February 16, 2020; Boston Globe
A class action lawsuit filed last week in Suffolk County Court in Boston, Massachusetts, by borrowers of BlueHub Capital (formerly Boston Community Capital) alleges that the nonprofit misrepresented its loan terms, reports Andrea Estes in the Boston Globe. The lawsuit is being financed by the Neighborhood Assistance Corporation of America, a national housing 501c4 nonprofit that is a mortgage broker and is also headquartered in Boston.
The lawsuit alleges that BlueHub Capital “trapped” program beneficiaries into “a 30-year plus, well-above market rate mortgage with an additional final, giant balloon payment that will come out of the borrowers’ equity in their one asset, their home.”
For its part, BlueHub Capital notes the program has saved over 1,000 families from foreclosure, in part by reducing their principal by $68 million and interest costs by $42 million (assuming 1,000 families, that would be $42,000 per family). BlueHub calls its program SUN (Sustainable Urban Neighborhoods), and the program is well publicized on its website with the tagline, “Keeping homeowners in place. Keeping equity in neighborhoods.”
Indeed, the very BlueHub Capital program now being sued over has been long lauded as a “national model” that keeps families in their homes while preserving their neighborhoods. The program has been successful enough that it now operates not just in Massachusetts, but also in Connecticut, Illinois, Maryland, New Jersey, Pennsylvania, and Rhode Island.
Writing for the Washington Post in 2014, Dina ElBoghdady provided an example of how the program worked. The Barrett family, who lived south of Boston, had bought their home for $335,000, but they were at risk of losing their home to foreclosure due to missed payments. The loan fund bought the house from the bank in a short sale for $158,000, then resold it to the Barretts for $226,500, with a portion of the differential placed in a loan loss reserve and the rest made available for needed house repairs. The interest rate was higher because the cost of capital to the nonprofit lender was higher, but overall the cost of the loan to the borrowers was less. The family, as a result, avoided foreclosure, kept their home, had the cash they needed to pay for repairs to a faulty deck, and had monthly payments that were 17 percent lower.
There was a condition attached to all of this, however. As ElBoghdady writes, “If they decide to sell, and the home sells for a profit, they can’t take all of it.” The group explains on its website:
SUN is entitled to a percentage of the profits equal to the reduction in the original mortgage amount. For example, if your original mortgage was $400,000 and your SUN mortgage is $200,000, your new mortgage represents 50 percent of your original mortgage. If you sell your house for $250,000, SUN is entitled to 50 percent of the proceeds over $200,000, or $25,000. Boston Community Capital will reinvest its share of any potential profits in projects that benefit the community, keeping the equity where it belongs—in our neighborhoods.
Back in 2014, when ElBoghdady wrote her piece, Massachusetts housing prices had not recovered and splitting nonexistent gains was not much of a concern. By 2020, however, housing prices have more than recovered, and some families who were rescued from foreclosure many years ago now say they were not informed of this policy and want to keep the full equity gain for themselves.
As Estes writes in the Globe, “dozens” of borrowers say they only learned “belatedly that they had agreed to a shared appreciation mortgage.” And the stakes are high. “In a real estate market where prices have risen more than 50 percent since 2012,” Estes notes that for some homeowners the difference could be hundreds of thousands of dollars.
It is hard to decipher from a press account whether the homeowners were poorly informed then or are trying to squeeze the nonprofit for cash now. Presumably, it’s a matter that either the courts or negotiations between the parties will determine.—Steve Dubb