Exclusive: Nonprofit that flipped homes to investors faces scrutiny

Sun Nov 24, 2013 1:40pm EST
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By Matthew Goldstein and Emily Flitter

NEW YORK (Reuters) - A U.S. housing regulator has been investigating the activities of a small California not-for-profit 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.   Continued...

Two mailboxes stand behind the steel fence of a foreclosed home in Los Angeles, California July 17, 2012. REUTERS/Mario Anzuoni