Boston—In February 2008, Mayor Thomas M. Menino, surrounded by city officials and photographers, visited a street of empty houses.

He declared Hendry Street, a three-block stretch in this city's Dorchester neighborhood, the first beachhead in Boston's war against foreclosures. Nearly all of the buildings on Hendry Street were in some stage of the foreclosure process. At least seven already had plywood sheets nailed over the windows and graffiti tags sprayed on the siding.

By November, workers had started to fix up four of the foreclosed houses. The city's Foreclosure Prevention Team had passed the properties to Bilt-Rite Construction, a local private developer, to be fixed up and sold at affordable prices to moderate-income buyers. City officials plan to hand off more than 100 foreclosed homes to re-developers in 2009.

Boston officials count 1,039 foreclosed properties within city limits as of November 2008. That's up 169 percent from 2006. Most are concentrated in the neighborhoods stretching south and east of downtown, including Roxbury, Mattapan, Hyde Park, Dorchester, and East Boston. For example, RealtyTrac's Web site counts 168 foreclosures in Hendry Street's ZIP code, compared to 40 foreclosed properties in the postal code that includes much of the pricey Beacon Hill neighborhood.

However, the blocks around Hendry Street are far from the worst in Boston's sprawling foreclosure neighborhoods—many other ZIP codes have as many foreclosed homes or more. For example, the postal code just south of Hendry Street has more than 300.

Hendry Street became the symbolic center of the foreclosure crisis in Boston after its boarded-up homes were singled out for coverage in newspapers such as the local Dorchester Reporter and the Boston Herald.

The street seems like an unlikely place to be damaged by the real estate boom and bust, tucked away among Dorchester's ungentrified streets of single-family homes and three-family triple-decker houses. The nearest station on Boston's “T” subway and light-rail system is nearly a mile away. A modest commercial strip on nearby Bowdoin Avenue has only a few bars and restaurants. About a fifth of the residents live in poverty, and the median household income is $32,000, according to the 2000 census.

However, in June 2005, 19 Hendry St. sold for $559,000 to Jerome Popplewell, according to the real estate transactions column in the Boston Globe. Emptied of its residents, the 100-year-old house was lightly renovated and split into three condos that were sold on the same day in March 2006 for $299,000 apiece. That's well above the median price of $280,000 for a Dorchester condominium as of January 2007. Despite the high price and weak location, all three condos received nearly 100 percent financing from different lenders.

It's unclear if the condos were ever occupied by their owners. In May 2007, inspectors found squatters, drugs, handguns, human waste, flammable liquids, and debris. The city declared the house uninhabitable in August 2007, and the house was empty within months, according to the Boston Police Department, which entered the house seeking a suspect in a shooting incident a few blocks away.

Real estate speculators and lax bank underwriters had transformed an occupied home into a crime-ridden shell.

Similar problems emptied nearly every house on the street. The foreclosures are turning back the clock on decades of work by city officials and local nonprofits to rebuild this part of Dorchester, where hundreds of homes were demolished or burned in the 1970s and 1980s. The neighborhood received more than $24 million for development in the last five years alone, according to the city. Only a handful of vacant lots remain.

City officials planned to transfer many of Dorchester's remaining vacant lots to private developers who would build new affordable for-sale homes.

But the rash of foreclosed houses like those on Hendry Street has brought redevelopment work to a standstill.

“Those plans have been put aside,” says Evelyn Friedman, director of Boston's Department of Neighborhood Development and the Foreclosure Prevention Team.

Falling home values have made the high cost of constructing a new home a challenge even for subsidized developers. The median price of a home in Dorchester dropped 40 percent over the 12-month period ending in June 2008. Officials expect median prices to drop even further over the next year.

Instead, the city is considering developing new affordable rental housing on some vacant lots. However, as of November 2008, the foreclosure crisis had brought affordable rental development to a standstill as city officials struggled to help developers close the financing for 11 developments that received reservations of low-income housing tax credits (LIHTCs) in the state's 2007 and 2008 funding rounds.

“We have everything except a buyer for the tax credits,” says Friedman. These 11 developments have commitments from LIHTC investors, including Bank of America and Citigroup. However, as the crisis in foreclosures has turned into a broader crisis in the financial system, the tax credit investors have delayed their closing dates.

Now, in addition to the last vacant lots, officials confront a new wave of foreclosed homes, and the city is trying to prevent new foreclosures with homeowner counseling programs.

Officials are also working to take possession of homes already seized by banks, especially the five banks with the most foreclosed properties here: Ameriquest Home Mortgage, Countrywide Financial Corp. (now owned by Bank of America), Freemont Mortgage, New Century Mortgage, and Washington Mutual (now owned by JPMorgan Chase).

“The banks, especially the big ones, they are now turning to us,” says Friedman.

Many have realized that they are unable to sell their foreclosed properties themselves. In July 2008, one of the condos at 19 Hendry St. was offered at an August auction by RealtyTrac, with an opening bid of $269,100. However, a buyer did not appear. Soon afterward, the city took possession of all three condos from their lenders for just $25,000 apiece, along with four other houses on Hendry Street purchased at similar discounts.

Boston has a neighborhood plan for Hendry Street that includes repaving, removing and replanting dead trees, and increasing police patrols.

Boston sold the five houses to Bilt-Rite at cost over the summer. The developer will need to spend $100,000 to $200,000 per unit to bring the homes to saleable condition, says Friedman. Many of the homes have decades of deferred maintenance. However, the cost of rehabilitation is still much less than the price to build a new home from scratch, which make it feasible to redevelop the properties as affordable for-sale homes. By summer 2009, Bilt-Rite plans to offer the houses for sale to moderate-income families.