#090 Nov/Dec 1996 — Saving Affordable Housing

Homesteading Program, Chicago

Note: This profile is part of a series, “Saving Affordable Housing,” which begins with an introduction here.Single-Family Community Land Trust Housing Chicago is a city of neighborhoods,[14] harboring hundreds of […]

Note: This profile is part of a series, “Saving Affordable Housing,” which begins with an introduction here.
Single-Family Community Land Trust Housing

Chicago is a city of neighborhoods,[14] harboring hundreds of community developers and organizers. When faced with widespread disinvestment in the late 1960s, a groundswell rose out of Chicago’s rich community development/organizing constituency to work against neighborhood deterioration and abandonment. (Ervine 1994) Several grassroots initiatives born in Chicago went on to have national impact. For example, local activist Gail Cincotta, founder of National People’s Action and the National Training and Information Center, helped establish the neighborhood movement against redlining, which brought about the Home Mortgage Disclosure Act and the Community Reinvestment Act in 1977. (Johnson 1994) In the 1980s, the Association of Community Organizations for Reform Now (ACORN) participated in a squatters’ campaign in Chicago and helped challenge bank mergers and win Community Reinvestment Act agreements earmarking $200 million in loans for urban areas and affordable housing, ACORN boasts.

Despite these efforts, housing conditions in many Chicago neighborhoods declined during the 1980s. Chicago lost 40,719 units between 1980 and 1990, according to an early 1990s study by the University of Illinois at Chicago for the Chicago Rehab Network. Several communities, including Englewood and West Englewood on the South Side, were particularly hard hit, losing between 2,000 and 7,000 units each, according to the Chicago Affordable Housing Network. In 1993, Chicago had 8,000 abandoned residential structures, particularly evident in South and West side neighborhoods.[15] The City’s policy, until recently, of demolishing abandoned buildings accelerated the loss of units. Many razed sites in low-income neighborhoods simply became vacant lots collecting trash.

Neighborhood Context

Through the 1950s, Englewood was racially and economically integrated, but in the late 1960s the area’s demographics began to change dramatically. By 1990, 99.2 percent of Englewood’s 48,434 population was African American, and 43.24 percent was living in poverty. The 1990 Census found the median household income reported was $13,243, compared to Chicago’s $35,265 median. Unemployment among males over 16 was 31.2 percent, while Chicago’s rate was 7.4 percent.

As Englewood residents’ income fell 19 percent in the 1980s, their median rent increased from $165 in 1980 to $302 in 1990. Although Englewood’s housing is mostly one- and two-family homes, nearly two-thirds of the units are renter occupied. The number of housing units declined 12 percent in the 1980s, to 16,916 in 1990. The area also had an 11.3 percent vacancy rate in 1990, and ACORN Housing Corporation estimated that 10 percent of existing units were abandoned. Despite these factors, the median value of single-family homes rose 71 percent – from $24,700 in 1980 to $42,300 in 1990 – due to development pressures.

For those who know the area, the statistics merely confirm the obvious. “There is no way to miss Englewood,” said June Torres, ACORN Housing Corporation board president. “It was so torn down and broken up, just leaning houses and garbage dumps, no condition for people to live in. No one wanted to live there, not even the homeless, that’s why they stayed downtown. People who did live there couldn’t get financing from banks to fix up their homes, so people were just leaving. Now we’ve started to turn things around.”[16]

ACORN Housing Corporation targeted Englewood because “it is a poor, unorganized community with a high number of single-family units and a low homeownership rate,” said former Executive Director Chris Brown. Since ACORN organizers already had a strong neighborhood presence, the organization felt it could effectively pursue a strategy to increase homeownership there.


In the early 1980s, ACORN of Illinois, a branch of the national ACORN network, worked with the previously mentioned squatters’ campaign in Chicago to pressure the city “to start dealing with low-income housing issues.” But by this time, Chicago’s organizing and community development movements had grown apart. ACORN realized its advocacy work needed to be accompanied by a plan for action, Brown explained. ACORN’s housing division spun off into a separate corporation, becoming ACORN Housing Corporation (AHC) of Illinois. This move was not an isolated decision, as ACORN chapters in New York, Philadelphia, Phoenix, and Little Rock formed housing corporations.

In addition to the executive director, AHC staff included an office manager, who also collected rents and answered homesteaders’ concerns; a construction specialist, in charge of all rehab work, including approving specifications, bidding, and contractor supervision; an outreach worker to attract and interview homesteaders; and a part-time handyman.


AHC’s homesteading program began in 1987 with a pilot project involving the rehab of two houses. AHC acquired these properties from the Federal Savings and Loan Insurance Corporation (FSLIC) – the regulator of federally-insured savings and loans – as part of a package of nine houses, of which six were in Englewood.

The pilot project ran into some problems, partly due to AHC’s lack of experience, but also a reflection of the difficulty Chicago CDCs were having financing single-family housing. To address this problem, in 1990 a group of technical assistance providers – including the National Training and Information Center, the Chicago offices of Local Initiative Support Corporation (LISC), and Neighborhood Housing Services (NHS) – started a program to provide training and seed money of $50,000 a year for five years to CDCs taking on single-family projects. The City provided CDBG funds for three years, while LISC and United Way guaranteed the final two.

Brown was among 14 executive directors who participated in this nine-month training program. The program gave AHC the technical and financial support to develop its lease-purchase concept and community land trust model. And it helped AHC pull together additional funding to expand the rehab project into a homesteading program.

Between 1987 and 1993, AHC acquired a group of houses, primarily from HUD, for its homesteading program. Acquisition of HUD-foreclosed homes, however, proved a lengthy and often frustrating process. In 1992, AHC was only able to purchase nine HUD homes, according to Chris Brown, because HUD’s list prices were too high.

ACORN representatives met with HUD staff to establish a better working relationship and better terms for nonprofits interested in foreclosed property. As a result, HUD devised a demonstration that allows nonprofits to buy homes in designated revitalization areas at a 30 percent discount from HUD’s list price. The discount lowered the average amount AHC paid for HUD-foreclosed homes in Englewood from $14,000 in 1992 to $9,800 in 1993.

AHC arranged financing for the program through Bell Federal Savings Bank and Fannie Mae. AHC’s relationship with Bell Federal stemmed from ACORN of Illinois’ 1990 campaign to push Chicago banks to expand lending and services to low- and moderate-income areas. In September 1991, after a year of negotiations, Bell Federal agreed to provide $1.75 million in mortgages to individuals referred by AHC housing counselors, and a two-year, $200,000 line of credit for AHC to acquire and rehab homes in Englewood and North Lawndale. In June 1992, Bell Federal and Fannie Mae agreed to provide permanent financing for AHC’s lease-purchase program, and Bell Federal helped AHC convince Fannie Mae to modify the program and recognize alternative payment methods, such as 60 hours of sweat equity toward the downpayment.

Bell Vice President Joe Bauer said this arrangement is “a two way street; the banks have a presence in the community and ACORN has a substantial lender.” But he acknowledged that ACORN is taking all the risk. Even though Fannie Mae’s role is to provide an outlet for fixed-rate risk, Bauer said, Fannie Mae credit standards were too high for low-income neighborhoods. “The fact that the population of low- and moderate-income neighborhoods is mostly minority raises the broader [issue of whether] credit standards adversely affect minorities,” he said, adding that ACORN and Fannie Mae tried to define credit standards targeted to low- and moderate-income people, and then provide underwriting criteria for lenders that want to participate.

To date, AHC has acquired 56 properties – 40 from FHA/HUD, and the rest from FSLIC, the Veterans Administration, and private owners. To acquire additional properties for the program, AHC plans to use its relationship with several banks; the city of Chicago’s CAP program, which conveys tax-foreclosed properties to new owners; and periodical listings of available properties from Fannie Mae.


The first three houses in AHC’s homesteading program were rehabbed by potential homesteaders. While sweat equity keeps costs low, AHC discovered that the quality of such work can be uneven. Now the organization hires contractors to rehab all the houses to the same standard.

Expansion of the program prolonged AHC’s construction period and added 33 percent to the cost per unit. But the delay and added cost can be partly attributed to AHC’s lack of experience. Scattered site rehab of single-family homes is a complex, “messy” process, which more experienced developers tend to avoid. AHC also had tried to save money by not hiring an architect as project manager, only to discover that it took much longer than anticipated to prepare specifications and send drawings out for bid.

In 1993, AHC made several changes aimed at improving construction phase efficiency, such as expanding the pool of contractors from whom to solicit bids and using detailed schedules to monitor each project’s progress. Architect John Tomassi, who worked with AHC on the first 20 to 30 houses, helped systematize the writing of specifications.

In 1995, AHC hired an outside consultant to inspect the houses, write-up work specifications, and provide cost estimates. AHC’s construction manager typically reviews and revises these specs and puts the jobs out to bid. This process, which includes several visits to each house, is designed to eliminate expensive changes later on.

The Homesteading Program

Under the program, AHC deeds the property it has acquired to the ACORN Land Corporation (merely the ownership entity). Once rehab is complete, AHC enters into a long-term lease with the homesteader. Members of AHC’s board interview all potential homesteaders. Participants must earn between $15,000 and $32,000, to qualify as very-low to low-income for the area; not already own a home; and have a bank account. Buyers must also pay a $1,000 “downpayment” and nominal application processing fees, donate 60 hours of sweat equity labor per household, and attend homeownership workshops.

After two to three years, homesteaders can take title to the house, with AHC serving as a conduit to a local lender. These homesteaders must begin making payments directly to the bank. But AHC can pay arrears if someone falls behind. A homesteader who later wants to move must sell the title to AHC for the original purchase price, receiving no appreciation in the home’s value. “We are very up front about that,” said AHC’s Sandra Maxwell. “It’s one of the first things we talk about when we interview potential homesteaders. It’s not a program for everybody. If you want an investment property, it’s not for you.” Homesteaders who do not wish to assume the mortgage may remain lease holders, although they are responsible for repairs and maintenance during the lease period.

AHC continues to refine its homesteading program. “Now we think our lease documents are some of the best in the country,” said Brown. “We couldn’t say that five years ago.”


AHC has a 13-member board, all low income, and seven who live in Englewood. AHC points out that these members are neighborhood leaders who understand the community, not bankers, lawyers, and professionals. The board holds elections every three years and meets monthly to set policy, provide oversight, and interview potential homesteaders.

While AHC is currently responsible for governing the land trust, its staff and board stress the importance of building the homeowners’ capacity to participate in decision-making. AHC’s staff plans to work to increase turnout at homeowner meetings and improve their usefulness. Further, the 1993 annual report promises to show homeowners, room by room, what work the general contractor did, what is covered by the warranty, and to require homeowners to sign a document detailing their responsibilities.

To encourage autonomy and collective action among homesteaders, AHC created “homebuyers clubs.” So far, the clubs have been inactive. Only two homesteaders reported meeting with other homesteaders frequently. Four reported meeting occasionally, and the rest said rarely or never. Homesteaders cited events such as block parties, neighborhood watch meetings, or community policing “beat raps,” – rather than the homebuyers clubs – as providing opportunities to meet one another. One homesteader said “I’m too busy being involved with other issues with ACORN.” Another said “I want to be involved. When they say they’re having a meeting, I always want to attend, but I haven’t.”

Property Management

AHC discovered that its lease-to-purchase program involved extensive property management responsibilities. The program provides a full year guarantee on all its work on the home, but makes homesteaders responsible for repairs after the warranty period.[17] AHC also conducts annual maintenance checks and provides homeowner workshops during the three-year lease term. “We try to treat people like homeowners, even when they are leasing, or else they keep a rental mentality,” said June Torres, adding that many of the families do not have a history of homeownership. “Also, the homesteaders sometimes do not want to bear the brunt of the expense of the repair, and so they ask us to do it.”

AHC has also encountered property management problems, including late payments, low attendance at homeowner meetings, inadequate homeowner training, and difficulty tracking homesteaders’ escrow funds. To address these issues, AHC aims to streamline rent collection, improve account management, and conduct regular homeowner meetings and training sessions. AHC staff also plan to conduct more frequent inspections during the first year of homeownership, along with drive-by inspections by the rehab specialist at least once every two months. Other objectives are to tighten rent collection and late-payment policy, encouraging homeowners to bring rent to AHC’s office (although there was no immediate plan to relocate the office, shared with ACORN of Illinois in downtown Chicago, a 30 to 45 minute drive from Englewood.)

Given these tasks, along with expansion of the program with a recent HUD HOPE III grant-providing $15,000 per unit for 40 units, AHC could become swamped by its expanding property management responsibilities before having fixed existing problems. LISC and the Property Management Resource Center, a Chicago-based nonprofit, are helping AHC address its problems with a training program for AHC, four other Chicago CDCs, and residents involved in single-family home purchases. LISC is also helping the CDCs learn to track and monitor expanded inventories without employing a huge staff.

Marketing and Sales

As of August 1995, 42 homes were occupied and 13 were under construction as part of the homesteader program. No homesteaders had yet become owners, despite AHC’s goal of entering lease-to-own agreements with 75 families by the end of 1993. The pace of sales to date has been adequate “but needs to be greatly improved to have families lined up for …[each home] before construction is complete,” AHC acknowledged.

“We need to continually market the program, because it is not for everyone,” a board member commented. “Some don’t want to be in the land trust. Others don’t want to live in Englewood; they don’t want to spend the rest of their lives in such a bad neighborhood.” (AHC’s guarantee to buy back the home, however, may help offset this concern.)

AHC staff identified several problems with marketing, including:

  • The difficulty of finding candidates in the targeted income range of $15,000 to $32,000 – higher than almost half of all Englewood residents – who can pay the full acquisition and rehab cost
  • the difficulty of coming up with the $1,000 “downpayment”
  • poor prospect follow-through, with only two percent of those who expressed interest becoming involved in the program, and even fewer finishing.

AHC has improved its marketing and sales process, largely by implementing standard real estate practices, such as the use of listing sheets with floor plans and photographs. Staff consult a real estate broker for marketing ideas, and conduct a housing needs assessment for each family in the program. And instead of showing houses in all phases of completion, potential homesteaders are brought on tours of homes that are more than 50 percent complete. A computer software package is also in development to assist AHC and others in maintaining marketing information and data on each family’s housing need and resources. The software will also track properties from rehab into the property management stage.

AHC provides pre-loan counseling and plans to provide post-loan counseling, if necessary. One FHLB official observed, “ACORN is really good at outreach. With very low income homebuyers, there is more than just the financial aspect – homeownership entails a level of responsibility many low income people have a hard time committing to. When you have an organization like AHC behind you…it’s reassuring.”

Despite its successful outreach, AHC must line up twice as many families for the sweat equity requirement as the number of homes available, to end up with enough eligible homesteaders. Families can complete the 60 hours of volunteer labor in various ways (not necessarily at their potential home), such as helping with demolition, clean-up, and landscaping, or in the AHC office. But AHC’s 1993 annual report notes problems with the sweat equity component, including low turnout, ill-prepared or poorly motivated volunteers lacking proper tools or material, and poor communication with volunteers. To solve these problems, AHC plans to conduct training workshops, formalize procedures, and establish an incentive system requiring families to complete their 60 hours within six months.

Once families have met the sweat equity requirement and become program members, AHC tries to involve them in other activities focused on broader social issues, such as local school reform or insurance redlining. AHC Director Chris Brown explained, “This is how some of our housing work ties into ACORN’s community organizing. The quality of schools in the community impacts on whether people want to live in our houses.”

Resident Profile

Of 13 families surveyed, five were married couples with children, and eight were single-parent families, of which seven were headed by females. The average household size was 4.15 persons. There were 34 children reported, and families also included nieces, nephews, grandchildren, and foster children. All of the respondents are African American.

Of the households that reported their income range, three reported incomes of $29,000 to $32,000, the top of the eligibility range; three reported incomes of $23,000 to $29,000; and three reported incomes of $17,000 to $23,000. Homesteaders’ occupations included bus driver, janitor, laundry attendant, nurse, cook, security guard, machine operator, secretary, dispatcher aide, pressman, office manager, housewife, and foster parent.

Resident Satisfaction

Eight of the 13 residents who responded to a survey rated the present condition of their homes as “good,” and one rated it as “excellent.” One resident enthusiastically endorsed the entire program: “The housing program with AHC is by far the best in existence. It was designed to keep low and moderate income housing available, and the land trust is definitely the way to go. On a scale from 1 to 10, it would definitely get a 10.” Some residents, however, raised concerns about housing conditions, which speak to the ongoing problems with rehab standards and supervision, as well as property management.

While homesteaders’ views on the neighborhood varied, most were positive about their choice to live in Englewood. Many have friends and family there. Eleven predicted the neighborhood would remain the same or be “somewhat better.” Several expressed the kind of commitment to neighborhood revitalization that ACORN hopes to encourage: “People here go to the meetings and protest and [are] willing to do things to change.”

When asked what they would change about the neighborhood, a typical response was “…get rid of the abandoned houses plus drugs and gangs.” While all but three residents wanted increased security, most did not perceive their personal safety as a major concern. Three-quarters were only “a little” or “not at all fearful” of being a victim of crime in the neighborhood. As in many crime-ridden communities, the homesteaders negotiate a private “truce” with others: “If you keep to yourself, people don’t bother you.” One man concluded, “I like it here; we have gang problems, but that’s everywhere. We’re used to it. This is my dream place. People are not sitting by. People maintain their property. We have a program with the police department. If you get up, more voices will be heard.”

Organizational Capacity

With its HUD HOPE III grant, AHC has embarked on a period of accelerated growth. “There is a need for greater depth of staff, and for additional operating support funds to help pay for that,” a LISC official said of the organization.

Although AHC’s board president reported the organization had been “losing money on rents – about $2,000 per home must be raised in foundation support,”[18] AHC was financially stable. The organization’s executive director has been very successful at fund raising, having raised a total $4.5 million in permanent financing and $1.5 million in acquisition and rehab loans. But AHC’s goal is to eventually net a surplus to use in an internal loan pool for acquisition and soft costs.

At the time of this research, foundations, project-based assistance, and other sources helped cover AHC’s $300,000 annual operating budget. AHC received a five-year operating support grant from LISC, funded by the MacArthur Foundation. LISC has also shared operating costs with United Way, and AHC has participated in The Single Family Housing Initiative, a demonstration for United Way. AHC has also applied for United Way membership, which would provide access to full membership financing benefits.

LISC has helped AHC manage its growth and facilitate its financial independence from national ACORN by improving accounting practices. Although ACORN of Illinois was technically independent of the national organization, the national group shared some administrative costs with local affiliates and handled all audits and major accounting. As a result, the local group’s finances were affected by ACORN operations in other states. Neither LISC nor Bell Federal were comfortable with this arrangement.

Upon LISC’s recommendation in early 1991, AHC wrote a five-year strategic plan that identified rental housing as “something to do within the next five years, for those applicants who expressed interest in the homesteading program but whose incomes are too low.” Board member Sandra Maxwell said AHC aims to serve its many members who don’t want to be homeowners, or who receive Section 8 subsidies. ACORN now holds options on two multifamily buildings, which it intends to develop as a joint venture with an experienced property manager. “We don’t know much about multifamily, but do know we don’t want to do property management,” commented Maxwell.


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