Foreclosures spell opportunities; City, non-profits helping on deals

The corner of Colman and Henry Streets in September of 2007The corner of Colman and Henry Streets in September of 2007

Melanie Jansky wasn’t planning to buy a foreclosed property, but she wanted a condo that was affordable. “I was looking around the city,” she said. “Dorchester made sense for work, and also because I was living in Codman Square and I liked it there.”

A Randolph native who works in Jamaica Plain, Jansky ended up with a foreclosed condo in a three-decker on Lonsdale Street. The previous owner, who bought the unit in March 2006, had paid $285,000. Jansky got it for $169,000, with some cost-saving help made available by the City of Boston in areas with high rates of foreclosures.

“I know what the previous owner paid,” said Jansky. “It was totally redone. The whole building was gutted and redone. Everything was new. There was nothing I had to do before I moved in.”

Thanks to the city’s neighborhood stabilization program, Jansky said she was able to avoid the requirement for private mortgage insurance, without having to make a down payment of at least 20 percent. The city also offers additional money for owners who occupy the unit for the long term.

“It wasn’t that much more than my rent, when I was renting,” she said.

At a time when many foreclosed units in Dorchester’s three-deckers are being rebundled as multi-family homes, the unit on Lonsdale Street might be an exception. What they all have in common is that they’re coming on the market with sharply reduced prices, and they’re definitely in demand, if not always for owner-occupancy. In response, the city and non-profit developers are intervening in the market to protect tenants, avoid vacancies, and make sure the new owners are financially stable.

The intervention is most noticeable where foreclosures and abandonment were at their worst two years ago – on Hendry Street and around the corners of Coleman, Clarkson, and Trent Streets. Some houses around the block still have plywood, while others are posted with “no trespassing” signs on the windows or a front porch. But, as workers put siding last week on one three-decker on Clarkson Street, a crew was on the roof and top floor of a three-decker on Coleman Street. And, at 27-29 Hendry, there was the steady beat of a hammer.

Some homes in the neighborhood went into foreclosure after condo conversions, while others simply changed hands at a higher price before the market collapsed. Before it went into foreclosure, the three-decker at 8 Clarkson was sold in October 2006 for $450,000. After foreclosure, an investor bought it for $180,000, then sold it in July to the Dorchester Bay Economic Development Corp. (EDC) for $255,000.

The EDC’s executive director, Jeanne DuBois, says the non-profit developer has 11 units acquired or under agreement, all in Dorchester. She says the plan is to sell most of them to first-time homebuyers, in some cases turning converted units back into multi-families.

“Our goal,” she said, “is to reassemble them as good old three-deckers, so a family buyer will have them as a decent asset.”
The director of the city’s Dept. of Neighborhood Development (DND), Evelyn Friedman, says there are some units that should remain as condos, especially if the building has an active condo association. But records show that dozens of converted units hit by foreclosure in Dorchester were in buildings where owner-occupants were a minority or non-existent. And dozens of owners with mortgage problems had multiple properties at multiple locations.

“We don’t want these to go back to being condo-ized,” said Friedman. “We want them to be responsibly managed.”

To turn around the properties, the city is using $8.23 million in federal and state money. Working with non-profit development partners, DND has acquired ten properties – a total of 23 units – and is trying to acquire another 117 units. In multi-family houses, DND requires some units to have affordable rents. Some properties are also sold with deed restrictions to prevent condo conversions by the new owners.
“Most important,” said Friedman, “we’re vetting them up-front.”
Once properties go back on the market, directors of the non-profit developers say they have little trouble attracting buyers.

One three-decker bought after foreclosure was sold last month by Nuestra Comunidad Development Corp. Located on Dacia Street, the house sold in 2002 for $275,000, then for $509,000 less than three years later. After rehabilitation by Nuestra Comunidad, it sold for $265,000.

“We got five or six offers within a couple of weeks,” said the executive director of Nuestra Comunidad, David Price. “There’s definitely demand out there,” he said, “and each of the offers we got were greater than the internal price we were willing to sell it for.”
Another sign of demand is the competition for foreclosed properties from for-profit buyers, some of them purchasing in large numbers. “There are a couple of properties we’ve been trying to bid on,” said Price, “and they’ve been put under agreement before we could even bid.” So far, Nuestra Comunidad has 13 distressed properties either bought, sold, or under agreement.

Some for-profit developers have been credited with making improvements, and they include developers who have worked as partners of non-profit organizations. But Price says private investors sometimes sit on properties without making improvements, and he notes they usually avoid properties in the worst condition.

“If it weren’t for the non-profits,” he said, “no one would be buying those properties. We’re taking on the ones that need the most work.”
Also acquiring foreclosed properties is the Codman Square Neighborhood Development corporation (NDC). The NDC’s executive director, Gail Latimore, says the non-profits need more working capital to compete with other buyers. And leaders of the non-profit groups say properties with repeat foreclosures or lingering vacancies should be more closely monitored.

“What we want to be is proactive,” said Latimore, “so we won’t have another foreclosure problem in two or three years.”

The NDC also tries to increase the number of educated first-time homebuyers by offering classes. There were 53 people at the most recent session. Latimore says educated buyers are less likely to have mortgage trouble.

“Those folks are holding their own in this market,” she said, “because they’ve got good [loan] products, because they’ve got training and education in responsible home ownership.”

Non-profits also try to avoid displacing tenants, which can be difficult if a building needs repairs. One way to avoid displacement is for non-profits to negotiate with lenders for a sale without a foreclosure.

“What we’re trying to do is prevent a whole round of dislocation of owners and tenants,” said Patricia Hanratty, president of Boston Community Capital affiliates. She says the deal can also work for lenders. “We’re paying their fair market value,” she explained. “What we’re trying to do is get in there as soon as possible, so the bank spends less money for evictions and the foreclosure process.”
Boston Community Capital has purchased or negotiated to buy 27 distressed properties, including five in Dorchester and Mattapan. The non-profit is also trying to use federal stimulus money and private funds to buy properties for re-sale to struggling homeowners or tenants. Buyers would agree to share any gain from re-sale with the non-profit.

Hanratty says the buyers accept the terms because they view the house as a home, and because it’s affordable. “If you’re consistently able to pay $1,200 a month for rent,” she said, “you can probably afford a mortgage.”

The latest cycle in the multi-family housing market has created new problems with the wholesale switch from apartments to condos. Also making turnarounds more difficult is the change in financing. Mortgages in the same building are often originated by different lenders, then frequently sold to different investors. By the time there’s a foreclosure, there can be multiple claims on a single unit—making it hard for new buyers to get clear title.

Due to these tangles of ownership and financing, Hanratty says clearing up the backlog of foreclosed units in multi-family properties will “take several years. It’s hard to get economies of scale,” she said. “You have to do separate negotiations with different banks that have a different set of expectations.”

Michael Stella, a small developer supported by Boston Community Capital, through the Boston Community Loan Fund, has met with hurdles to getting control of converted multi-family houses with foreclosures. He says that in as many as seven of the buildings, he controls the condo association but only two out of three units.

“Most of us would agree,” he said, “the condo marketplace in those smaller buildings will be the hardest thing to recover—where lenders see them as collateral for loans again.”

Stella has mainly acquired buildings for rental property. His acquisitions include two units foreclosed in a three-decker at 310 Fuller Street – next door to a rental property he already owned. The two units at 310 Fuller had each sold in 2007 for $355,000.
Stella has tried without success to buy the third unit, which sold in February 2008 for $365,000. Its owner also bought a unit in a three-family house on Santuit Street, on which a foreclosure petition was filed in April. After Stella failed to acquire the unit on Fuller Street in a short sale, he sued the owner for non-payment of condo fees.

“So,” he said, “I’m stuck with a situation where there’s an owner whom I’ve never met face-to-face—that I know of—who’s renting the unit to someone who’s a nice enough person, but who’s never paid me anything.”