Flipping becomes fundraiser for nonprofit group

Here's a different sort of fundraiser for nonprofit groups: flipping homes.

A Southern California charity has purchased five Sonoma County homes in the past six months through "first look" foreclosure programs with three national banks.

Village Solutions Foundation, a nonprofit group based in Irvine, estimates it has netted $400,000 in the past year from 100 home sales around the state under a federally backed effort known as "neighborhood stabilization."

Under the program, nonprofit organizations are allowed to purchase distressed homes from banks before the properties go on sale to the public. To sweeten the deal, the bank often sells the properties at a discount off market prices, in part to pass on savings from a quick sale that doesn't involve real estate commissions.

In Sonoma County, the charity is working with Blue Mountain Realty of Vacaville to purchase, repair and resell the homes.

Supporters say communities benefit as vacant homes get fixed up and once more become occupied by homeowners, often by families with relatively modest incomes.

It may be hard for the casual observer to distinguish the nonprofit group's work from efforts by for-profit home flippers, especially when the two groups of homes are purchased with money from the same private investor groups, repaired by the same contractors, listed on the same website and sold by the same real estate company.

The chief executive of Village Solutions acknowledged that the work involves a "miracle piece," namely a significant new source of funds that will help meet the chairty's goals.

"The real gist of the program is for us to generate revenue so that we can go and fund other faith-based solutions," said the Rev. Frank Jackson, chairman and CEO of Village Solutions.

Among other things, he said, those funds will help finance youth and senior citizen programs, as well as provide the first staff salaries for Jackson and his wife, Anita, since the charity was formed in 1999.

Three years ago, Village Solutions reported to the IRS that its receipts were less than $25,000.

About that time, neighborhood stabilization efforts were ramping up as the nation was suffering from a glut of foreclosed and abandoned homes. In the past four years, nearly $7 billion in federal funds have been provided to local governments and nonprofit groups to purchase, rehab and sell or reuse homes that banks had taken back at foreclosure auctions. As the federal money has diminished, some nonprofit groups have begun seeking capital from for-profit partners.

Village Solutions bought five houses in Santa Rosa and Rohnert Park between December and April. This spring, the five were listed for sale with prices varying from $269,000 for a 1,300-square-foot home on Arlen Drive in Rohnert Park to $460,000 for a 2,459-square-foot house on Leonard Avenue in east Santa Rosa.

The recorded sales prices from the banks ranged from $222,000 to $308,000, but that doesn't reveal the discounts Village Solutions received from the banks. Those involved say the discounts don't show up because appraisers might use them as comparable sales that could negatively affect neighboring homes on the market.

A typical discount might approach 20 percent, Jackson said, though the amounts have been diminishing.

Village Solutions obtains the money to buy homes from various for-profit partners, who also take charge of rehabilitating the homes. For the five Sonoma County homes, four involved loans from Blue Mountain Homes LLC and one from Polymathic Properties of Vallejo, one of the investor groups that works with Blue Mountain Realty.

Village Solutions receives 2 percent of the sales price, Jackson said. The nonprofit group seeks to provide a return of about 11 percent to its for-profit partners, he said.

Jackson said he will take a salary this year of $65,000 from Village Solutions, and his wife more than $30,000.

An associate minister at a church in Inglewood, Jackson also is on the staff at the University of Southern California's new Cecil Murray Center for Community Engagement. The center provides training via certificate programs to church leaders.

Jackson, who lectures and recruits clergy for the center, is "one of our bright stars and we brag on him quite a bit," said the Rev. Najuma Smith-Pollard, the center's program director.

JP Morgan Chase has sold about 1,700 homes to nonprofit groups in California in its "first look" program. Wells Fargo has sold upward of 1,000 in the state. Village Mountain Solutions purchased two homes each in Sonoma County from those banks. It purchased the fifth home from US Bank.

Officials for both banks said they scrutinize nonprofit agencies to make sure they obey the rules, including a requirement that the properties will be owner-occupied rather than turned into rentals.

But in today's tough economy, the charities are allowed to take part in ways that also put "a little money in their pocket," said Tyler Smith, vice president of Wells Fargo's community development program for its bank-owned properties.

Jim O'Donnell, manager for Chase's Community Revitalization Program, said the company insists the nonprofit groups sell to families who make no more than 120 percent of median income, or $99,100 a year for a Sonoma County family of four.

"What's important to us is the affordable housing creation," O'Donnell said.

Blue Mountain officials acknowledged they don't ask potential buyers of Village Solutions homes about their household income.

Rick Revetria, vice president of Blue Mountain, maintained his real estate agents don't have the right to confirm any financial detail except that the buyer can qualify for a loan. But President Greg Owen said most buyers would meet the Chase guidelines because the Village Solutions homes are priced for families at or below that income level.

Local housing agencies said they know of no other charity working with for-profit partners to acquire homes in Sonoma County. Most officials said any organization that helps fix up vacant homes and resells them is providing a community benefit.

But Kathy Fong, the executive director of Habitat for Humanity Sonoma County, expressed frustration that her group has been able to acquire only one "first look" home from a bank, Wells Fargo. She said she would contact Chase about joining its program.

Fong said her nonprofit agency fixes up homes with volunteers and sells them to buyers who earn less than $50,000 a year for a family of four. Habitat doesn't net any revenue as a result of the sale, she said.

In comparison to Village Solutions, Fong said, "our model speaks to the spirit of what HUD intended. That's what really boils my blood."