State places housing firm on probation Nonprofit corporation has lost 50 properties to foreclosure, default

Its funding mostly public

10-year-old company encourages private ownership of homes

March 03, 1997|By Walter F. Roche Jr. | Walter F. Roche Jr.,SUN STAFF

A nonprofit corporation set up more than a decade ago to promote private homeownership in Baltimore has lost nearly 50 properties through loan defaults and mortgage foreclosures and has been placed on probation by state officials as the result of continuing financial problems.

The Baltimore Corporation for Housing Partnerships, which just five years ago was billed as the pre-eminent player in local nonprofit housing, is struggling to survive.

The group, which draws much of its funding from public sources, is in such fiscal instability that it:

Is selling its 25th Street headquarters -- originally valued at almost $290,000, but now worth only $155,000 -- and will rent cheaper quarters.

Is attempting to renegotiate the interest and terms on $7 million in state and bank loans.

Has eliminated an in-house construction company.

Has turned over maintenance and management of 77 housing units to a private firm.

Moreover, six of the firm's 26 employees have been laid off.

The extent of the retrenchment and the defaults offer stark proof that providing low-income housing and promoting homeownership are fraught with risk -- which, officials concede, they did little to dampen. In addition to purchasing city properties and rehabilitating them for sale, the firm has built and rehabilitated multifamily projects across the city, by itself and with other groups.

Among its failings were overestimating rental income and future property values, and an overly ambitious range of projects. In addition, the firm did not file timely appeals to reduce $45,000 in real estate taxes.

Public records show that the Maryland Housing Fund -- which insures loans from the state Department of Housing and Community Development -- took title to 30 of the firm's properties late last year. The state housing department foreclosed on another property, on South Franklintown Road, early this year.

Seventeen other properties have been sold to avoid foreclosure or at foreclosure sales; three of those went on the auction block last month.

In all, the firm has lost properties once valued at more than $2.3 million.

In addition to houses lost because of loan problems, about 40 other properties still owned or managed by the firm are vacant or abandoned.

John G. Brandenburg, who took over as executive vice president a year ago, and the firm's board chairman, David F. Tufaro, say the cuts in staff and operations result from the same economic pressures facing private real estate firms.

They say the firm will continue but at "a much scaled-down activity level," focusing on neighborhoods more likely to rebound.

Sue Gregson of the state housing department said the Baltimore firm has been placed on probation -- meaning it will receive no new contracts -- and could lose its rights to continue managing housing projects.

In its latest annual report, for the year ending June 30, the firm reported a deficit of $609,584 -- revenue was $758,090, but expenses were $1.37 million. That report also lists $413,124 in unpaid bills.

City housing records show the firm's properties were cited for 18 code violations between June 1994 and February 1996, the most recent period for which information was available. Citations included an order to clean and board up an abandoned house at 336 S. Franklintown Road. Some of the violations are still outstanding.

City Housing Commissioner Daniel P. Henson III called the firm's problems unfortunate but also in a way predictable, because of the high-risk nature of its projects.

Henson said he was concerned that with its narrower focus, the firm might not take on planned projects with high impact. He noted that state officials and the Enterprise Foundation -- a nonprofit builder of housing for the poor around the world, based in Maryland -- have committed to providing technical assistance to the Baltimore firm.

Henson also said that without the firm, "it would greatly diminish our capacity" to do high-risk but high-potential projects.

Gregson, the state official, said that because of the firm's poor performance, it will not be considered for additional projects.

"We have placed them on probation for six months," she said, adding that it must "straighten out" its problems within that period or lose its remaining management contracts.

According to city land records, the firm defaulted on a $2 million loan the state granted in 1992. The loan covered 39 properties in the Coldstream-Homestead-Montebello neighborhood.

Gregson said the program was designed to rent properties to prospective buyers, then allow them to purchase them.

"For us, [Coldstream] was an ideal project," said Gregson, "because it was specifically designed to encourage homeownership. Unfortunately, it didn't work. After four years, only nine houses were sold."

When the firm began to miss its loan payments, Gregson said, the state decided to cut its losses by taking title to the properties.

A little more than $1.5 million was due on the $2 million loan when the properties were taken over by the housing fund.

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