Phantom owners block path from blight

Officials stymied in efforts to buy foreclosed homes

Ann Houston, executive director of Chelsea Neighborhood Developers, surveys properties on Cottage Street. The nonprofit wants to buy foreclosed properties, but has met frustration in locating some owners. (Bill Greene/Globe Staff)

Despite a failure so far to pass a bailout of the financial sector, the US government is moving ahead with numerous steps to fix the housing market, including aid for communities combating blight caused by a flood of foreclosures.

Last week, federal housing officials said Massachusetts will receive $55 million to help communities buy foreclosed properties in a bid to revitalize neighborhoods.

But Massachusetts cities and towns participating in a similar state program are encountering obstacles that show how difficult the next round of housing-market stabilization will be.

The state created a $20 million property-acquisition fund earlier this year, yet no community has purchased any foreclosed homes with the funds because they either can't find the investors who own the properties or those owners are reluctant to sell.

Home loans are commonly bundled into giant pools, and financial firms create new securities based on those loans that are bought and traded among investors. The declining value of these securities has created up to $600 million in losses that are crippling the financial industry.

Local housing agencies say they have been unable to penetrate this tangled web of Wall Street investors, trustees of investment funds, and the loan-servicing companies that handle the underlying mortgages.

"The absolute opaqueness and complexity of these mortgages is going to make it difficult," Nancy Blueweiss, a lawyer at the Massachusetts Housing Partnership, said about the new federal neighborhood stabilization effort. The federal government, she added, is "facing the same hurdles in terms of, 'who do we talk to?' "

Tom Deutsch, deputy director of the American Securitization Forum, which represents investors, said city agencies may be having difficulties because they do not first contact loan servicers. These companies also have the job of selling repossessed properties on behalf of the owners.

Moreover, Deutsch said, the investor-owners are trying to get bids that they believe reflect the value of the property, rather than giving in to low-ball offers.

"They have to seek out additional bidders if they don't think the price they're being offered" by the municipality is high enough, he said.

But local officials contend that they have reached out to loan servicers, and have found that these companies in particular are ill-equipped to dispose of the flood of foreclosed properties coming into their possession. Servicing companies, these housing officials say, often either do not return their calls or don't respond to their bids for the properties.

In some cases, housing agencies said that some two- or three-family homes they inquired about were suddenly sold to investors who will likely resell them for a profit.

Housing agencies "should be able to go to a bank and say, 'Sell me 25' " foreclosed properties," said Tina Brooks, undersecretary of the Massachusetts Department of Housing and Community Development. Instead, "they have to negotiate every property one at a time, and not even successfully."

Ann Houston is executive director of Chelsea Neighborhood Developers, a nonprofit with a Herculean task: arrest the blight on some streets in Chelsea, where one in four homes is in foreclosure. One recent morning she walked one neighborhood of empty, boarded up, or dilapidated properties in foreclosure.

Her staff spends hours pursuing phantom owners and have left dozens of phone messages that go unreturned. Since December they've been trying to buy two ramshackle attached three-family homes that have two different owners. Her staff identified the owner of one property as Fannie Mae, which had seized it, and the Chelsea agency intends to bid on it in coming days.

Fannie Mae, which supports the US housing market by buying mortgages, was put into conservatorship by the US Treasury in early September due to losses caused by mounting foreclosures in its loan portfolio.

The problem for Houston is that she can't find out who owns the second property - public records are incomplete and there is no foreclosure filing, she said.

As Houston stood outside, Yvonne Guardiola leaned out of the window of the front door - the glass is gone - and talked about the property's mystery owner. She rents the first floor unit with her son, Angel, and family members live in the top two units. There is no refrigerator on the second floor, no garbage cans anywhere, the backyard is strewn with trash, and the retaining wall is falling, she said.

She hasn't seen a landlord in months. "We don't know who to pay the rent to," Guardiola said. "We're scared they'll kick us out."

Houston told Guardiola the agency would be to keep her as a tenant if it can buy the property. Based on information gleaned from Guardiola, Houston suspects the property may be heading to foreclosure and planned to ask her staff to again look into the property.

Joseph Flatley, president of the Massachusetts Housing Investment Corp., which runs the state program and makes low-interest loans to housing agencies, said his organization received $3 million in loan applications from cities and developers. No loans have been made so far, but he expects to distribute more than $8 million by year-end.

Some city agencies just give up. In June, the Brockton Housing Authority, after five months, dropped its effort to buy an abandoned, foreclosed property near an apartment complex it had renovated for $8 million. Local kids had taken over the garage, and the property is near both a gang hangout and an elementary school.

The authority had signed a purchase agreement with an out-of-state bank in February to buy the house for $165,000, said Kevin Harriman, director of neighborhood stabilization. But then the bank told him it couldn't sell the property because it did not have clear title.

The property remains a source of concern to its Brockton neighbors

"We felt we had let the residents down," said Richard Sergi, executive director of the Brockton Housing Authority.

Kimberly Blanton can be reached at blanton@globe.com.