As some may already know, I've been trying to buy a house on the north side of Youngstown without much success.  Tonight, we had a Christmas party for the members of the Wick Park Neighborhood Assn. (neighborhood where I'm trying to buy a house)  Some of us were talking about our recent experiences with banks, and the concept of legal redlining came up.  I'm not the only one having trouble getting financing from the banks, it seems.  Another member, Phil Kidd, (of Defend Youngstown fame) is trying to buy his first house in the same neighborhood, without much success.  Another resident recently bought a neighboring house with cash, but still can't get the financing to make any improvements.

 

The main problem is that these houses appraise so low.  The house I was trying to get only appraised for $15,000, and the owner wanted $20k.  Phil's house only appraised for $20k, (it's move-in ready!) and the owner finally came down to $31k.  The house in the third example appraised for less than $10k, and they need about $15k.  They couldn't replace the roof, for example, even if they used all the equity the house had!

 

It's no wonder these neighborhoods fall apart when the only people who can buy these houses are out of state investors who happen to have lots of cash on hand.

 

Well, I don't feel better, but that's the end of my rant, I guess.  Thoughts?  Is anyone else here having similar problems in any other cities?

Just refi'd my house in Cleveland with no issues.  I know sales have been steady also in the West Park neighborhood.  Then again, neither area is dealing with 15k appraisals closeby....

If you cant get a loan from a bank, there are many other options, especially since it appears you are talking bout only 10-20k. You could always borrow from Friends and Family and create a note providign a fair amount of interest. You could use a hard money lender to make improvements to increase the value of the house, or you could even use credit cards (although that is not the best choice always). Point being, there are many other options besides banks, just need to get creative.

 

Why not see if you can buy the property on a land contract or a lease option. The current owner is then providing the financing for you, you live there and effectively own it (and have no mortgage on your credit report). The owner wins because he gets to sell his house and have someone pay him off over time, you win because you get the house you want. I have bought properties using this method before and it is quite effective.

^ I don't know anyone I could borrow that much from.  My boss and some co-workers might be able to lend that much money.  But I really don't want to ask, and they aren't that interested in investing in the city of Youngstown, anyway.

 

I asked the owner of the house if he would be willing to enter into some kind of land contract, and he said his attorney advised him against it.  The attorney said that a contract can't be written strong enough to protect the seller, if the buyer decides to default.  In Phil's case, I believe he may borrow as much as he can from the bank, and enter into a land contract for the difference with the owner.

 

Although I happen to have the available credit, I'm not sure I like the idea of buying a house with a credit card.  But I'll give it some thought.

 

I was talking with the owner of this house: (the large house on the left)

and, although he was able to get a home equity loan for the amount he needed, the bank only appraised his house for about $100k.

 

He needed $20k to buy this house that was in the foreclosure process:

The hesitation with a land contract for the seller is that once the buyer has at least a 20% equity stake in the property, in the event of a default, the holder of the land contract must seek foreclosure (same as a bank) and then seek to evict the tenant.

 

If it is structured as a lease-option, this is not necessarily the case because there is no equity until the property is actually transferred in full (like a traditional sale). This wasy in the event of a default, the seller would only need to file an eviction action. For a buyer, a land contract is the better way to go but a seller would prefer the lease option to provide extra security.

 

I understand why the seller may be worried about the risk involved, but if the house would not otherwise sell, he is left with limited options. It may mean offering a premium for the right to do this to make him more comfortable (i.e. he may be asking 100k, would sell to a cash buyer for 80k but consider financing if you offer 110K). Could be a way to get some movement on his part.

I appreciate the advice.

 

But I'll probably just move on.  I say "probably" because some of the neighbors are going to talk to the owner to see if he might change his mind.  Start at the last post of page 3 of this thread to see what I'm talking about: http://www.urbanohio.com/forum2/index.php/topic,18327.60.html (or start at the beginning, if you want to see a lot of sad pictures of once grand homes)

 

That's not why I started this thread though.  My bigger concern is how can the neighborhood improve, if the banks say it has little value?  Here is another example:

That house probably needs $150k to make it habitable.  So, even if someone were given the house, they couldn't get financing to restore it, because the restored value would probably be less than $150k.

As some may already know, I've been trying to buy a house on the north side of Youngstown without much success.  Tonight, we had a Christmas party for the members of the Wick Park Neighborhood Assn. (neighborhood where I'm trying to buy a house)  Some of us were talking about our recent experiences with banks, and the concept of legal redlining came up.  I'm not the only one having trouble getting financing from the banks, it seems.  Another member, Phil Kidd, (of Defend Youngstown fame) is trying to buy his first house in the same neighborhood, without much success.  Another resident recently bought a neighboring house with cash, but still can't get the financing to make any improvements.

 

The main problem is that these houses appraise so low.  The house I was trying to get only appraised for $15,000, and the owner wanted $20k.  Phil's house only appraised for $20k, (it's move-in ready!) and the owner finally came down to $31k.  The house in the third example appraised for less than $10k, and they need about $15k.  They couldn't replace the roof, for example, even if they used all the equity the house had!

 

It's no wonder these neighborhoods fall apart when the only people who can buy these houses are out of state investors who happen to have lots of cash on hand.

 

Well, I don't feel better, but that's the end of my rant, I guess.  Thoughts?  Is anyone else here having similar problems in any other cities?

Re Youngstown from yesterday’s NY Times—sorry if this has been posted by someone else (or more appropriate for another thread--interesting in any case):

 

http://www.nytimes.com/2010/12/20/us/20youngstown.html?src=twrhp

Trying to Overcome the Stubborn Blight of Vacancies

 

YOUNGSTOWN, Ohio — In its heyday in the 1930s, this Rust Belt town called itself the City of Homes, a place where a working-class man could be master of his own castle.

 

But when it fell upon hard times, thousands of homes fell into foreclosure in one of the first modern mortgage crises. Thirty years later, many of those houses still sit, their boarded-up windows staring like dead eyes into Youngstown’s streets.

 

As cities around the country try to pick apart the snarl left by the foreclosure crisis, Youngstown stands out as a troubling specter of how hard it is to have success. Its vacant-building rate is still 20 times the national average, according to figures provided by John D. Bralich, a researcher at the Center for Urban and Regional Studies at Youngstown State University.

 

But despite the city’s best efforts to deal with the vacant structures — including, most recently, a handful of legal remedies meant to increase municipal control — they remain a maddeningly intractable problem.

 

The hesitation with a land contract for the seller is that once the buyer has at least a 20% equity stake in the property, in the event of a default, the holder of the land contract must seek foreclosure (same as a bank) and then seek to evict the tenant.

 

If it is structured as a lease-option, this is not necessarily the case because there is no equity until the property is actually transferred in full (like a traditional sale). This wasy in the event of a default, the seller would only need to file an eviction action. For a buyer, a land contract is the better way to go but a seller would prefer the lease option to provide extra security.

 

I understand why the seller may be worried about the risk involved, but if the house would not otherwise sell, he is left with limited options. It may mean offering a premium for the right to do this to make him more comfortable (i.e. he may be asking 100k, would sell to a cash buyer for 80k but consider financing if you offer 110K). Could be a way to get some movement on his part.

 

I'm bumping this thread because, last week, the attorney representing the seller called me (out of the blue) to ask if I might still be interested in buying the house discussed in my original post with a land contract.  I said sure, and we discussed a few preliminary items.  I finally received a first draft of the contract yesterday.  But now, after reading through it, I'm getting cold feet.  I guess the contract is structured as a lease-option, and I'm concerned that, after I make improvements, the owner could decide to break the contract and evict me.  Is that kind of risk inherent in this type of contract? (assuming I have a typical land contract, maybe it's there, and I'm misinterpreting it?)

 

Basically, I may have to consult with an attorney.  But in the interest of time and money, any advice would be greatly appreciated.

Land contracts are a be very careful area. I know this doesn't answer you question, but if you have a historical interest in the topic of this thread, Family Properties by Beryl Satter talks about their use in Chicago during the 50s and 60s (and not in a good way).

With respect to the topic title, I have hard from a friend in commercial banking that several lenders are actually engaging in the practice in refusing to lend at all in entire counties. One such particular bank has stopped accepting lending applications for any house in all of Cuyahoga County, which I find to be quite a severe reaction.

An absolutely fascinating article on the history of redlining below.  Also, for Ohio (and almost every city including...Covington???), historical redlining maps:

 

** Click --> https://dsl.richmond.edu/panorama/redlining/#loc=8/40.158/-82.485 <-- Click **

 

The Lasting Legacy Of Redlining

 

In 1939, officials working with the Home Owners’ Loan Corporation (HOLC) went to Cleveland, Ohio, as part of the agency’s national effort to grade neighborhoods based on their perceived mortgage-lending risk.

 

One of the neighborhoods that officials visited — now known mostly as Fairfax — was 55 percent Black, and as such, they gave this area a “D” grade, meaning they thought Fairfax was “hazardous,” or at high risk for defaulting on mortgage loans. In their report, HOLC officials concluded that property prices were trending down due to a “strong colored infiltration” and that there was a “detrimental change of ownership occupancy from white to colored.” Fairfax, like most metropolitan neighborhoods where Black people lived in the early 1900s, was then marked with red ink in the HOLC’s maps — a practice referred to as redlining.

 

It’s been over 80 years since the lines were drawn in Fairfax and over 50 years since the use of redlining was legally banned, but the impact of redlining is still felt in cities like Cleveland, where redlined neighborhoods are some of the most starkly segregated in the country.

 

More below:

https://projects.fivethirtyeight.com/redlining/