Rowhouse rehab deal halts project Unauthorized agreement is discovered

191 Baltimore properties

Homes were to sell to low-income families for modest prices

December 01, 1996|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

An ambitious project to transform nearly 200 deteriorating city rowhouses into properties to sell to low-income families has stalled after leaders of a national job-advocacy group discovered that their regional managers had entered into an unauthorized ,, agreement to renovate the homes.

The president of the United Minority Contractors Association, which trains minority contractors and inner-city youth in construction, said she halted the affordable-housing project /^ organized by the nonprofit's mid-Atlantic chapter and a New York mortgage lender after she learned of it in September.

In July, the chapter had announced that it would purchase and renovate the rowhouses as part of a $10 million project financed by Hempstead, N.Y.-based Amerifirst Mortgage Corp.

The lender expected to make loans of $48,000 to $50,000 under the federal Department of Housing and Urban Development's 203(k) program, allowing homebuyers -- and approved nonprofits to purchase and repair "fixer-upper" properties with one fixed-rate loan for as little as 3 percent down.

Within weeks, the first 29 homes went to settlement, subcontractors started renovations and potential purchasers signed up to apply for mortgages.

But when HUD's Baltimore office raised questions about the nonprofit's experience and ability to sell homes, as required, for more than the cost of buying and renovating them, the project came to the attention of the minority contractors association's headquarters in Long Beach, Calif., said Lorraine Stone, the group's president.

The project raised flags, Stone said, because of its scale. Any of the group's five regional offices need approval from headquarters before embarking on construction projects of more than one property, she said.

In the case of the 191 Baltimore houses -- which the lender and the association had said would be completed and ready for sale in six to eight months -- she said, "It was just basically a blatant lack of protocol; the proper reporting and reports did not get to us, or we wouldn't have allowed it to happen.

"I have regional directors, and in some regions they take on jobs that are much too massive and don't understand the results. It was too large a project unless the properties were planned to be phased."

Stone said the 300,000-member contractors association also would never have agreed to participate in an affordable housing project outside the 203(k) program.

Because of unanswered questions, HUD never approved Amerifirst's application with UMCA, said James S. Kelly, a Baltimore spokesman for the federal agency. On such applications, HUD looks at whether homes can be sold in targeted neighborhoods for more than the cost of buying and renovating, and at experience selling to owner-occupants, he said.

Without that approval, the contractors association could be left with dilapidated homes and no means to fix them up, Stone said.

"We teach construction to inner-city youth and small contractors; we're not in the house-buying business," Stone said. "Affordable housing is not our forte."

The mid-Atlantic region's executive vice president, John L. Powell, entered into the original agreement, Stone said. Powell -- who also acted as broker for the sale of the properties, according to a sellers' representative -- remains the head of the regional chapter, according to Stone. Powell refused comment, referring all questions to Stone.

Despite the lack of HUD backing, the renovations have been postponed, not permanently halted, Stone said. The association is working with Amerifirst to start a smaller-scale version of the project, perhaps renovating 100 homes in two phases, she said.

Amerifirst officials say they haven't lost confidence in UMCA, citing the association's successful work renovating homes in gang-infested, impoverished neighborhoods in Los Angeles. The bank still expects to lend $10 million in Baltimore, either to the UMCA, to another nonprofit group or directly to homebuyers, said Bentley Whitfield, executive vice president.

"Our first and foremost goal is to promote decent and affordable housing for the constituents in the area we serve," Whitfield said. "If circumstances dictate the minority contractors cannot move forward for procedural reasons, we would probably look at other alternatives."

But others involved in the project -- contractors who say they are owed tens of thousands of dollars, the realty-management firm representing the sellers and a real estate firm that was to have marketed the newly refurbished homes to buyers -- say they're left paying for others' mistakes.

The local UMCA chapter agreed to buy 191 scattered properties from various corporate owners. The homes, managed by L. E. Realty Inc., were to have sold for an average of $7,800. Over six weeks starting in July, the first 29 homes -- some vacant six months or more -- went to settlement.

"Then they walked away," said Malcolm Snyderman, president of the management company, said of the UMCA. "They were supposed to take the whole deal."

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