WASHINGTON — Six months after it was created as part of the July housing bill, a program to help cities and states buy foreclosed real estate from banks appears to finally be getting off the ground.

A group of consumer advocates has formed a trust company designed to act as a liaison between lenders and local municipalities that have received $4 billion in grants from the government. The trust, which negotiates sale prices with lenders and helps to finance the purchase of foreclosed properties, started a program two months ago with Wells Fargo & Co. to arrange the sale of foreclosed properties in Minneapolis.

Now it is lobbying Congress to seek an additional $5 billion of funds in the economic stimulus package, which it argues could help stabilize home prices.

"Right now there's no systematic way for banks to facilitate the transfer of foreclosed properties to the city or state government receiving funds through the program," said Ali Solis, the vice president for public policy at Enterprise Community Partners, one of the groups that formed the trust. "We are going to work with lenders to facilitate a discounted sale."

Receiving more money for the program could be a tall order. Republicans objected strongly last year to provisions awarding the grants, arguing it created perverse incentives for lenders to foreclose. So far Democrats do not appear to be making a push for funds.

The Housing and Economic Recovery Act of 2008 allocated $4 billion of community development block grant funds to help buy up foreclosed properties.

In September the Department of Housing and Urban Development gave more than 300 municipalities around the country the money to buy real estate from lenders.

But many municipalities lack expertise in the real estate market and had no ongoing relationships with lenders.

Municipalities had to ensure purchases met with HUD guidelines and were largely forced to operate on a case-by-case basis, slowing the purchase of foreclosed properties.

In response, several housing nonprofit groups — Enterprise Community Partners, the Housing Partnership Network, Local Initiatives Support Corp., and NeighborWorks America — set up the National Community Stabilization Trust. The company is designed to facilitate the bulk transfer of foreclosed properties, provide debt and equity to support local and state efforts, facilitate local collaborations, and serve as a point-person for lenders. It hired Craig Nickerson, a former Freddie Mac executive, as its chief executive. (Mr. Nickerson did not return calls seeking comment.)

The trust's first program got under way late last year in Minneapolis.

Tom Streitz, the city's director of housing policy and development, said that Minneapolis has already used some of its $5.6 million in HUD money to buy more than 20 foreclosed properties and that the trust negotiated the relationships the city now has with major lenders.

But Minneapolis says the money it received was not enough. The state of Minnesota matched the national grant, and Mr. Streitz said the $11.2 million will cover the purchase of about 40% of the foreclosed properties in the area (there were 2,900 foreclosures in 2008 and another 2,900 are expected in 2009). He said city officials are looking to the trust for more money.

"I think what we're hoping for is that the trust is able to secure this corpus of capital funds that will help us purchase these properties," Mr. Streitz said. "We also hope the program is expanded to include a much broader array of lenders."

So far four lenders are participating. JPMorgan Chase & Co., Citigroup Inc., Wells Fargo, and Fannie Mae have all agreed to offer to sell the homes they have foreclosed on to Minneapolis before putting them on the market.

Mr. Streitz said the lenders were eager to participate, because selling their foreclosed properties to the city quickly was cheaper and easier for them than the alternative: hiring a property manager and a real estate agent and waiting for the house to sell on the open market.

Under HUD guidelines, lenders must sell their properties at a discount of 5% to 15% to participate in the program. But Mr. Streitz said that has not posed a problem.

"The lenders are discounting the properties significantly because they'll be purchased immediately, and the lenders save money because they don't need an REO agent; they don't have [to] hire a real estate agent, either," he said.

Wells Fargo called the Minneapolis program a success and said selling foreclosed properties is vital to the economy. "Getting houses reoccupied is essential to rebuilding the housing market," the bank said in a statement. "These transactions will reduce vacancy periods and provide low- to moderate-income families with available housing."

A spokeswoman for Chase Home Mortgage said the company wanted to sell its foreclosed properties quickly.

"We don't want to be in the real estate business," she said.

Citigroup said in a statement that it "believes the program is very important to help stabilize neighborhoods that have been harmed by foreclosures."

A spokeswoman for Fannie said the government-sponsored enterprise also viewed the program as a success and are hoping to expand on its efforts.

"We are pleased to work with the city of Minneapolis to help build thriving communities," she said. "The company is looking to expand this program in other cities given the strong results we've witnessed in Minneapolis."

In Minneapolis, Mr. Streitz said, foreclosed properties do not languish — they usually sell fairly quickly at auction. But many of the buyers are outside investors who do not intend to live in the homes and therefore are not helping rehabilitate blighted neighborhoods, according to Mr. Streitz. Minneapolis would prefer to buy the homes itself, he said.

"Investors are buying homes that we consider tear-downs and they're putting paint on them," he said.

"They have very little experience in property management, and they do not live here."

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