Can Lease-Purchase Save Us?
As developers struggle to find buyers for rehabbed affordable homes, many are looking to a lease-purchase model to expand the pool of potential owners. But lease-purchase is far more complicated than just an end-run around the credit crunch.
By Miriam Axel-Lute Posted on February 7, 2011
“We can’t afford to keep a rehabbed home vacant.”
Susan Cotner, director of the “Albany Community Land Trust”:http://www.albanyclt.com/, sums up a problem increasingly facing affordable housing developers and local governments who have stepped up to try to respond to the epidemic of foreclosed vacant buildings over the past couple years.
Holding costs for an unsold house have been difficult to absorb even in better times. Enter a flood of Neighborhood Stabilization Program (NSP) money focused on acquiring and rehabbing properties; a still-worsening economy that is leaving households less able to buy and less interested in buying, especially in marginal neighborhoods; and a severely tightened credit market and more people with damaged credit limiting the pool of qualified buyers.
The result? Houses that aren’t selling and organizations that are slowing down their acquisition and rehab out of fear that they’ll be burdened with unsold properties. And yet neighborhood stabilization depends on getting these homes occupied.
Many see lease-purchase, where not-quite-mortgage-ready buyers occupy the house they intend to buy as a tenant until they are fully mortgage-ready, as a way out of this bind. “Lease-purchase provides an alternative or ‘plan B’ rather than let completed homes sit vacant or going to rental,” explains David Cramer, a consultant who conducts NeighborWorks America’s lease-purchase training module and wrote a lease-purchase toolkit for HUD’s NSP Web site.
Indeed, early on it seemed like nearly every local plan to address vacant foreclosures started with a description of a for-sale approach and ended with “and we’ll probably include some lease-purchase in there.”
Miriam Axel-Lute is editor of Shelterforce and associate director of the National Housing Institute. Her email is miriam at nhi dot org.
- Lessons from Ten Years of Lease to Purchase, by Bill Goldsmith and Cindy Holler. August 2010.
- Lease-Purchase Toolkit (including sample agreements, policies, and procedures), by David Cramer. NSP Resource Exchange, October 2010.