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Flipping abandoned homes on Long Island a 'very complicated' process

Workers from Allied Improvements place siding onto the

Workers from Allied Improvements place siding onto the side of the house in Levittown after DB2 Properties, a real estate investment firm that specializes in flipping homes bought the property, with plans to complete construction and resell it, Friday, August 29, 2014. Photo Credit: Steve Pfost

On television, home "flippers" purchase rundown houses cheap, fix them up and quickly resell them for a profit.

On Long Island, it's not that easy. Thousands of abandoned houses across Nassau and Suffolk counties can spend years decaying, even as families struggle to find homes they can afford and flippers look for bargains.

Real estate investors and home buyers say the obstacles include New York's protracted foreclosure process, the steep costs of buying and repairing dilapidated homes, and the difficulty in getting lenders to approve sales.


Obstacles to buying, flipping

"The cost to acquire these properties and rehabilitate them and sell them is more than the value of the house, and so you're not going to make money doing it," said Marianne Garvin, chief executive of the Centereach-based Community Development Corp. of Long Island, which has received federal funding to repair and sell such houses.

The share of Long Island homes flipped -- purchased and resold within several months -- is lower than in the rest of the United States. In Nassau, 2.9 percent of homes were flipped within six months, according to a RealtyTrac report for the fourth quarter of 2014. In Suffolk, 3.8 percent were flipped in that period. Nationwide, 5.3 percent of homes were flipped.

New York's average 934-day foreclosure process -- the fourth-longest in the nation -- allows properties to deteriorate so badly that repairs can be prohibitively expensive, said Daren Blomquist, vice president of RealtyTrac, a California-based real estate data company.

"If you have an abandoned home that's in poor condition, that's going to sell at a discounted price," Blomquist said. "I don't think the banks are always taking that into account."

And in some cases the decision to sell the house -- and at what price -- is made not by the lender, but by the company paid to manage the loan, known as a servicer.

"The servicer may not always be motivated to sell quickly," Blomquist said.

Servicers are guided by their contracts, federal requirements and independent price appraisals, said Allison Schoenthal, a partner at Manhattan-based Hogan Lovells law firm who represents lenders.

Additionally, renovating an abandoned home takes too much time for many investors, said Susan Vincennie, president of LI Profiles, a Nesconset-based real estate data provider.

"They don't want their cash tied up, they're not going to be doing lengthy renovations," she said.

Flipping can make a difference in a neighborhood.


Investor's experience

Chris DiJorio, co-owner of a Port Jefferson-based real estate investment company, paid $235,000 for a burned-out house on an otherwise pretty block in Levittown in August. The company spent $95,000 restoring it and adding a second floor. DiJorio said a family member bought it for $415,000 in February.

Neighbor Maureen McCarthy said it's a relief to have a young family living in the home, instead of the rats that had plagued the vacant, boarded-up property. "It's a happy ending, and the house really looks nice," she said.

But happy endings are rare.

DiJorio said he has given up flipping homes because the costs have risen too much in the past year.

"It's harder than it looks on TV," he said. "You have to spend your money wisely, first of all, so you don't end up aimlessly spending and burning through your budget."

David De Rosa, a real estate investor based in Farmingdale, said he has purchased more than 3,000 homes, mostly Long Island properties in foreclosure or other forms of distress.

Such transactions are "very complicated," he said.

"It would be very difficult for a first-time home buyer to buy a distressed property, and the majority of times when they do, they lose their shirts," because of the complications, he said.

Nevertheless, some do try. And it can help a buyer move into a community they could not otherwise afford, said Steven Pagano, a real estate broker in Huntington.

However, if a home is not in livable condition, buyers cannot get a traditional mortgage loan. Instead, they must get special loans under programs like the Federal Housing Administration's 203(k) program, which funds home purchases and repairs. These loans require detailed documentation such as repair cost estimates, inspection reports and requests to draw down funding from an escrow account. They also have slightly higher interest rates. The amount loaned under the 203(k) program on Long Island has fallen to $55.3 million last year from $91.1 million in 2010, federal data show.

Officials with nonprofit housing groups say they, too, face hurdles in restoring blighted homes.

After the recession of 2007-2009, Long Island received $30.5 million to rehabilitate foreclosed and abandoned homes, under the federal Neighborhood Stabilization Program. The funds were used to repair 71 homes and rental units in Suffolk County and 167 in Nassau County, according to county records.

The Community Development Corp. used the funds to restore 48 Long Island homes. But now, Garvin said, "that money is gone."

In a bid to fund more rehabilitations, state Attorney General Eric T. Schneiderman set aside $2.6 million for Suffolk County Landbank Corp. over the past two years. The money comes from the $25 billion mortgage settlement reached between the nation's five largest mortgage companies and federal and state agencies in 2012. The county is considering applications from nonprofits, including Garvin's group.

Nassau County Executive Edward Mangano said he plans to ask the county legislature to create its own land bank to help fix up abandoned homes.

Suffolk's land bank will not be enough to solve Long Island's huge problem with abandoned homes, Garvin said.

"We're doing the best we can with the resources we have, which don't match up to the problem that's out there," she said.


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