The upside of home foreclosure

Buyer gets a bargain, hope replaces blight

Luis Rodriguez is renovating a three-family on Hendry Street that he bought from foreclosure. (David L. Ryan/Globe Staff)

Henrique Fernandes fell in love with the three-story red house with large rooms and an expansive backyard. The Cape Verdean immigrant envisioned his children running outside to play and his extended family celebrating holidays together.

It didn't matter that the home sits on Hendry Street, a narrow avenue in Dorchester with boarded-up buildings, a neighborhood that has become notorious as the epicenter of Boston's foreclosure crisis.

"I see a beautiful thing that has been mistreated," Fernandes said about the two-family house, which he bought in April and is renovating down to the studs. "We determine what is going to be better for us. It is good people who make the neighborhood."

As devastating as it has been for families who have lost their homes, the foreclosure epidemic has presented an unusual opportunity for a small but growing group of buyers previously priced out of Boston's real estate market. Fernandes, for example, got his building for $271,500, just two years after the prior owner agreed to pay $540,000 for it.

Immigrants and other property pioneers have long been a force in reviving downtrodden neighborhoods. But their purchases of foreclosed and abandoned properties are particularly crucial now because these new homeowners are key to stabilizing neighborhoods racked by the mortgage crisis.

Government agencies and nonprofits are revving up rescue plans, but housing specialists say private buyers - new homeowners - are critical to reviving neighborhoods, because they have so much invested in their property.

"It is the quickest way to get this mess cleared up," said Karl Case, an economics professor at Wellesley College and cofounder of the S&P Case-Shiller home price index. "You need people to buy the property and fix it up and move back. It's the way the market works its wonders."

Purchases of foreclosed homes in Boston jumped to 193 during the first six months of this year, from 37 during the same period last year, according to a real estate data provider, the Warren Group.

Statewide, there were 2,181 sales in the first half, nearly five times the number in the year-earlier period.

Warren Group analysts said the increase may be overstated because their data had not always tracked the sale of homes that lenders had seized from prior owners.

Added Case: "More people are buying than I had noticed. That's a good thing."

Some of these properties have been bought by investors. Housing activists worry about speculators flipping homes without investing in the neighborhoods. But outside owners can also help.

"If they fix it and maintain it and contribute to the quality of life of the neighborhood, that is fine," said David Price, executive director of Nuestra Comunidad Development Corporation, a nonprofit community developer in Roxbury. "We need more investment in the neighborhood, and it is important it happen fast. . . . Hopefully this is a sign we are now at the bottom and people are starting to buy."

A Dorchester real estate attorney, Nina Nguyen, has seen two types of buyers: investors and first-time homebuyers. "Savvy real estate investors have money and now it is a great opportunity for them to buy," Nguyen said.

Atria Horton was not going to let a troubled neighborhood scare her away from buying her first home. The 50-year-old nursing assistant and foster mother visited 250 properties before choosing her three-bedroom house on Dacia Street, another Roxbury neighborhood plagued with abandoned homes. Horton said the house required less work than others she visited. It wasn't in foreclosure, but the house was close to being seized by the lender. The previous owner had died, with two loans on the property for $124,000.

Last year, she bought the house for $162,914 after completing a first-time homebuyer class run by the city. She had help buying it, too, with a small loan from a state housing agency, in addition to the $142,000 she borrowed from a lender.

"This is what I've been working for all my life. And it's mine," Horton said.

A few blocks away on Balfour Street, Jose Cruz paid $255,000 in cash for a three-decker in April and invested $175,000 in rehabbing the apartments. He rented the units and says neighbors have congratulated him for his work. "The whole neighborhood is going to be better," Cruz said.

The building's previous owner bought it for $400,000 in December 2006 and financed the entire amount with two mortgages - a so-called 80/20 loan package that was popular during the boom years and is considered responsible for many foreclosures.

Those kinds of mortgages are now much harder to get. And while some buyers are borrowing the full value of the property - or more - they're getting homes at much cheaper prices than the prior owners paid.

Hendry Street has been the site of an intensive effort by the city. Last week, the Menino administration chose a developer to purchase and rehabilitate four foreclosed three-deckers on the street. City officials have also been trying to get private buyers to move into the neighborhood, by organizing a trolley tour in May and holding a seminar to help potential owners learn about the benefits and risks of buying foreclosed properties.

The city is also helping buyers once they have moved into the homes. Fernandes, for example, is in line for money to remove lead paint and do other work. He hopes to have the home ready for his family this fall, with his sister and her family renting the other unit.

Mayor Thomas M. Menino was encouraged by the amount of work the new buyers are putting into these homes. "These guys should get awards for what they are doing," he said while touring Hendry Street recently. "This is sweat equity."

One of "these guys" is Luis Rodriguez, who bought a three-unit property for $164,900 in April. Not two years earlier, the previous owner paid $446,500.

For four months, Rodriguez has been working 12-hour days renovating the units himself. Rodriguez, 61, is proud of his work and plans to live in one of the units or sell to someone who will.

"The house is going to be nice and neat and beautiful," he said.

Jenifer McKim can be reached at jmckim@globe.com.