, conditions, etc.

"If you take a look at the 50 properties that were acquired, that’s several million dollars of value," Seidel said.

"The average acquisition price is somewhere in the $50,000 range. That would be $2.5 million worth of value. When you add in rehab and other work that we do once we acquire the property, then we are talking about $5 million or $6 million of economic activity as a result of our partnership with the trust."

It’s important to remember the trust is not the only way Habitat and its affiliates acquire homes. Indeed, the local affiliates have been very active in doing acquisitions, and the total number of homes acquired in 2011 was far beyond that 50 number.

Habitat for Humanity, which was founded in 1976 by Millard Fuller and his wife, Linda, has built more than 500,000 houses and served more than 2 million people around the world.

The NCST is just one vehicle to gain access and information about properties, but it is a good one because it was created as a common, first-look, divestiture system for all the country’s major financial companies, from JP Morgan Chase to Freddie Mac.

"When the trust gets new information about a property coming into the system from, for example, Freddie Mac, it will identify the location of the property and then refer it to an organization it has in its database that says it is interested in that particular location," Seidel said.

"If there is a Habitat affiliate working that location where the property is located, then an affiliate will get notification."

At that point, the Habitat affiliate has 48 hours to let the NCST know if it is interested in the property.

"If we give a thumbs up, then Freddie Mac will agree to hold the property off the market until we can negotiate an acquisition price," Seibel said. "If we can’t negotiate a price or can’t get the funding together, then Freddie will put the property back on the market."

The role the NCST plays is kind of a one-stop shop for the properties the banks are willing to be made available to Habitat and similar organizations at a reasonable cost.

"Part of the benefit and value of what the NCST has been able to do is negotiate with banks to arrange a "first look," which provides organizations like ours a prescreening of the potential properties before they are put on the open market," Seibel said.

For organizations such as Habitat, First Look provides a valuable lead.

"We can make a bid for the property before the rest of the market can jump in," Seibel said. "Where our ability to compete price-wise might not be as good, this has been a very strong benefit to us."

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