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How Nonprofits Use a Legal Loophole to Flip California Homes – for Profit

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How Nonprofits Use a Legal Loophole to Flip California Homes - for Profit

“Why would you want to buy anything in California?” Riggins wondered. “And I think that’s the part that really pisses me off. Why would you want to invest in something you’ve never seen before?”

The two-story triplex, with its salmon-colored stucco and white trim, was one of at least 74 properties Southside Neighborhood Stabilization has acquired since its inception in early 2021.

The organization is one of at least three such entities formed in California following the passage of SB 1079 on home purchases in partnership with nonprofit organizations dedicated to providing affordable housing to communities in need. But in a review of nearly 200 real estate records and interviews with over a dozen homeowners and investors who have bought properties from them, there is little evidence that these homes are actually being used as affordable housing.

“They’re all just flipped,” said Jeff Cagle, a central California home fixer who has lost dozens of foreclosure listings to buyers citing SB 1079 housing, but none of them have been retained as affordable housing.”

‘Homes for homeowners, not corporations’

'Homes for homeowners, not corporations'

State Senator Nancy Skinner (D-Berkeley) first introduced SB 1079 in February 2020 after a powerful two-month protest caught the nation’s attention.

A group of homeless mothers, called Moms for Housing, had been living in a vacant house in West Oakland in late 2019 and early 2020. The home was owned by Wedgewood, a Redondo Beach real estate firm that specializes in flipping foreclosed homes.

The mothers’ protest aimed to shine a spotlight on increasing corporate ownership of apartments, which they say has led to rising rents and growing homelessness.

And SB 1079 was Skinner’s answer. She called the bill Homes for Homeowners, Not Corporations.

“The intent of SB 1079 was to provide a fair chance for renters, homeowners who may have lost their home to foreclosure, or affordable housing groups to be able to purchase a foreclosure home at auction,” Skinner said.

After the Great Recession foreclosed on millions of homeowners between 2008 and 2010, private equity investors began buying up the foreclosed homes by the thousands. Today, Wall Street-backed companies own more than 200,000 single-family homes across the country.

Skinner’s bill made it illegal to bundle lots at foreclosures to make it easier for individuals to bid on them.

She thought nonprofits would use the homes they bought through SB 1079 to create more affordable housing, but the bill doesn’t specifically mandate that. Nor does it include any enforcement or accountability mechanisms to ensure this is the case.

“We figured we didn’t have to,” Skinner said. “We make a bill with the best of intentions, but we can’t always see exactly how it will translate into practice.”

A new bill, AB 1837, by Assemblymember Mia Bonta (D-Oakland) would require that homes purchased by non-profit organizations be used to house lower-income residents for at least 30 years. The bill is expected to vote in the Senate this week and return to the Assembly for a unanimous vote by the end of the month.

“We want to make sure that a not-for-profit housing developer is actually the recipient of this special opportunity,” Bonta said, “and that it’s not a non-profit organization dressed in some kind of wolf’s clothing.”

An opportunity

An opportunity

In many ways, the same economic forces that fueled the Moms for Housing protest also prompted a nonprofit in Richmond, Virginia, to get into the business of buying foreclosed homes.

Tim Hayes is the Director of Distressed Assets for this non-profit Southside Community Development and Housing Corporation. He said the Blackwell neighborhood where SCDHC was born is gentrifying, in part due to the organization’s work improving the community. The organization turned to local banks for loans to help buy neighborhood properties and keep people from being overpriced. But the banks would not lend them money.

“As a result, private developers are reaping the benefits of SCDHC’s years of work,” Hayes said.

Then, in 2015, President Barack Obama directed the U.S. Department of Housing and Urban Development to begin selling some of the foreclosed homes to verified nonprofits.

Hayes saw an opportunity. SCDHC could buy the debt of homes going through foreclosure and sell the homes to homeowners instead of allowing investors to buy and rent them. The sale would generate revenue for the nonprofit that could help it expand its affordable housing development work in and around Richmond, Virginia.

“We were frustrated that our community is now being overtaken by developers,” Hayes said. “We go to the bank, they say no. HUD then says, “Hey, maybe you guys can work in this program. We think if you do it right, you can help people, but at the same time make some money to expand, grow and develop your business.’”

SCDHC was certified through HUD’s Distressed Asset Stabilization Program and began purchasing distressed loans for homes that were foreclosed on in 33 states.

They worked with Louis Amaya, the CEO and founder of PEMCO Capital Management, to help them comply with each state’s distressed asset purchase policy.

Amaya did not respond to multiple requests for an interview. But his company’s website describes itself as “an institutional platform for investors to gain exposure to niche sectors within the distressed residential mortgage and real estate markets.”

“There was certain expertise that we just didn’t have,” Hayes said. “We hired PEMCO to be part of the distressed asset sale team.”

Once SB 1079 became effective in 2021, SCDHC formed a limited partnership, Southside Neighborhood Stabilization, with Amaya managing the properties. Hayes said it’s an extension of her ongoing work in California and other states.

The goal, Hayes said, is to help residents stay in their homes, either through refinancing or loan counseling. In cases where a tenant lives in the home, Southside offers cash to help with the move, according to Hayes.

But there’s always a balance, Hayes said. SCDHC is working with private investors to provide the money to purchase the foreclosed homes. Those investors expect a return, he said.

“We’re also trying to align results with returns,” Hayes said. “We strive to do the right thing to give people the ability to stay in their homes.”

‘Where are we going to go?’

'Where are we going to go?'

Before Riggins’ mother, Susie Riggins, died in 2003, she said to her son, “Whatever you do, try to keep the building because your father built it,” Riggins said.

“That was all she had to say,” he said. “And that’s what I intend to do.”

For Riggins’ parents, the home was not just a source of rental income; it was an investment in the community. They had moved to Richmond, California, from Arkansas and Louisiana in the mid-1940s as part of the Great Migration, when millions of African Americans migrated from the South to the North and West in search of a safer life.

Riggins’ father, Clinton Riggins, took a job as a steelworker at Hunters Point Naval Shipyard in San Francisco. And despite the lack of traditional mortgages for black residents, Clinton Riggins was able to buy a home in Richmond.

“People didn’t have anything back in the ’30s and ’40s,” Riggins said. “But when (my father) got here, he could do it.”

Riggins said his parents always instructed him to keep rents down and if he needed to raise them, to do so gradually.

“My mom said, ‘Your dad built this to help people, not to make money,’” Riggins said.

It’s one of the reasons why Riggins’ tenants stayed so long and, in some cases, came back.

Cynthia Hernandez moved to the Riggins building with her mother from San Francisco’s Mission District in 2009 when she was just 18 years old. She eventually left as a young adult to live alone, but returned in 2019 when she and her husband moved back in with their mother.

“We were more into buying a home in that area,” Hernandez said, “so we wanted to save a few bucks.”

When the pandemic hit, the apartment next door became vacant, so she and her husband moved in. It was around this time that her relationship with Riggins changed from a typical tenant-landlord relationship to a more intimate one.

“We got a lot closer,” Hernandez said. “We helped each other with groceries, with toilet paper and everything necessary.”

After separating from his wife, Riggins said he worked with the Richmond Neighborhood Housing Services community group to complete mortgage modification forms required by his lender, World Savings Bank.

He couldn’t understand why the company started foreclosure in the middle of this process. Riggins has since hired an attorney who is suing the loan’s administrator, Rushmore Loan Management Services, for alleged violations of the state’s Homeowner Bill of Rights — a set of laws protecting homeowners who face foreclosure.

When the mortgage reminder surfaced, speculators bombarded the home with flyers, letters, and phone calls. So Hernandez sought help — both to understand what was going on and to figure out what rights she had if she was threatened with eviction.

“I freaked out,” Hernandez said. “Where are we going? What can we do?”

Hernandez eventually found Richmond Land, a new community land trust based in Richmond, California looking for his first project.

By this time, Southside had already purchased the property and served eviction papers to residents. Hayes said the company initially offered residents $5,000 but received no response, so they went ahead with the eviction process.

“We have made it clear (Southside) that what has happened is problematic,” said Mia Carbajal, Richmond Land property manager, “and that we are genuinely interested in stopping the eviction by purchasing the building.” “

Southside Neighborhood Stabilization eventually agreed to sell the building to Richmond Land for $600,000 — $59,000 more than the $541,000 paid to purchase it. The amount barely covered Southside’s expenses, Hayes said.

Looking back, Carbajal said she doesn’t blame Southside for wanting a return on the purchase or the practice of buying foreclosed homes as a way to generate revenue for the nonprofit’s Richmond, Virginia-based work.

“I think it really speaks to our nation’s austerity, our divestment in housing,” Carbajal said, “and to organizations that are in the affordable housing business and are doing what they have to do to cover their expenses.” “

In the end, things worked out for Hernandez and Riggins: they were able to stay in their homes and eventually have the option to buy the building. Richmond Land will retain ownership of the land and ensure the property is sold at an affordable price to all future buyers.

But others studying Southside were less than pleased with the results.

Neighborhood stabilization

Neighborhood stabilization

Southside Neighborhood Stabilization has spent nearly $29 million to purchase 74 properties under SB 1079. So far, more than half — 47 — have already sold for a total of about $6 million in gross proceeds, according to property records. Of these, 32 are owner-occupied today. The rest went to investors.

Southside requires its buyers to sign an affidavit confirming that they will either reside in the property or sell it to someone who chooses to do so.

Hayes said that’s because the organization’s goal is to create more homeownership opportunities, which is also a stated goal of SB 1079.

“We see ourselves as a holistic organization, but we also recognize that the majority of wealth creation comes from home ownership,” Hayes said. “And if I can never access home ownership, it limits so many things, not to mention wealth transfer from generations. So that’s the mission we really have.”

But some of the homeowners and investors who have come to know Southside are wondering if their practices actually make it easier for people to afford their homes.

In Thousand Oaks, Steve Boykin paid almost a quarter of a million dollars to Southside Neighborhood Stabilization just to get the deed back for his home.

Boykin, a locksmith and lifelong resident of Thousand Oaks, took out a $150,000 home equity loan in 2007, though he says he only used about $44,000 of it. The loan was sold to another company, who then charged him a higher interest rate. Boykin hired a lawyer to contest the new charges, and in the meantime the bank was foreclosed on.

Southside Neighborhood Stabilization bought the debt on his property for $166,100. Boykin negotiated to pay them $239,000 for the buyback, according to property records.

“I had to pay them, I had no choice,” he said. “They hold (the certificate) over my head. You know, “We’re going to sell your house. We have the title deeds for the house and we can sell it.”

Hayes said Boykin’s case was “an amazing finding”.

“Rather than being evicted, we allowed the owner to stay in his home,” he said. “All processes can be improved. However, it continues to feel like SCDHC is being portrayed as a bad actor, given an incredibly small sample, and we are not.”

But Boykin didn’t see it that way. He sold two lots in Paso Robles where he had planned to build his retirement home to pay for Southside. At 63, he expected to retire in two years. Now he knows that he will work much longer.

“I just feel betrayed by my government,” Boykin said. “You work your whole life. My entire retirement is in my equity, in my house. And these guys come legally and steal it from me.”

Other investors and homeowners who bought homes from Southside said the sales felt like typical flips and questioned what kind of value the nonprofit was adding. The houses often needed major repairs, but they were not sold at a discount.

Lauren Every-Wortman bought a home near Joshua Tree National Park in January for $453,000 — about $100,000 more than the current median price home there, according to Zillow — though it has a new roof and floors, a new one Irrigation system and a new deck needed.

Every-Wortman’s friend dug into the property records and found that Southside had bought the home for $295,000.

“It inflates the market,” Every-Wortman said.

Hayes said the organization is transparent about the terms of the homes it sells.

“We could fix anything,” Hayes said, “but the reality is then the price point changes.”

They also have costs to bear, Hayes said, from realtors to attorneys to closing and filing costs.

By the fall of 2021, Hayes said, Southside has decided to stop buying properties through SB 1079. They’ve received some inquiries about his activities, he said, and they don’t want to proceed “until lawmakers can provide more clarity about what we’re doing.” have done.”

“We were getting more and more requests trying to give us a certain picture,” Hayes said. “And in Tim Hayes terminology, we say, ‘Fuck it. We’ve suddenly done too much to be backed into a corner.’”

According to ownership records, Southside’s last two purchases in California were made on Jan. 4. But while Southside began to close down, other nonprofits were just getting started.

Corporations clothed as nonprofits

Corporations clothed as nonprofits

In the summer of 2021, two California-based house-flipping companies formed their own affordable housing nonprofits and began using SB 1079 to purchase and trade foreclosed homes, according to public records.

One of the groups, the CV Neighborhood Stabilization Foundation, says its mission is to “create and implement programs for the development and maintenance of affordable housing.”

The foundation later changed its name to the Dove Street Housing Foundation and formed a number of different limited partnerships that collectively bought at least 68 properties since November. According to property records, at least 12 of them used SB 1079. Dove Street’s nonprofit status allows the partnerships to use SB 1079 to match foreclosure bids.

The Foundation’s President, Matt Regan, is also the Co-Founder, President and COO of ClearVue Real Estate Services LLC, which, according to its website, “specializes in the acquisition, management and disposition of REO (Real Estate Owned) properties, residential and targeted whole loans across the country.” Regan did not respond to requests for comment.

Of the 34 properties that Dove Street has already sold, 25 have gone to other investors, according to property records.

One such investor was Gerry Ochoa, a small landlord who bought property in Bakersfield from one of Dove Street’s limited partnerships. A fire had burned out the two prefabricated houses on the property.

He reckons he will spend more than $380,000 to demolish the houses and put up a five-unit building in their place, which he plans to market as luxury units.

“I speak more to these young people who work at home these days,” Ochoa said.

In Tulare, William Rawls had just gotten divorced when he was looking for a new home earlier this year. He bought a beige, one-story house from RMMC LP in March.

Rawls was surprised to learn that RMMC is a limited partnership with a nonprofit affordable housing organization called Affordable Housing NFP Inc. listed as the general partner, and property records show they used SB 1079 to purchase the home.

“They just smeared lipstick on a pig,” Rawls said, adding that he was in the process of replacing all the floors that had grown mold from leaking pipes. “That was gut work”

RMMC LP was incorporated in July 2021 and purchased its first property in November. To date it has purchased at least 56 mostly single-family homes, and property records show that at least 22 of the purchases were SB 1079 purchases.

The president of the nonprofit, Armando Banuelos, is also the CEO of the Capitol Real Estate Group. At a recent meeting in Bakersfield, Banuelos was described as a specialist in “fix-n-flip, rentals” and other real estate businesses.

Banuelos and other company officials did not respond to requests for comment.

On the front yard of Rawls’ later home, Capitol had put up signs directing buyers to their business. Rawls said there was never any mention of using the houses as affordable housing.

“If it’s supposed to be affordable housing, they lied,” Rawls said. “What a farce.”

Closing the loophole

Under Bonta’s new bill, AB 1837, property purchased by non-profit organizations under SB 1079 would be subject to deed restrictions requiring the housing to remain affordable for at least 30 years. And nonprofits would need to have board members with California addresses.

Several people working in the house-flipping industry said the changes would help fill the loophole in SB 1079, but the new legislation may not go as far as the author intends.

Foreclosures are usually cash purchases. And foreclosure owners or renters are unlikely to have hundreds of thousands of dollars to compete with.

“The idea of ​​regular people just using (using) that,” said Jeff Cagle, the central California house pinball player, “isn’t going to happen.”

Nonprofits may have a better chance of matching the auction prices, and last year the Legislature approved a $500 million revolving fund called the Foreclosure Intervention Housing Preservation Program to help them do this. These funds should be available later this year.

But even with that fund, Hayes says few nonprofits have the capacity to operate at scale, which is why he thinks partnering with private investors is so effective.

“We’re just concerned that along the way it’ll lead to some unique results that won’t really impact all nonprofits. It can tie a piece of nonprofit together,” he said, adding that the vast majority of foreclosed homes are being bought by “the same people who have always done it.”

For Bonta, however, the goal of her legislation is more narrowly focused on reforming SB 1079 and ensuring that when nonprofits buy the homes, they use them as affordable housing for low-income residents.

“We try to ensure that the intent of our legislation is consistent with actual implementation,” she said.

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Marvin Anderson

Marvin Anderson is a seasoned blogger and entrepreneur known for his sharp analysis of current news and trends. With a background in business and public relations, Marvin offers unique insights that blend industry knowledge with a keen understanding of global affairs. His blog is a hub for thoughtful commentary, where he breaks down complex topics into engaging, accessible content. Marvin’s expertise and approachable style have made him a trusted voice for readers seeking clarity in a cluttered news landscape. Whether it’s through his insightful posts or dynamic public speaking engagements, Marvin is dedicated to enlightening and inspiring his

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