Some affordable housing foreclosures not preventable, despite best efforts
A large, contemporary log house built in 2003 in a private subdivision on Rustling Oaks Road in West Tisbury under the town's affordable housing guidelines was the dream of the owner, but that dream ended when the property went into foreclosure earlier this month.
By the time the property was forced into foreclosure and sold back to the mortgage holder at the Sept. 4 auction, the mortgage balance was $640,000, more than two and a half times the original mortgage of $252,000 obtained by Shawn R. Cote, and more than twice the maximum resale price allowed in the property deed's affordable housing covenant.
Even though the property had covenant restrictions on the resale, they don't apply upon foreclosure in order to allow properties to be financed, said Cindy Wansiewicz, an associate of West Tisbury town attorney Ronald Rappaport who worked with West Tisbury affordable housing officials to try to prevent the foreclosure.
The housing officials called the Island Housing Trust to see if it could help save the property, but the cost of buying it was too high, said Philippe Jordi, the trust's executive director.
However, the trust was able to prevent another foreclosure recently on an Oak Bluffs affordable housing property by buying it, and then reselling it to a qualified buyer, Mr. Jordi said. When the trust took over the Oak Bluffs property, it included a restriction that requires the trust's approval of any future financing of the property, he said.
"It will stop any type of overleveraging," he said. Other affordable housing properties on the Vineyard could also be in jeopardy because covenants or riders have not been included in all the deeds in recent years, Mr. Jordi said. The riders, which can be as simple as a $10 second mortgage, serve as an automatic alert to the lien holder of any transactions on the property, such as refinancing or sale.
Most Island affordable homesite properties have deed riders, but they are enforceable only for a limited number of years, Mr. Jordi said. Few deed riders last in perpetuity because those are required by the state only for buyers who earn less than 80 percent of the median income, but most buyers now exceed that limit, he said.
"The problem is no one is minding the shop," Mr. Jordi said. The towns that establish the affordable lots are not being alerted in time of any problems that arise on the properties. The riders or covenants usually require the mortgage holder to notify the town.
Even though the West Tisbury property had the covenant restrictions, efforts to save it proved difficult because of the high mortgage and the short notice before foreclosure. Town officials were notified of the foreclosure within the 30- to 60-day period before the auction, as required in the covenant, Ms. Wansiewicz said. The foreclosure legal notice was listed in the Times on August 9.
After receiving the notice, Ms. Wansiewicz said, the town had only 30 days to exercise its right of first refusal to purchase the property. She then contacted the bank that held the mortgage, asking for a 30-day extension.
She informed the bank that held the mortgage that she had a list of eligible purchasers who could buy back the property for the allowable resale price of about $300,000, but the bank did not respond to any of her letters. She also did not have any success with the state attorney general's division of banks in her efforts to stop the auction sale.
Ms. Wansiewicz and Michael Colaneri, chairman of the West Tisbury affordable housing committee, also went to the auction on Sept. 4 with a copy of the covenant to inform the auctioneer about the resale price limit. After a couple of delays and no one appeared to offer a bid, the auctioneer announced he had a bid, and sold the property to Saxon Mortgage Company, Ms. Wansiewicz said. Fremont Investment & Loan of Brea, Calif., the previous mortgage holder, had assigned the mortgage to Saxon in July. Fremont filed the foreclosure notice in the Massachusetts Land Court on Feb. 20, 2007, according to the notice filed with the county registry of deeds.
Mr. Rappaport is now working with the attorney general's office, which may be able to help in dealing with the lender, Ms. Wansiewicz said, but she said she is not sure what options are available. The attorney general's office is currently holding hearings on deceptive lending practices.
The real question is, she said, "How did the property owner qualify for such large mortgages?"
Mr. Colaneri, who indicated the affordable house on Rustling Oaks Road was the result of a dream for Mr. Cote, said he did not know how Mr. Cote obtained the loans. He never came to the affordable housing committee or the town about the refinancing as required in the covenant, Mr. Colaneri said. Mr. Cote could not be reached for comment.
The covenant required the property owner to notify the affordable housing committee in writing of any intention to "sell, dispose or otherwise convey the property." The housing committee then is supposed to calculate the maximum resale price, and the owner is required to seek an eligible purchaser, according to the covenant on the original deed dated Aug. 1, 2003.
"The committee voted to do what we could to save it," Mr. Colaneri said. He said the committee had hoped to get a 60-day extension on the foreclosure.
The property deed and covenant showed it was sold to Mr. Cote by Roth Rogers Realty Trust as a substandard lot under a special permit allowed in the West Tisbury zoning bylaws. The property was designated as one of two affordable housing lots in the subdivision off Coffins Field Road.
A review of the property records at the registry also revealed three mortgage refinancing transactions and construction activity, for a total of 25 transactions over the four-year ownership. Mr. Cote refinanced the property in June 2005, obtaining a $400,000 mortgage, again in September 2005 with a co-signer for $450,000, and the last time in March 2006 for a $581,250 loan.
Mr. Colaneri said the town could resell the property to someone who earns 140 percent of the median income. The 2006 median income for Dukes County was $47,800 for one person, or $66,900 at 140 percent.
The maximum resale price in the Rustling Oaks property covenant was written as a complicated formula using percentages. Mr. Colaneri said Ms. Wansiewicz has rewritten many of the covenants using different criteria.
"We're re-looking at all of that and doing what we can," Mr. Colaneri said. Despite the recent setback, he added, "The town affordable housing committee will continue to vigorously support all the affordable housing stock and we hope to create more."
When an affordable housing property resale cost is within the allowable range, the town can conduct another lottery, and resell it to another qualified buyer, said Glenn Hearn, the selectmen's representative on the affordable housing committee. The Rustling Oaks property, however, was way above the allowable range, he said.
"Keeping (properties) in the affordable pool is one of the constant problems every town has," Mr. Hearn said. The covenants are changed with every new property, he said.
In the Oak Bluffs foreclosure case, the trust put together a ground lease form, which is the most enforceable method of protecting the property from going outside the affordable housing restrictions, Mr. Jordi said, adding that a deed rider is less enforceable.
Mr. Jordi said there is "no way around a ground lease" because the trust owns the land and puts restrictions on the mortgages. If there is a pending foreclosure, the trust can step in and buy the property and sell it to someone else, he said. The banks also have the right to buy back the property. The trust also will accept only certain types of mortgages that meet the Fannie Mae guidelines, he said.
"We've learned from these type of things," Mr. Jordi said, referring to the recent foreclosure. He has been working with all four Island banks and attorneys on the affordable housing financing. The banks can sell the mortgages to Fannie Mae, the nation's largest mortgage company.
"The four banks on the Island are all on board," with the ground leases and other restrictions on the mortgages, Mr. Jordi said. "We feel it's a strong tool in keeping the affordability and we'll stand behind it."
The land trust also is working on building relationships and educating the towns on their affordable housing guidelines, Mr. Jordi said. The deed riders were originally done by the Housing Authority, but the towns have gradually taken over that task, he said.
"Over the years, this has evolved," Mr. Jordi. "The restrictions became stronger, but they're not completely perfect, and not completely enforceable.
"The community needs to retain its investment," he said. "If we don't have someone monitoring, it will fall through the cracks."
The land trust and the housing authority are trying to make sure that the affordable properties stay affordable in perpetuity, he said.