Charity Under Suspicion After Flipping Foreclosed Homes to Investors

Real Estate Brokers Lead Bus Tour Of Foreclosed Homes In Vegas Area
Getty Images

By Matthew Goldstein and Emily Flitter

A U.S. housing regulator has been investigating the activities of a small California nonprofit that bought hundreds of foreclosed homes through a federally backed program intended to help local communities hurt by the housing bust, according to government documents reviewed by Reuters.
The U.S. Department of Housing and Urban Development's Office of the Inspector General late last year began probing San Diego-based Heartland Coalition's participation in the "First Look" program in Las Vegas and other U.S. cities, according to a redacted investigation report and a letter from the regulator in response to a Freedom of Information Act request. The Inspector General's spokeswoman, Marta Rivera Metelko, declined to say whether the investigation is still active. Reuters could not determine the specific focus of the probe.
According to the documents and a review of local property records in Las Vegas, the charity flipped a significant number of the homes to investors, generating millions of dollars in profits for those financing Heartland's activities with relatively short-term loans. The First Look program, set up in the aftermath of the financial crisis, helps nonprofits and local communities buy foreclosed homes from U.S. banks at a discount, with the expectation that they would then renovate them and first try to sell the houses to low- and moderate-income families or to investors who would rent to such families. It is unclear whether Heartland initially tried to sell the properties it had acquired to such families before going to investors.

The goal of the program is to promote neighborhood stabilization and does not prohibit the reselling of properties to investors. Still, Heartland, according to one real estate investor that bought several homes from the charity, did not ask what the buyers intended do with the homes.
There is no indication that Heartland violated any laws or regulations.

The probe started after Heartland was suspended in August 2012 by the program's administrator, the nonprofit National Community Stabilization Trust, or NCST, according to the documents. The NCST said it suspended Heartland for spending too little on renovations and for not allowing local families enough time to buy the homes, especially in Las Vegas. The Inspector General's office declined in May to provide Reuters with a copy of the suspension order because an investigation was ongoing.

Heartland founder Mark Hanson, 69, a retired school administrator with a Ph.D. in education from Claremont Graduate University, said he was not aware of the investigation and that his group's suspension, which is still in place, was unwarranted. In a statement, HUD Secretary Shaun Donovan said, "It is our understanding that where buyer inconsistencies have arisen in conjunction with First Look property transfers, NCST has acted responsibly to resolve issues."

A former NCST employee, who declined to be identified, told Reuters that while First Look always permitted the resale of homes to investors who would rent them out, the main goal of the program was to get bank-owned homes resold to buyers who intended to live in them. (Pictured above, prospective buyers view a bank-owned Las Vegas home in 2009.)

Jobs Mission: Hanson, who formed Heartland in 1997 to primarily help poor families in the San Diego area, said he isn't concerned about who bought the homes the nonprofit acquired in Las Vegas and other cities as long as it helped stabilize neighborhoods. "Selling homes to low-income (families) was never our mission," Hanson said. "Our mission was to create jobs," by hiring workers to renovate homes.

Gabe Del Rio, chief operating office for Community Housing Works, another San Diego not-for-profit that has relied mainly on bank loans to buy dozens of homes through the First Look program, said his group long has emphasized reselling homes to families as opposed to potential landlords. Heartland, which was one of some 350 nonprofits participating in the program, bought more than 475 bank-owned homes through First Look and 714 foreclosed homes in total since 2010, according to property research firm RealtyTrac. (See the graphic.)

The NCST declined to provide a list of the participating nonprofits. Some participants that Reuters independently identified, and the former NCST employee, said most groups bought only about a couple of dozen homes on average.

NCST President Craig Nickerson said Heartland was suspended after the NCST investigated complaints from local real estate representatives in Las Vegas about the nonprofit early last year. He declined to provide a copy of the suspension order. He added that any problems with Heartland were isolated, noting that about 14,000 homes have been sold to participating nonprofits and community groups under the program and that 91 percent of those homes have been resold to people who planned to live in them.

"The Trust has confidence that the vast majority of nonprofits conduct their activities consistent with their stated missions," Nickerson said.

Big Buyer: Heartland, which historically has taken in less than half-a-million dollars in annual charitable contributions, borrowed millions of dollars from private financiers between October 2011 and August 2012 to buy more than 247 bank-owned homes and condominiums under First Look in Las Vegas alone, according to a review of the group's financial documents and website.
About 35 percent of those homes were then resold to hedge funds, local investors and out-of-town buyers, living as far away as Belgium, Canada and Hawaii, according to Heartland's property transactions and interviews with more than a dozen people familiar with the group and the First Look program.

It is not clear how many of the homes sold to investors were rented out to low and moderate income residents in Las Vegas. The Reuters analysis did not look at homes purchased by Heartland in Phoenix and California. In some cases, the nonprofit did not ask what the buyer intended to do with the homes sold in Las Vegas. For example, Anthony Hynes, whose Newport Beach, Calif., investment fund bought seven single-family homes and condominiums from Heartland, said he did not know his firm was purchasing properties from a nonprofit, nor did anyone ask whether his firm would rent the houses to poor families.

The buying and selling of Las Vegas homes last year produced gross profits of between $5.8 million and $11 million for Heartland and its investors, the analysis shows based on an the average resale price for foreclosed homes in Las Vegas. Several of the more than half-dozen private financiers that funded Heartland's purchases said the loans, which were often for less than a year, generated attractive returns of between 8 percent to 10 percent.

In a 2012 financial filing sent recently to the Internal Revenue Service, Heartland said its own net proceeds from home sales were $3.18 million. That is more than eight times its 2011 net proceeds of $383,122. Hanson said that up until 2011 he had no salary from Heartland apart from a $10,000 stipend in 2004 to assist survivors of California wildfires. In 2012 he received compensation of $50,850, up from $37,500 in 2011.

More about foreclosure and eviction:
Foreclosure Victim Must Leave Hotel After 9 Years
Facing Eviction, Man Finds $4.85 Million Lottery Ticket
See the $2.8 Million Home Ex-NBA Star Lost to Foreclosure

10 States With the Most Foreclosures
See Gallery
Charity Under Suspicion After Flipping Foreclosed Homes to Investors

Price: $7.9 million

Address: 10 Edgewater Drive, Coral Gables, Fla. 33133

The listing for this penthouse brags of "spectacular unobstructed views of Biscayne Bay, Atlantic Ocean, and the city."

See more photos of this home for sale in Coral Gables.

Price: $1,999,900

Address: 8390 W. Windmill Lane, Las Vegas, Nev. 89113

This six-bedroom, 11-bathroom hacienda-style home is part of a 4-acre equestrian estate that includes a covered riding arena, hay barn and stables.

See more photos of this home for sale in Las Vegas.

Price: $3,890,000

Address: 703 Abell Ridge Circle, Towson, Md. 21204

Described in its listing as a "historic and architecturally significant Beaux Arts manor home, meticulously restored to its original grandeur," it not only has six bedrooms and eight bathrooms, but 10 fireplaces.

See more photos of this  home for sale in Towson.

Price: $624,900

Address: 1253 N. Bosworth Street Chicago, Ill., 60642

This duplex penthouse "in the heart of West Town" is touted by its listing as a Fannie Mae HomePath property that can be purchased with a 3 percent down payment.

See more photos of this home for sale in Chicago.

Price: $545,000

Address: 2600 Bexley Park Road, Columbus, Ohio 43209

This 4,573-square-foot home in Ohio's capital has five bedrooms and four baths, and is set on about a quarter acre.

See more photos of this home for sale in Columbus.

Price: $1.7 Million

Address: 279 Old Stamford Road New Canaan, Conn. 06840

This four-bedroom, five-bathroom Colonial-style home was built in 2000 and is set at the end of a private road. Its 4,688 square feet of open-plan living space includes a large walk-in closet and the master bedroom features a fireplace.

See more photos of this home for sale in New Canaan.

Price: $624,900

Address: 205 Summit Road, Mount Laurel, N.J. 08054

Set on about a half-acre, this 4,756-square-foot home was built in 1990. Along with a balcony that overlooks its "great room," the five-bedroom, five-bathroom showplace has a double staircase and a circular driveway.

See more photos of this home for sale in Mount Laurel.

Price: $439,900

Address: 22597 Huff Road Milton, Del. 19968

Set on a 2.47-acre lot, this three-bedroom, four-bathroom house was built in 2006, and its listing promises "upgrades galore."

See more photos of this home for sale in Milton.

Price: $404,900

Address: 1761 Golden Field Drive, Greenwood, Ind. 46143

This four-bedroom, four-bathroom ranch-style house near Bloomington is touted in its listing as having a full basement and easy access to main roads.

See more photos of this home for sale in Greenwood.

Price: $449,900

Address: 1003 Englewood Court, Summerville, S.C. 29483

Built in 2006, this five-bedroom, four-bathroom home is set on a little less than an acre.

See more photos of this home for sale in Summerville.


More on AOL Real Estate:
Find out how to calculate mortgage payments.
homes for sale in your area.
foreclosures in your area.

Find homes for rent.

Follow us on Twitter at @AOLRealEstate or connect with AOL Real Estate on Facebook.

Read Full Story

Find a home

Powered by Zillow