American Dream Gone Awry: Tenants in Columbia Heights thought buying their apartments would be easy. They were wrong.
It was the kind of deal nobody in her right mind would refuse: It’s 2005, and the owner of an apartment building in Columbia Heights wants to sell. But instead of dealing with a new landlord, the District of Columbia government offers residents an alternative. Waiving its normal credit standards and contribution requirements, the city would issue low-interest loans for tenants to purchase and completely renovate the complex at a below-market price. All for only $500 down per unit, payable in installments.
The mostly low-income, Latino residents of Randolph Towers, a 146-unit complex on 14th Street NW, leapt at the chance for pain-free homeownership. The strategy: Get enough tenants to qualify for loans through the District’s Home Purchase Assistance Program (HPAP) to secure $2.3 million as a down payment to purchase the building as a cooperative, exempting them from property taxes for five years. After renovations, each tenant would obtain their own financing to buy their unit as a condominium, shepherded along by the Central American Resource Center (CARECEN).
“They thought it was an excellent opportunity,” says Sandy Land, who has been living there since 1973, and now serves on the co-op’s board. “It’s now four years later. And a lot of things have happened.”
They sure have. Four years later, about 30 households have moved out. Only three former tenants have bought their units. The rest have been stymied by the economy and red tape, while interest on a $19 million loan piles up and the bank threatens to foreclose, potentially displacing scores of people who thought they’d be homeowners by now.
“It’s a mess, it’s a mess,” says the coop board’s irrepressible president, Claudia Moreno. “We don’t know nothing. We are getting experience like babies. So we can say now that the first board made a lot of mistakes. But any board, we are gonna do the same thing.”
In 2010, it’s easy to write off Randolph Towers as just one more casualty of the Great Recession—and the insane housing market that brought it about. After all, if people needed an installment plan to scrape together a $500 deposit, why would anyone lend them money to buy a $200,000 condo? But it’s also a story of city mismanagement, infighting among a group of people who barely knew each other starting out, and perhaps too much faith in the gospel of homeownership. With the power of hindsight, here’s how things fell apart.
Snag No. 1: Part of the appeal of buying Randolph Towers was the promise of upgrading the moldy, rat-infested building into something livable. When the architects finished their assessment, though, the needs were more drastic than anticipated: Most of the pipes would have to be replaced, and asbestos removed from the walls. On top of all new kitchens, bathrooms, appliances, and floors, the bill came to about $11 million—more than the tenants had paid for the building itself.
Snag No. 2: When the Department of Housing and Community Development issued HPAP loans to the initial 46 tenants who qualified, it promised that those who hadn’t received the money could apply after the renovation, which finished in early 2009. By then, however, power had changed hands in the Wilson Building, and the Fenty administration decided to interpret the rules for the loan program more strictly: Because everyone in the building had bought into the co-op, they were technically no longer first-time buyers—one of the requirements for the loan—and therefore couldn’t qualify. And when residents with HPAP loans tried to get the rest of their financing, the co-op purchase showed up as a mortgage on their credit reports, which was enough of a reason for cash-strapped banks to turn them away.
“That threw a monkey wrench into the whole process of what we were doing,” says Charles Rinker, the group’s financial consultant through CARECEN, noting the mounting frustration among the tenants–turned–co-op members. “They thought the city was going back on their commitment to the project, which in some sense it was.” The city says that’s not true. “Once the building became a co-op, we couldn’t use that same funding,” says Angelita Colon-Francia, a DHCD spokeswoman. "It's just written that way."
After much back and forth, DHCD agreed to help the tenants with a different source of funding. But it would require everyone in the building who needed the loans to go through Housing Counseling Services yet again to re-qualify for their loans and be presented as a group. Organizing that in 2010—when many former tenants have lost their jobs, are tired of five years of jumping through bureaucratic hoops, and fear they won’t qualify anyway—looks to be virtually impossible.
“It’s been an exhausting journey for all of them,” explains Ruth Coppage, a realtor CARECEN brought on to coax people through the process. “They have choices, they just need to be proactive. You cannot force people, you cannot pull people all the way to the end.”
Snag No. 3: With interest on the renovation loan accruing at $5,000 per day, paying down the co-op’s principal became critical. The plan had been to do that by selling empty units to outside buyers, which started in the spring of 2009 after the building qualified under Federal Housing Administration guidelines and the co-op board found a realtor to take on the project. But with more and more real estate available around the city at bargain-basement prices, the condos sold at a rate of about one per month—to date, only enough to pay back about $1.25 million on the actual loan, with the rest going to interest. The deadline was extended twice, but Eagle Bank—under pressure from federal regulators to get bad loans off its books—refused a third extension, and could now foreclose any time with only 30 days notice. DHCD's Colon-Francia emphasizes that the co-op's failure to sell their units has been the biggest problem.
Snag No. 4: The moment the building became a co-op, what little the residents had been paying in “rent” went to pay for utilities and other operating expenses. But the original rents were too low to cover those costs—never mind a mortgage. Still, for the first three years after the conversion, the co-op board never raised fees. This February, pressure from the bank forced the new board to bring payments in line with the actual operating cost of the building. But the co-op bylaws only allowed increases of 10 percent at a time, so the board asked residents to agree to a 25-percent hike, which would have meant several hundred dollars a month more for most of them.
The vote failed, naturally. Worse, the fight divided the building against itself. And as the co-op board kept stumbling, many residents—including the former president—began suspecting their new elected leaders of skimming money off the top. A few even stopped paying their monthly fees, daring the board to do anything about it. When the board sent around a letter a few weeks ago asking residents whether they wanted to move forward with purchasing their units, the dissidents complained to Ward 4 Councilmember Muriel Bowser, claiming they were told to move out.
“They’re procrastinating, because they know they’re not going to qualify,” says Land. “But instead of facing up to the fact that they cannot buy, and finding another place to move to, I think they like the area, they have family and friends in the area...It’s very easy to stay here.”
Things came to a head in mid-June, when a few dozen residents crammed into a small basement meeting room with the co-op board and Housing Counseling Services Director Marian Siegel, whom Bowser had asked to help break through the internal gridlock. Speaking slowly, with Spanish translations every few sentences, Siegel re-told the story of how the tenants-turned-“owners” ended up in their current predicament, and finished with a stern message.
“Ultimately, Eagle Bank will be forced by the regulators to foreclose,” she said. “If you were tenants, you would have more rights. In fact, you’re all co-op owners. As owners, you would be forced to move out.”
The hostile questions began immediately. A former co-op president presented a list of 35 signatures supporting a petition for Moreno’s ouster. One man wanted to know if the co-op board members themselves were moving forward with DHCD’s new procedure. While Moreno fought back tears, Siegel came to her defense.
The meeting ended and people filed out. But it’s unclear whether they got the message—or whether they fully understood what was going on from the beginning. Many don’t speak English, and some can’t read Spanish, either, making the concept of co-op ownership that much more difficult to grasp.
“We are culturally different than the North Americans. We are used to paying our bills, but we pay most of them in cash,” said Raul Rodriguez, who was CARECEN’s point person on Randolph Towers before Coppage took over. “Most of the population here don’t speak any English, don’t know how to write checks and use a checking account.”
“A lot of people who were purchasing, they were not educated. They didn’t know what was going on,” Rodriguez continued. “They were not able to understand that they were co-op members, and as co-op members they were owners of the building, even though I explained that over and over. They just kept saying they were paying rent.”
Randolph Towers certainly isn’t the only tenant purchase to have collapsed, half-finished, in an economic earthquake. But it might be the one mired most in D.C.’s bureaucratic muck. By encouraging the purchase, switching policies at a critical moment, and then acting slowly to help residents find an alternative, the city helped turn a tough situation into a fiasco.
After watching the whole mess develop, Sandy Land has an analogy for DHCD’s clumsiness.
“It’s almost like this BP oil thing,” she says. “From day one, all the foreign countries that had all this expertise in catching the oil, the government said ‘thanks but no thanks,’ because it has to be transported on a U.S.-owned ship. It took them two months to get that first group going.”
“It’s that kind of government screwup.”