Some fear storm-damaged houses may languish if flipped 'as is'

Gary and Pam Onorato of Progressive Construction of Long Island in Huntington are exactly what New York Rising might have had in mind when the program successfully auctioned off almost 140 storm-damaged properties on Long Island in May.

Although the program gives them three years to do it, the couple has nearly completed renovations and elevation of an Amity Harbor house, the first of two purchased at the auction. "The house should be ready for sale by the end of December," said Gary Onorato, the firm's president. They'd like to buy up to five more at the next auction of 155 properties on Nov. 17 at the Hyatt Regency Hotel in Hauppauge.

Then there are the Wongs, two related families who live in Queens and Brooklyn, where one member has done several renovations. The house they bought in Sayville for about $375,000 is on the market, "as is," for $600,000.

"We have second thoughts," said Jonathan Wong, a 19-year-old college student the family has designated to obtain permits and price quotes. "It's too far from us and too much money."

Many of those who bought the auction properties through NY Rising's Acquisition Program are renovating, or preparing to do so. But a handful of auction buyers are going in a different direction.

They either never intended to do the work, or have decided they'd rather not, and have instead put the houses on the market for resale "as is," for what they hope will be a quick profit. They are legally entitled to sell.

That has some neighbors and public officials upset, afraid that the houses will become speculative flip houses that won't be quickly redeveloped.

Town of Babylon Supervisor Rich Schaffer and state Sen. Phil Boyle (R-Bay Shore) wrote Lisa Bova-Hiatt, interim executive director of the Governor's Office of Storm Recovery, expressing surprise that these resales were permitted and concern they would delay redevelopment of storm-battered homes.

However, New York Rising is not worried, officials said, because title to the properties will revert to the state unless they comply with local and state building codes and floodplain development and design requirements. Within three years a full certificate of occupancy must be obtained (four if a variance is necessary).

"That is the biggest stick we have, that in three years it reverts [to the state] if there's no certificate of occupancy," Bova-Hiatt said.

Rules remain with property

A deed covenant stipulating these conditions remains with the property regardless of who owns it, Bova-Hiatt said. And buyers would be unlikely to purchase auction houses at prices that made them unprofitable to redevelop, she said.

"It's a free market," said Barbara Brancaccio, a Governor's Office of Storm Recovery spokeswoman. "There's nothing legal about telling people they can't sell their property. The property has strict restrictions; the owner doesn't."

If the property had been repaired and came with an existing certificate of occupancy, it could be lived in or rented until being elevated or made fully compliant as far as NY Rising was concerned, she said.

Schaffer, who wants NY Rising to require auction buyers to develop the houses, recently ordered red stickers placed on 49 auction houses in the unincorporated areas of the township declaring them unsafe and unfit for human occupancy regardless of their state of repair. He did so after neighbors in one area of Lindenhurst reported a house was being repaired for occupancy without having been elevated.

"The houses we posted had a substantial damage letter on file," he said, meaning any repairs hadn't been approved. "In our eyes, you're not going to be able to live in it until all the local, state and FEMA requirements are complete."

Lindenhurst residents, who live on or near West Riviera Street and who had alerted the town about a house nearby on West Lido Promenade, said they were only concerned that houses be redeveloped as they believed the program required. "If a speculator comes in and buys a house for $80,000 we expect him to put in whatever it takes to get it right, as we did," said Tim Kelly, whose house is repaired and elevated.

Traffic was brisk this month at open houses for the 155 Long Island properties up for auction next month. Contractors with flashlights, investors and real estate agents signed in and peered through the dark rooms of the superstorm Sandy-damaged houses vacated by homeowners who sold to New York Rising's acquisition program.

After the two-day May auctions, successful bidders closed on 136 properties. Eight properties were diverted to a buyout program to be demolished for open space and another six bids fell through.

Goal is fixups, elevations

Successful bids on the properties were a fraction of what New York Rising paid for them in a program intended to put homes in the hands of people willing and able to fix and elevate them.

Among the May bidders who intend to do just that are Anthony Strianese of AS General Contractors in Bellmore and his partner, grandson Lucas Owen, who are awaiting permits to rebuild a house in Massapequa. "It's in a nice area," he said. "I'm thinking pretty positive about it."

Gary Pasquaretto, owner of Northeastern Building and Development in Oyster Bay, plans on demolishing and rebuilding properties in Baldwin Harbor and Bay Park.

While the market for some Sandy-damaged neighborhoods remained shaky, said Pasquaretto, auction prices were "low enough to justify the risk the market will come back some day."

Dave Doerbecker of 1A Contracting in Long Beach is deciding whether to lift the Massapequa house he bought for $200,000 or build a new house. Sheldon Johnson of SAJ Development in Uniondale is making the same decision for the Oceanside property he purchased: "Whichever is the most economical, that's the route I'm going to go."

Even Juliana Mei of Miller Place, a first-time investor, said she was going to demolish the Freeport house she bought and build new, "start from the ground up . . . it should be ready by next summer."

James Adams, of Commack, a retired structural steel contractor, bought sight unseen a Babylon house advertised as being on a canal. He found the portion of the property by the canal had been sold by the previous owner to a relative. Adams went ahead anyway. He demolished the old house and is preparing to build a new elevated one.

He's not sure he will make a profit, given the real estate market and the costs of the project, he said. "I made the investment, I'll see what I can do. The neighborhood is great, the people are very nice neighbors, but the market is in the pits."

Looking at every option

When Adam Butter, a real estate broker and investor in Long Beach, bought his Island Park property for $50,000 at the May auction, he couldn't believe the low prices. "It's like Crazy Eddie -- the prices are insane," he'd joked.

Now he's not sure what to do with the house he bought. He's pricing out whether to demolish or just renovate and lift, he said, but meanwhile he's also ready to sell as is.

"I have to consider every option and do what's best for me," he said. "If someone said, 'I'll give you more money for it,' why wouldn't I sell it?"

But the neighbors aren't happy with that: They keep removing the house's for-sale sign, he said.

"If they're going to steal my sign, they're making it harder for me to flip," said Butter, who had been told he couldn't rent the house to raise money for elevation. "OK, if they're not going to let me flip it and I don't have the money to do it, it doesn't make any sense."

To date, NY Rising has closed on 160 properties in Nassau County for a value of more than $62.6 million, and on 148 properties in Suffolk County at a value of $59.6 million.

NY Rising has had 110 closings in Suffolk County of houses in its separate Buyout Initiative, at a value of more than $42 million, to demolish the structures and return property to open space.

Median payment in Nassau acquisitions is $391,734.10, and in Suffolk, $402,981.16. Average projected cost per acquisition on Long Island is $400,000.

Revenue from May auctions is about $22 million.

By Carol Polsky

Carol.Polsky@newsday.com

Carol Polsky writes news and features on wide-ranging topics, from superstorm Sandy, 9/11 and presidential elections to health care and the economy.