Since 2009, a Boston-based nonprofit program known as SUN (Stabilizing Urban Neighborhoods) has helped about 1,000 families avoid foreclosure. SUN’s original target areas were distressed urban areas in Boston and Revere, later expanding to additional cities and towns in Massachusetts and to several other states. Through negotiations with mortgage lenders or servicers, SUN acquires occupied foreclosed or about-to-be foreclosed properties and then sells the homes back to the owners with a significant mark-up, but less than the amount owed on the prior mortgage. Despite an above-market interest rate on the new mortgage (about 6.5 percent), the new monthly payment is calculated so that it is affordable to the homeowner. This effort is aimed at stabilizing families facing displacement from their homes while also helping to maintain the quality of the neighborhood. Virtually all SUN clients have low to moderate incomes, and many are people of color.
But there is a hitch — a hitch that many homeowners claim they were never told about or that was buried deep in the fine print of the mortgage documents that they didn’t read at the closing or did not understand. The new mortgage allows SUN to share in the appreciation of the home’s value when the home is refinanced or sold. This can amount to tens of thousands of dollars and homeowners facing this payment are typically shocked by this unexpected cost. In response, a group of SUN homeowners organized and filed a class action lawsuit in 2020 against the parent nonprofit organization, BlueHub Capital, that has not yet been resolved.
Perhaps at the outset, SUN had good intentions. Indeed, as part of a research study, I spoke to several homeowners who had been assisted by the SUN program; they were grateful for their new affordable mortgages and felt supported by SUN when they were in the vulnerable situation of a looming foreclosure. However, the shared appreciation aspect of their mortgages and its implications never came up in my conversations with the homeowners.
Indeed, it appears that how SUN provided information about the shared appreciation requirement was problematic. While the SUN website is now providing accessible and clear details, as recently as December 2021 you had to look hard, and follow a number of links, before you could find specific information. SUN‘s revised website may represent an implicit admission that insufficient information had been provided in earlier years and that they are ready to do the right thing concerning their existing clients. What would that entail?
▪ Acknowledge that the housing market is very different than when most shared appreciation homeowners entered the program. At SUN’s inception, many market areas were weak, with some homeowners underwater, owing more on their mortgages than the current market value of their homes. Even if homeowners had understood the shared appreciation concept, they may have thought that any significant appreciation was the proverbial pipe dream. It is also possible that SUN never anticipated the kinds of profits that they would derive from sharply escalating housing prices.
▪ Stop trying to end-run the homeowners’ lawsuit by slipping provisions into state legislation that would curtail the right of homeowners to sue any entity with a shared appreciation mortgage. Fortunately, the Legislature deleted the relevant amendment that had been contained in the yet-to-be enacted 2022 economic development bill.
▪ Negotiate a new deal with the existing shared appreciation mortgage homeowners; negate the original shared appreciation contract and, instead, introduce a fairer and simpler formula. Since SUN sells the house back to the owner for about 25 percent more than they spent to acquire the house from the original lender, SUN has already received a payout that, presumably, covers all or most of their costs. But, if not, any shortfall could be retrieved through a limited shared appreciation formula that is based on SUN’s actual costs arising from the homeowner’s case.
If the sale amount to the homeowner is less than SUN’s costs, the difference should be specified at the outset. The homeowner would owe this amount to SUN, with zero interest and payable upon refinancing or sale of the property, only if the home appreciated by a set amount, detailed in advance. Further, to enable SUN to amass capital so that it can expand its programs, the organization might be entitled to an additional fee, but in no case exceeding a few thousand dollars. Importantly, before entering into a contract with SUN, homeowners need to understand the absolute maximum amount that they would owe, under any possible scenario of property appreciation.
The fact that SUN homeowners filed a lawsuit against BlueHub Capital suggests that the organization has lost track of its commitment to uphold its “values of racial and economic equity.” At the same time that BlueHub Capital is demanding hefty payments from its low-income clients to cover the organization’s contractual share of the shared appreciation mortgage (which are unrelated to the actual costs associated with the homeowner’s case), the annual compensation of the president and CEO of BlueHub Capital (with some 33 employees) exceeds $800,000. By way of comparison, the compensation of the president and CEO of NeighborWorks America, a far larger nonprofit organization (with about 500 employees) that provides funding and technical assistance for a range of affordable and community-oriented projects, is $236,000. Not surprisingly, only 52 percent of BlueHub’s total expenses go to its programs and services, thereby earning a score of zero on this criterion by Charity Navigator.
To do the right thing, BlueHub Capital needs to adhere to its own core values: “meet the needs of the communities [it] serves” and “recognize and respond to those needs and spark a lively exchange of ideas among a variety of communities and constituencies.” To follow its own mandate, SUN needs to listen to its shared appreciation mortgage homeowners and do right by them, as suggested above.
Going forward, SUN should create a shared appreciation instrument that would be simpler and fairer since it would be based on actual costs and it would specify, up front, a cap on the amount clients would ever need to pay. In this way, BlueHub Capital would be making a concrete step toward promoting the wealth of its clients and reducing the well-documented wealth disparities, particularly among white and nonwhite households; it would, indeed, be “Working Towards Justice,” a phrase that is prominently displayed on its website.
Rachel G. Bratt is professor emerita at Tufts University.