Nardella Thomas had already been evicted from her home by the time she contacted Boston Community Capital, a Roxbury-based group that specializes in helping distressed homeowners. After her son’s father lost his job, she explained, she just couldn’t afford the mortgage any longer.
So Thomas was ecstatic when the nonprofit group bought her Webster home from the bank in 2012, then sold it back to her, along with a mortgage she could afford.
But the relief was only temporary. Thomas said she realized there were costly strings attached in all the paperwork she had signed when she tried to refinance her house six years later: She owed Boston Community Capital an extra $49,000 before she could get a new loan.
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“Why do I have to give you all this money?” she remembered asking Boston Community Capital officials. “I haven’t been late in five years and my credit is good. This woke me up. If it happened to me, who else did it happen to?”
That extra charge — called “shared appreciation” — is at the heart of a class action lawsuit filed Friday alleging “predatory lending” against an organization more accustomed to accolades than accusations. And it’s raising questions about the best — and fairest — way to help people facing foreclosure on their homes.
Under a shared appreciation mortgage, borrowers agree to share any increase in their home’s value with the lender whenever they sell or refinance the house. In a real estate market where prices have risen more than 50 percent since 2012, that can translate into hundreds of thousands of dollars in appreciation that the borrower must pay.
Dozens of people who borrowed from Boston Community Capital, which changed its name to BlueHub Capital in 2018, say they discovered belatedly that they had agreed to a shared appreciation mortgage.
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In each case, the borrowers said they had no lawyer at the closing and no one adequately explained the “shared appreciation” agreement, which included a requirement that they not talk about the terms of the deal.
“The unwary, unrepresented, desperate homeowner, already in or threatened by foreclosure, is trapped by (BlueHub) into a 30-year plus, well-above market rate mortgage with an additional final, giant balloon payment that will come out of the borrowers’ equity in their one asset, their home,” the lawsuit alleges.
The lawsuit also alleges that when borrowers fall too far behind on their BlueHub mortgages, the agency “forecloses aggressively,” sometimes evicting the people they set out to help.
BlueHub officials say their Stabilizing Urban Neighborhoods Initiative, or SUN, program has helped 1,100 homeowners who were in danger of foreclosure, letting them stay in their homes while lowering monthly mortgage payments significantly. BlueHub officials say 93 percent of borrowers make payments on time.
Borrowers do pay above-market interest (5.625 to 7.5 percent) and they must share any increase in value of their home with BlueHub, but BlueHub officials say the terms are fully explained — orally and in writing. All borrowers must sign a form agreeing to the “shared appreciation” mortgage.
Sara Jane Shanahan, a lawyer for BlueHub, told the plaintiffs’ lawyers that all their clients saved money from working with BlueHub — even after the shared appreciation payment. Plus, they got to keep their homes.
“If not for the SUN program, your clients would not have received any appreciation, because they would have lost their homes to foreclosure,” Shanahan wrote.
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But some question whether the terms of BlueHub’s loans are clear enough to homeowners who are desperately looking for a way to prevent foreclosure. Several plaintiffs said they recalled no briefing about the possibility of a large payment to BlueHub when they sold or refinanced.
BlueHub’s “shared appreciation” loan program is unusual in the business of helping distressed homeowners, according to experts in housing finance. Some nonprofits and government agencies offer shared appreciation mortgages to help low-income home buyers afford the down payment, but it’s difficult to find a similar program aimed at helping people escape foreclosure. Other housing advocates say there’s good reason for that.
“It’s a matter of what the mission is,” said John Taylor, president and founder of the Washington D.C.-based National Community Reinvestment Coalition, who could think of only one remotely similar program. “If it’s to help traditionally underserved people and people struggling with home ownership, is this the best solution?”
Bruce Marks, whose Jamaica Plain-based group, the Neighborhood Assistance Corporation of America, is financing the suit, said BlueHub systematically exploits people in their time of need.
“In 35 years of fighting predatory lending, we’ve never seen this type of shared appreciation — shared appreciation that steals hundreds of thousands of dollars of the homeowners’ equity in their property,” Marks said.
BlueHub has grown dramatically over the years. In its 35-year history, the organization estimates that it has invested or leveraged more than $10 billion for housing, schools, health care facilities, and other businesses.
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But critics say BlueHub operates too much like a for-profit business. For instance, the agency’s chief executive, Elyse Cherry, was paid $736,803 in 2018, which BlueHub officials say is based on a review of salaries at other organizations and comparable to the pay of leaders at major nonprofits such as WGBH and the Boston Foundation. However, housing advocate Marks, who also helps distressed homeowners, made only $150,000 in 2017, according to his organization’s tax return.
Jon Skarin, executive vice president of the Massachusetts Bankers Association, said the SUN program appears to be a good investment for BlueHub from the start, when they buy the homes at a reduced price from lenders, to the finish, when they get a share of the increased property value.
The loans “are structured in ways to minimize their risk as much as possible and that’s all the pieces of it: the higher interest rates, different pricing on the loans, the shared appreciation,” said Skarin.
BlueHub officials say that they don’t make a profit — and that the earnings go back into the business, allowing them to help more people, or to pay off investors. They also said that shared appreciation mortgages offered by other lenders have survived court challenges.
The lawsuit, filed in Suffolk Superior Court by attorneys David Kelston and Jeffrey Wiesner, grew directly out of Nardella Thomas’s disagreement with what was then Boston Community Capital. Thomas had initially sought out the group after seeing a glowing piece on the group’s help for distressed homeowners on a network news show.
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But after her request for relief from the shared appreciation mortgage was turned down, Thomas launched an online petition against BlueHub’s lending practices, signed by more than 250 people, and helped organize dozens of BlueHub borrowers who say they didn’t realize until they tried to sell or refinance that they had agreed to make a potentially large payment to BlueHub.
They began meeting at Marks’s office. And they began to tell their stories.
When Ursula Humes bought back her Dorchester house from BlueHub in 2010, she was handed a pile of paperwork she didn’t understand. She said she asked for time to think about it, but felt pressure to sign on the spot. She became so distressed, she said, she left the closing in tears.
When Humes tried to refinance in 2017 to lower her monthly bills, she made a harsh discovery: She owed Boston Community Capital more than $200,000 in shared appreciation to close out the loan.
“My hands are tied,” said Humes, a retired MBTA police prosecutor. “I feel totally defeated.”
A BlueHub spokesman said the agency worked with Humes for 18 months before the closing and was unaware that she felt pressured into signing paperwork.
“Ms. Humes has gone from someone who had zero equity in her home — indeed, she had already lost ownership — to someone who now has equity in that home valued at approximately $250,000 even after payment of her shared appreciation,” said BlueHub spokesman Doug Bailey.
Two other plaintiffs had originally been fans of Blue Hub when it was Boston Community Capital and had just launched the “shared appreciation” loan program.
Badrul Khan was one of the SUN program’s first customers; the agency saved his Revere home in 2010 just as the auctioneers were about to sell it out from under him and his family.
Boston Community Capital “was just a supporting hand,” Khan told the Revere Journal in 2011. “People listened to you. They come and explain everything and give consolation and solitude in a crazy situation.”
But three years later, when his wife became ill and they fell $9,000 behind on the monthly payments, Boston Community Capital foreclosed and took the house back, though he was allowed to rent the house for another year and a half. Khan was bitter when he saw that Boston Community Capital sold his former house to someone else for $100,000 more than he had owed on the mortgage.
“I thought they were my saviors. But now I know they prey on people when they’re feeling vulnerable and shamed,” Khan said.
The BlueHub spokesman said of Khan: “He defaulted, went into foreclosure, and his house was sold.”
Cheryl Ortiz was living with her husband and four kids in their Southbridge home in 2010, when her husband ruptured a disk in his back, was diagnosed with cancer, and her graduate school loans came due. The value of the house had dropped so much that refinancing wasn’t an option.
After they tried unsuccessfully to sell the house, they went to what was then Boston Community Capital in 2013. In an interview with PBS “Newshour’’ in 2015, Ortiz said that, with the group’s help, “We have a good place to live. My kids have their friends.”
But her view changed two years after the interview aired when she went to refinance and learned that she couldn’t close the deal until she paid $39,520 in shared appreciation.
“Yes, I got my house back” thanks to BlueHub, Ortiz said. “But you didn’t know what’s coming: the bomb that’s going to be dropped on you the day you go to refinance.”
Ortiz said the group wouldn’t consider any modification to the terms of her loan.
“No negotiation. No nothing,” she said.
The plaintiffs in the lawsuit want a judge to rescind or at least cap their shared appreciation mortgages, bar the agency from charging a mark-up when it sells back homes to borrowers, and give back any “unlawful” profits. They are also seeking unspecified damages and lawyers’ fees.
In response to the plaintiffs’ demands, BlueHub offered to forgive the loans of some borrowers if they agreed to turn over their homes to the agency. The offer was rejected, the plaintiffs’ lawyers said.
Andrea Estes can be reached at andrea.estes@globe.com.