As the housing market enters a new year of watching and waiting for stability to return, there is also some action afoot: Efforts are expected to take shape to tackle the vast swath of empty homes and fill them with residents — and in many cases, renters.

Much of the worry for housing in 2012 concerns unemployment levels and elevated mortgage delinquency rates. The number of homes entering the foreclosure process is also on the uptick as servicers pick up the pace following a slowdown caused by questions about industry practices. During the third quarter of 2011, the number of homes that entered the foreclosure process was 21 percent higher than in the second quarter, and there are an estimated 3 million homes whose mortgages are seriously delinquent, are in foreclosure or have been repossessed and are bank-owned.

On a national level, the Treasury Department, the Federal Housing Finance Agency and the U.S. Department of Housing and Urban Development issued a call months ago for ideas for how to turn single-family foreclosed homes owned by Fannie Mae, Freddie Mac and the Federal Housing Administration into rental properties.

On Wednesday in a white paper on the housing market that was delivered to Congress, the Federal Reserve said many bank-owned foreclosures “appear to be viable rental properties.”

Within the city of Chicago, armed with an almost 2-year-old law, those efforts have moved beyond pen and paper. In such neighborhoods as West Woodlawn, Austin and Rogers Park, areas where condominium foreclosures have left entire buildings empty and created eyesores, the city has taken steps to turn condo units into apartments by selling entire buildings to investors and developers who will rehab them for rental.

The program is the result of amendments to the state’s Condominium Property Act that took effect in January 2010. The changes allow a municipality to petition a Circuit Court to allow a receiver to sell the distressed building as a whole. Owners of the units, which typically are lenders, receive a fractional share of the proceeds from a sale after liens are erased. After taking bids, a judge decides who the buyer of the building should be, a decision based not just on price but on the buyer’s financial resources, track record and building plans.

“It doesn’t help anyone, if we put all these resources in, if it’s going to wind up right back in court for drug activity or bad porches,” said Greg Janes, senior counsel in the city’s Law Department.

To date, about 150 Chicago condo buildings, from six-flats to a 36-unit building, are somewhere in the process of being converted into apartment buildings. Community Investment Corp., a nonprofit mortgage lender in Chicago that acts as the court-appointed receiver for the bulk of the properties, estimates that it has found more than 250 buildings so far that are salvageable and may qualify.

Some, but not all, are in the nine neighborhoods — Humboldt Park, Chatham, Chicago Lawn, West Woodlawn, Auburn Gresham, West Pullman, Belmont Cragin, Englewood, and Grand Boulevard — identified by the city in August as micromarkets where foreclosures have decimated the community and a drastic solution is needed.

Many of the buildings are in their present state because of fraudulent mortgage activity. Others had legitimate developers who were financially stretched too thin and couldn’t complete their rehabs, or who fell victim to the housing crisis and weren’t able to sell all the units in a building.

“We’re trying to make use of these buildings instead of losing them,” said John “Jack” Markowski, president of Community Investment Corp. “All we want to do is put the property back together and restore it back to the rental housing stock of the city.”

Additional apartments, particularly affordable rentals, are needed. A report issued by DePaul University’s Institute for Housing Studies found that almost 483,000 renters needed affordable housing in 2009, but only 303,000 rental units were considered affordable.

Private-sector investors have been picking up foreclosure bargains and readying them for sale or rental for the past two years, and now the nation is seeing more policymakers get engaged in the process, said Zillow chief economist Stan Humphries.

“This is a very positive dynamic in the marketplace that heals the market,” he said. “It comes down to supply and demand. Right now we have a lot of supply on the purchase side and not a lot of demand. From an economic standpoint, it seems that you’d want to move some housing inventory from the purchase side to the rental side of the ledger.”

In their current state, there almost certainly would be no interest in the 36 condos in a U-shaped brick building near 62nd Street and Martin Luther King Drive in Chicago’s West Woodlawn neighborhood, to date the largest building in the program.

Plywood covers most of the windows, and large steel security doors open to entryways and mailboxes that still have names on them. Individual units, while missing the furnaces, copper plumbing and fixtures that typically disappear during foreclosure, nevertheless show some signs of promise. Given the state of the for-purchase market though, a condo developer would be hard pressed to wade through the process of tracing ownership and purchasing all the units individually and then rehabbing the building for sale.

Converting the building to apartments, and securing funding through the Community Investment Corp., is considered one of the few realistic options, and that is a discussion that the city has had repeatedly with lenders.

‘”There was some initial reluctance by banks simply because this was a new program, a new statute,” Janes said. “But we’ve explained to banks that their asset isn’t worth what they think it is. The only way for that asset to be worth anything is if it’s deconverted and sold as one building rather than 12 individual condos.”

Markowski has high hopes for the effort.

“It’s created a whole different scenario,” he said. “Instead of asking people to donate property, you have this urgency of the city asking to deconvert. This nudges (the bank) along.”

The city and Community Investment Corp. are trying to identify a building, move it through the process and put it on the market for sale within a year, a goal that isn’t yet met consistently.

Still, the first building sales should occur this spring, after which those neighborhoods will see the arrival of contractors and, eventually, new residents.

“We are in the early stages of a complete beginning-to-end success story,” Janes said.

What will define success? “When they’re occupied,” Janes said.

mepodmolik@tribune.com

Twitter @mepodmolik

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