The New Colonias

AFFORDABLE HOUSING FINANCE • March 2009

Affordable housing developers face an old enemy

BY BENDIX ANDERSON

SAN JUAN, TEXAS—Homes made of scavenged wood line the streets of some subdivisions here, where very poor “homeowners” can be thrown out on almost any pretext.

This latest twist on the housing crisis sounds horribly familiar to Ann Cass, executive director of affordable housing developer Proyecto Azteca.

Since 1991, the nonprofit has worked to repair the damage done by colonia developers in the early 1990s, who sold overpriced lots in hastily built subdivisions to families earning as little as $6,000 a year without actually giving them legal ownership of the lots, leading to a wave of foreclosures, says Cass.

In December, seven families sued the developers of two new subdivisions here: 493 Estates and San Cristobal. The families claim developers had them sign papers giving up the title to their lots on the same day they bought the properties. These families signed “deed in lieu of foreclosure” documents, which are designed to help homeowners who can’t afford to keep their homes negotiate a better deal with their creditors. There is no reason for a new homeowner to sign them.

“A lot of these families don’t understand what they are signing,” says Homer Cabello, director of the Office of Colonia Initiatives for the Texas Department of Housing and Community Affairs. Dozens of families have already lost their homes to the defendants, according to lawyers at the South Texas Civil Rights Project.

Before legislation passed in 1994, colonia builders often sold families lots under a legal structure called “contract for deed” that allowed developers to reclaim the land if the buyer was late on a single payment, even after years of paying on time. The lots were often set on streets paved with dirt and without water, electric, or sewer service. Residents built houses themselves with whatever materials they could afford.

Colonia development eventually led to thousands of foreclosures.

Since then, Proyecto Azteca has helped hundreds of very low-income homeowners gain real title to their land and build decent, safe homes that meet building codes. Also, since the 1994 legislation, subdivision developers must pave the streets and include curbs and gutters. Lots must be served by sewers or be big enough to fit a septic system.

“We thought we had it settled,” says Cass. However, the problem seems to have returned. Locals call a strip of about 20 new subdivisions along Highway 107 here “Colonia Row.”

“If you’re not looking at the road you’re driving on, these subdivisions look similar to the old colonias, because they are loaded with substandard housing,” says Cass.

Housing advocates and state officials are struggling to assess how many homeowners in these new colonias signed deed in lieu of foreclosure documents—there could be thousands.

Exploitation by developers is just a symptom of the broader shortage of housing affordable to very low-income people along the border, says Cass. It’s this shortage that motivates such families to pay as much as $30,000 for a lot with real market values probably closer to $10,000, she adds.

With assistance from state and federal programs, affordable housing developers like Proyecto can help families build a safe house with a total development cost of about $33,500, plus the cost of the land, says Cass. So far, Proyecto has built 500 affordable homes on lots owned by very-low income residents living in the colonias. “In the last two years, we have not had to foreclose on anyone,” says Cass.