Eight townhouses built in part with a city of Medford grant meant to promote home ownership among low-income residents will be turned into rentals after the nonprofit organization that built the houses at 11th and Grape streets was unable to find qualified buyers.

Eight townhouses built in part with a city of Medford grant meant to promote home ownership among low-income residents will be turned into rentals after the nonprofit organization that built the houses at 11th and Grape streets was unable to find qualified buyers.

The City Council on Thursday approved Rogue Valley Community Development Corporation's request for changes in the terms of the $45,000 grant after the nonprofit disclosed that its existence would be in jeopardy if it couldn't recover some of the money on the project to make payments on a mortgage.

"This was not an easy decision for us to go to the council and ask for this change," said RVCDC President Floyd Bawlowski. "We did it because we did not have any other options in order for us to survive fiscally."

RVCDC has already lost $250,000 on the project, Bawlowski said.

Some council members admonished RVCDC for what they viewed as poor planning of the project, including delays in construction, mistakes about what federal funding could be used to support the project and design characteristics such as small yards and limited square footage that might not appeal to families.

"I support this motion (to change the terms of the grant) but reluctantly and only on the condition that this is the exception," said 4th Ward Councilman Bob Strosser.

"I would not want RVCDC to cease to exist, though I am unhappy about how they approved this project," Strosser said.

The city's interest lies in promoting home ownership rather than rentals because home ownership helps stabilize neighborhoods, said Louise Dix, Medford neighborhood resource coordinator.

"When people own their own homes they are more likely to be concerned about keeping the property up," Dix said.

"The west side of town is heavy rentals," she said, "so we were excited about getting eight new homeowners in that neighborhood."

The city awarded RVCDC the grant in December 2002 on the condition that the nonprofit offer quality affordable housing for purchase to families earning 80 percent of the area median income or less. In 2008 terms, that would equal $40,400 or less per year for a family of four.

The townhouses were priced between $98,000 and $129,000 and ranged from 650 square feet to 1,050 square feet.

Construction began in late 2006 and didn't finish until spring 2008, said John Wheeler, RVCDC co-director.

"We were marketing before construction in hopes of having buyers lined up before the houses were built," Wheeler recounted. "We got the loan together. We couldn't find homeowners before construction, but the director at the time was confident they would come along, so the project began. Then, the market took a nosedive, and those buyers never materialized even though we continued to recruit home buyers."

Bawlowski said RVCDC screened more than 100 applicants. The handful that qualified ended up balking on the purchase after finding more attractive accommodations when the housing market began to slip, or in some cases, they made vehicle purchases that disqualified them for the credit, Wheeler said.

RVCDC has had more success with affordable housing projects in Ashland, where the nonprofit qualifies for federal rural development funds because of the tourist town's small population.

RVCDC hopes to sell the property for $975,000 to Medford-based Interfaith Care Community to use as subsidized rentals for veterans and their families.

Richard Thomas, Interfaith's clinical program director, said Interfaith would buy the houses only if it receives a $870,000 grant it's applied for through Oregon Housing and Community Services.

OHCS is expected to notify Interfaith and other applicants about grant awards in the first week of December, Thomas said.

Wheeler said under the deed restrictions on the townhouses, any future owner would be required to continue selling or renting the property to low-income individuals.

Reach reporter Paris Achen at 541-776-4459 or pachen@mailtribune.com.