Single Family Property Disposition Initiative

The SFPDI program was studied by a HUD Task Force, and the GAO prepared a report in September 1993. The purpose of the report was to identify actions that might help reduce financial barriers to nonprofits in acquiring HUD properties, and to recommend how to better disseminate information about the program. Information was gathered by surveying 600 homeless assistance organizations that had purchased or leased property by April 1992. Responses were returned by 223 survey participants in HUD's homeless assistance disposition program.

The HUD Task Force examined the program's current approach to implementation to determine whether changes were needed.

PROGRAM DESCRIPTION AND ADMINISTRATION

HUD established the program, known as the Single Family Property Disposition Initiative, in 1983 under HUD's broad legislative authority to dispose of single-family properties. In 1985, homeless assistance organizations were offered the opportunity to participate. Under the program, HUD may sell or lease foreclosed single-family properties to nonprofit organizations or to State and local governments for the purpose of providing temporary shelter and supportive services to homeless persons to help them move toward independent living. If, however, a home is found to contain lead-based paint, families with children under the age of 7 remain ineligible unless and until a lead paint abatement program has been completed.

Although slightly different versions of the SFPDI program have been created at the Farmers Home Administration (FmHA), Veterans Administration (VA), and the Resolution Trust Corporation (RTC), HUD's program is by far the most extensive. Each of the four agencies developed its own program and procedures under which nonprofit homelessness assistance organizations may obtain property. HUD both sells and leases single-family properties (defined as four or fewer dwelling units in a structure) through its program.

Any nonprofit organization or government entity is eligible to participate in HUD's program, but must first be approved by HUD to participate in the program. To be granted approval, an organization must have nonprofit status under section 501(c)(3) of the Internal Revenue Service Code and possess what HUD determines to be sufficient managerial and financial capacity. The HUD Task Force estimated that approximately 900 organizations were approved to either lease or purchase property, and of those, 400 to 450 organizations actually have participated in the program.

PROGRAM IMPLEMENTATION, FUNDING, COSTS, AND ACTIVITIES

Once a nonprofit organization had received approval to participate, it was given the exclusive right to lease or purchase any available single-family property during a period of 10 days before it was put on the market to the general public. Property is sold to nonprofit homeless assistance organizations at a 10-percent discount (90 percent of the appraised value), or is leased for $1 per year for periods of up to 5 years. Some organizations participating in the program had received grants through the SHDP program to purchase properties, but HUD does not provide financing assistance to organizations purchasing property through the Single Family Property Disposition Initiative. The average purchase price was almost $35,000, and rehabilitation costs were approximately another $19,000. Annual mortgage payments averaged about $5,650.

Organizations that lease the properties pay for utilities, physical repairs and maintenance, real estate taxes, and general liability insurance. The GAO Task Force reported that nonprofit homelessness assistance organizations that participated in HUD's program said the major barrier to acquiring additional property was related to difficulties paying the associated operating costs. Specific costs identified as significant barriers included rehabilitation, purchase price, and routine operating costs. For an organization participating in HUD's program, the annual rental income averaged $2,450, compared with average annual expenses of about $5,700 -- a maximum average net loss of roughly $3,250 per year that had to be financed from other sources. The HUD Task Force noted concern about the cost of the SFPDI program to the Federal Government, particularly if houses were leased from HUD instead of sold. Leases were established at a token amount of $1 per year, far below the unit cost to HUD.

HUD is required to monitor each leasing property at least annually and to visit organizations having problems, but may monitor others by telephone and ask organizations for needed information. Information obtained through monitoring also verifies that appropriate supportive services are being provided, that operating costs are reasonable and documented, that rents are within allowable limits, and that the leasing organization is providing housing to the targeted group.

Most property being used by homelessness assistance organizations as of September 30, 1992, was leased or purchased through the HUD SFPDI program through which it had 32,590 properties for sale and 3,250 available for lease. Based on HUD SFPDI statistics for July 1994, the HUD Task Force had determined that since 1990, 2,221 properties had been leased, and 884 properties had been sold.

Constraints to greater success of the SFPDI program appear to be primarily caused by two factors: insufficient information about available properties, and lack of knowledge by nonprofits about the procedures for acquiring the Federal foreclosed property. Other major barriers to participation cited by survey respondents included lack of quantity and quality of available properties and lack of personnel within the nonprofit organizations to manage them. In response to the 1993 GAO findings, HUD's outreach was increased. Field Offices developed contact lists of nonprofit homelessness assistance organizations, assessed the organizations' demand for property, and employed workshops and mailings to promote the program. HUD established a toll- free number through which nonprofit organizations could obtain program information.

IMPACT ON POPULATIONS SERVED

Based on field responses from homeless assistance organizations, the HUD Task Force estimated that between 18,000 and 25,000 individuals may have benefited from the SFPDI program. The estimate was not based on a systematic data collection and evaluation effort, but was developed from homeless assistance organizations' periodic reports. The survey completed by GAO did not directly address clients or client outcomes. It did find, however, that the program appeared to be creating transitional shelter for the intended homeless population.

In 1992 legislative changes to HUD's program eliminated the priority that allowed homelessness assistance organizations to lease or purchase property before it was offered for sale to the general public. This change may limit the availability of single-family transitional shelter options for homeless persons. Alternatively, administrative changes to FmHA's, RTC's, and VA sales and leasing programs appear to have made several thousand more properties available to homelessness assistance organizations.