Condo auctions skyrocket

Foreclosures triple in cities north of Boston

Pond View Village promised to turn an old glue factory in Gloucester into 125 affordable apartments and condominiums. But with only the first two phases completed, and many units unsold, a foreclosure auction is scheduled Tuesday for three lots on which the final units were to be built.

Palmer Cove Condominium, a 15-unit development in Salem, was built to create affordable home ownership in The Point, the city's poorest neighborhood. But after only one person applied to buy, the nonprofit developer now wants to rent out the units to avoid foreclosure.

"When we started this project in 2004, there was a need for home ownership," said Michael Whelan, executive director of Salem Harbor Community Development Corp. "There still is a need, but clearly there has been a market adjustment."

Condo foreclosures are picking up across the region north of Boston. Hardest hit are cities, where developers once rushed to convert old buildings and homes. For the first six months of the year, the rate of condo foreclosures more than tripled in the largest cities north of Boston, according to The Warren Group, a Boston publisher of real estate data.

In Haverhill, 32 condos were sold at foreclosure auctions from January to June, a 129 percent increase over the 11 units sold in the same period in 2007. In Lynn, where old commercial space downtown was turned into lofts, condo foreclosures jumped 118 percent, to 24 for the first six months of this year, compared with 11 the year before, the data show.

Chelsea had 15 condo foreclosures for first six months of this year, a 114 percent increase, from seven for the same period last year. In Revere, foreclosures surged 340 percent, to 22 condo units, compared with five sold at auction for the first half of 2007. Salem's condo foreclosure rate jumped 78 percent, with 16 units foreclosed upon from January to June, compared with nine units for the same time last year, the data show.

Statewide, foreclosures of all residential property - including single- and multi-family homes - more than doubled for the first half of 2008, rising 118 percent compared with the same period in 2007, according to The Warren Group.

In Essex County, foreclosures continue to outpace the state average, rising 130 percent from January to June, compared with the same period in 2007. In Middlesex County, which includes Everett and Malden, foreclosures increased 114 percent, slightly less than the statewide average. Foreclosures likely will continue to hamper the Bay State's housing market, said Tim Warren, chief executive of The Warren Group.

"I don't think the market will really recover this year," Warren said. "I hope it does so in the first half of next year, when prices could stabilize. In order for that to happen, sales will have to pick up."

The credit crunch is one reason the condo developments in Gloucester and Salem are on the brink of foreclosure.

Cape Ann Housing Opportunity Inc., a nonprofit developer, purchased the former LePage's glue factory in West Gloucester in 2002. The group received almost $20 million in public and private financing, with the largest stake made by the Massachusetts Housing Investment Corp., a nonprofit community development bank.

MassHousing invested about $16 million, through a mix of loans and tax credits, to finance the project. The first phase, consisting of 43 apartments, was built on time. But construction delays, a lawsuit filed by abutters, and the real estate slowdown combined to hurt the second and third phases.

Cape Ann Housing Opportunity couldn't make its loan payments to MassHousing. A spokeswoman for Cape Ann Housing deferred comment to its Boston lawyer, Travis Norton, who did not return a telephone call.

MassHousing last year took title to half of the condo units, which now are being sold for about $200,000 each, an official said.

"You sell for what the market will bear," said Joseph Flatley, president of MassHousing. "The units are more affordable than we intended."

MassHousing moved to foreclose on the third phase of the project. Three lots of land are due to be auctioned Tuesday. The agency will submit a bid, hoping to gain a clear title to the property, Flatley said.

"We need to get control of this land," he said. "It's a good housing development. We just hit the market at the wrong time."

In Salem, the $4.6 million Palmer Cove Condominiums includes 15 condominiums, ranging in price from $142,500 to $189,900. Salem Harbor Community Development planned to sell them through an affordable housing lottery. But the lottery drew only one applicant, despite marketing efforts that included first-time homebuyer workshops, Whelan said.

With a $2.2 million construction loan overdue, Salem Harbor asked the city's zoning board to convert the project to rental units. A public hearing on the request is due to continue on Aug. 27.

The state Department of Housing and Community Development has agreed to let Salem Harbor participate in a low-income housing tax-credit program, Whelan said. Salem Harbor would generate equity on its investments and repay the construction loan. The units would be kept as affordable rental housing for at least 15 years, he said.

"We feel its a very good plan," Whelan said. "It's far better than the alternative - foreclosure. That's what we're trying to avoid."

Kathy McCabe can be reached at kmccabe@globe.com.