Legislature Encourages Purchase of Foreclosed and Abandoned Homes with HERO Expansion Program

An Avon company is the first in the state to offer a new type of loan that aims to help people purchase abandoned, foreclosed or short-sale houses.

A few things make this loan different: there are no income limits on the borrowers, it's not just for first-time buyers, and interest rates are below market rates. The homes can't be flipped, though; buyers must agree to live in them for at least five years.

The Connecticut Housing Finance Authority has allocated $10 million  to fund its Homeowner’s Equity Recovery Opportunity (HERO) Loan Expansion Program, according to Norcom Mortgage & Insurance, an Avon firm that began offering the mortgage program in the spring.

The expansion program is a spinoff of the HERO loan, which was first offered in 2008.

The HERO Expansion mortgage can also be paired with a Federal Housing Authority 203(k) Streamline program, which grants buyers a $5,000 to $35,000 bump in their mortgage to pay for “licensed, insured contractors to make improvements necessary to the livability of the house,” according to Norcom. The federal program was enacted in the 1980s.

“There are a lot of people looking to purchase foreclosed properties, but they may not have been maintained correctly,” Phil DeFronzo, president of Norcom, said. Such properties could be subject to vandalism or require repair or replacement of items such as appliances or carpeting.

On June 30, Sandeep Goud closed on the purchase of his 2,400-square-foot colonial home in West Hartford for $215,000. He still owns his home in Ohio and is renting it out, which is permissable under HERO. The program requires that the buyer live in the home as a primary residence for at least five years.

Under the HERO Expansion program, combined with the 203(k) loan, he borrowed $35,000 more than the purchase price to fix his roof and broken windows, as well as to buy needed appliances.  

Repairs to “roofs, electrical systems, plumbing, energy efficiency, floors, paint, windows and appliances” are all covered under the Streamline program, but “luxury items” like landscaping and structural renovations are not.

There are about 1,729 foreclosed homes in Hartford County, according to msn.foreclosure.com. 

Between July 1, 2010 and July 1 of this year, 11 foreclosure certificates were filed in the Avon Town Clerk’s Office, according to Deborah Fioretti, Avon tax collector.

“To the best of my knowledge, none are abandoned,” Fioretti said.

Banks typically take over foreclosed properties, keep them up, and try to sell them as soon as possible to be reimbursed for unpaid mortgages, Fioretti explained.  Foreclosed homes in Avon are usually sold quickly, as a result, she said.

In Canton, there were only seven foreclosures filed in the previous fiscal year, according to Canton Town Clerk Linda Smith.

“People think, not in our town,” DeFronzo said, referring to foreclosed properties. “Most of the conversation we’re having is conversation with the suburbs.”

Interest on the HERO Expansion loan is below market rate. For example, the HERO loan is now at 3.875 percent for a 30-year fixed rate mortgage, though it may change weekly. By comparison, the average is 4.4 percent for a 30-year fixed rate mortgage, according to HSH.com

Unlike the typical Connecticut Housing Finance Authority (CHFA) loan, there are no income restrictions on the HERO Expansion loan. The maximum loan for a one-family house in Hartford County is $440,000, according to the CHFA guidelines.

Norcom also vets the contractors for home improvements under the Streamline program, according to a press release from the company.

“If we stabilize that property and that market, we’re helping ourselves,” DeFronzo said. “It’s our way of giving back.”

More information on the HERO program is available on the CHFA  website, and details on the Streamline Renovation Loan Program are available on the Federal Housing Authority’s website.