Davenport housing agency fights back from its own foreclosure

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By Ann McGlynn | Sunday, September 28, 2008 12:19 PM CDT | () comments

Nick Gibbs, left, and Mario Wommack put fill dirt in the backyard of a house at 1711 Grand Ave. in Davenport that was taken over by Neighborhood Housing Services for rehab after it was damaged by fire. (Larry Fisher/Quad-City Times) Buy this Photo

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The small, nonprofit organization once called a 120-year-old Davenport house its home. With a promise of bigger and better things, Mississippi Valley Neighborhood Housing Services bought and moved into a vacant bank building in downtown Davenport in 2002.

The idea? Rent the office space to nonprofit and government agencies and expand its mortgage lending to a seven-county region, well outside its original focus on Davenport neighborhoods.

The plan failed.

Two of its leaders were fired in 2004, sparking a feud that landed in federal court.

The agency lost its charter with the congressionally funded NeighborWorks America in 2006 and hundreds of thousands of dollars that went with it.

And finally, NHS, which specializes in helping people avoid foreclosure, lost the bank building at Third and Main streets to foreclosure in 2007.

Now, the employees and board of NHS are working to rebuild an organization that focuses on helping low- to moderate-income homeowners. It does so as the community scrambles to fill the void left by the closure of John Lewis Community Services, another Davenport-based housing organization, because of financial mismanagement.

“This has been a large challenge,” said Russ Upton, who had worked for NHS in the past but was named executive director in 2006. “I’m excited about a projection for a profit this year.”

The potential surplus comes after a deficit of more than a quarter-million dollars last year.

A little history

NHS incorporated in 1981. The nonprofit offers financial support for homeowners and potential homeowners, including mortgages and improvement grants. It primarily focuses on the low- and moderate-income neighborhoods of Davenport.

The organization’s first public struggle came in 1994, when city officials asked NHS to reimburse taxpayers for thousands of dollars of improper loans, grants and other costs.

The request came after a Quad-City Times investigation that showed one former employee of the agency benefited from a grant of nearly $1,000 and also acted as a contractor and inspector on at least one home-repair job. Also, some low-income homeowners who sought assistance from NHS were turned away while their more affluent neighbors received substantial cash grants that did not require repayment.

The money came from the city’s Community Development Block Grant allocation from the federal government.

Today, block grant money is the largest source of funding for NHS.

This year, NHS received $130,000 for its revolving loan fund. And in August, the city provided NHS an additional $157,420 in forgivable loans to refurbish four NHS-owned properties that long sat vacant. That money also comes from a federal program.

“From what I’ve seen over the last few years, I am more confident in them continuing on this track than two or three years ago,” said Bruce Berger, the city’s housing rehabilitation manager. “They’ve been through a lot.”

Another federally funded organization decided to withdraw its investment two years ago.

Pulled funding

Officials from NeighborWorks America visited NHS in January 2006, three months after the organization warned NHS that it needed to make several changes in order to continue as a charter member.

NeighborWorks America was created by Congress in 1978. It provides financial support for affordable housing and homeownership programs throughout the country.

Five months after its visit, NeighborWorks America revoked NHS’s charter, taking $1 million with it.

The findings included:

--The agency had significant financial problems, so much so that it was not making its mortgage payment on the former bank building or paying its property taxes.

--Forty-eight of 238 active loans were delinquent 30 days or more. Thirty-five of those were delinquent more than 60 days, with eight in foreclosure. “This is nearly twice the rate and value of delinquent accounts experienced across NeighborWorks America’s North Central District, and represents a formidable barrier to secondary market sales,” documents say.

--The completion and sale of homes acquired for rehabilitation took “inordinate time periods from acquisition to sale … ranging from 12 to 58 months.”

--Investment in the NHS target area was $1.4 million in fiscal 2005, versus its expense of $1.7 million. The return of 83 cents on the dollar was “poor,” given the average for all NeighborWorks chartered groups was at a median of $4.

The executives also were concerned about NHS’ ability to be adequately staffed, to find lenders to support it financially and to track finances adequately.

NHS, in the absence of immediate change, officials said, “has no ability to meet its financial obligations over the next six months.”

Ironically, NeighborWorks officials suggested NHS merge with John Lewis Community Services, Upton said.

A year later, in July 2007, NHS lost its office building to foreclosure.

‘A lot of potential’

Many cheered the NHS purchase of the former Mercantile Bank building at 131 W. 3rd St. A large building in a prominent downtown location, after all, was to be transformed into a place for like-minded social services agencies to call home.

NHS sold its old office — the 120-year-old house just off Locust Street — and raised money to buy the building for $750,000 in 2002. It then took out a mortgage to remodel the inside to accommodate its largest tenant: the Social Security Administration, said Bob Zelsdorf, former executive director.

The mortgage also was used to pay off debt, said Brook Hayes-Upton, program director for NHS and wife of director Russ Upton.

Social service agencies did move into the building, including the Scott County Housing Council and Big Brothers/Big Sisters. The idea was that the rent from the tenants would pay the mortgage, the taxes and the costs to run the building, plus a little.

That didn’t happen. Costs exceeded income by several thousand dollars a month.

“There was a lot of potential,” said Zelsdorf, executive director when the bank building deal was made. “It just didn’t work out.”

Zelsdorf, Roberta Linville and three other employees were fired by the board in 2004. Ugly dueling lawsuits between the fired leadership and the new leadership followed in federal court. The since-dismissed legal actions flung accusations of theft, violation of federal housing regulations and organization policies, sexual harassment, unethical business practices and drug use.

As a new board and leadership continued on, they looked at what the organization could do and what it could not do, Russ Upton said. The building was at the top of the “not do” list. Next to go was an adjustable-rate line of credit used to make loans to clients.

The bank building sold for $1 million at sheriff’s sale in July 2007 for failure to make the mortgage payments. A Texas company that held the mortgage, SOWAMCO, now owns the property.

“The idea was good,” Russ Upton said of creating a social services hub in downtown Davenport. However, Hayes-Upton said, “the idea escaped beyond the ability to rein it in.”

NHS moved out of its office and into a rented space a few blocks away.

Scrutiny needed

Today, the two former offices of NHS are empty.

The first-floor space it occupied in the bank building sits vacant, as does the 120-year-old house at 1817 LeClaire the organization left to move downtown in 2002.

NHS sold the house when it moved. It also financed the loan to the new owner, city officials said. The buyer was unable to make the payments, however, and the house’s ownership returned to NHS. The city of Davenport purchased 1817 LeClaire last year for $1 and plans to put it in the Urban Homestead Program.

“The city will rehab the home and market the property for sale to low- and moderate-income homebuyers,” said Jennifer Nahra, city spokesperson.

The empty offices join eight empty houses, some of which have sat vacant for years. Renovations on five of those houses will be completed with the recent city-approved forgivable loans and sold to qualified buyers, NHS officials said.

The houses sit empty, Hayes-Upton said, because of gaps between the rehabilitation costs and a fair market value price. They sit empty because it sometimes takes more time to find a buyer who meets the organization’s requirements.

NHS also owns several vacant lots with hopes of building or moving houses to them. Three lots are a designated green space at Kirkwood and Grand avenues.

Rick Schloemer, director of the Scott County Housing Council, said the survival of NHS is vital, more so now than ever, with the foreclosure rate rising and the loss of John Lewis.

The financial troubles with NHS and John Lewis illustrate the point that nonprofits must be scrutinized, Schloemer said.

“The question of scrutiny comes to the core. Not-for-profits need to be scrutinized if they are using federal dollars and grants ... that everyone is using those dollars appropriately,” he said. The board of directors should be the first in line to do that scrutiny.

The NHS budget for this year is for $521,000, a fraction of years past. The hope is for a surplus of $100,000 at the end of the fiscal year, June 2009. The organization’s revised mission statement is similar to the one it had before it bought the old bank building.

“We had gotten away from focusing on community needs. We had become a mortgage lender,” Hayes-Upton said. “We are returning to a grass-roots level.”

Ann McGlynn can be contacted at (563) 383-2336 or amcglynn@qctimes.com.

What is NHS?

Mississippi Valley Neighborhood Housing Services, a nonprofit incorporated in 1981, provides first and second mortgage loans, rehabilitation loans, rehabilitation technical assistance, homebuyers education, community organizing assistance, exterior and beautification grants, predatory loan refinancing and foreclosure prevention counseling. It is now located at 115 W. 6th St., Davenport. Its Web site is mvnhs.org.

What does it own?

Click here for an interactive map: http://www.qctimes.com/maps/locations/?id=4

NHS owns several vacant lots and 13 houses in Davenport. Eight houses are vacant. They are:

716 W. 9th St., acquired in 1999, is nearly complete. It is listed for sale on the NHS Web site for $84,900. Its assessed value is $55,730. The city granted a forgivable loan to NHS in August for $22,000 to finish the rehab.

1711 Grand Ave., acquired in 2007, was damaged by fire in 2006. The City of Davenport’s HAPPEN program has granted NHS up to $30,000 for rehabilitation.

707 Kirkwood, acquired in 2007, is next door to the green space lots owned by NHS at the corner of Kirkwood and Grand avenues. Plans for rehabilitation are not yet financed.

1316 Kuehl, acquired in 2006. The city granted a forgivable loan to NHS in August for $34,500 to rehab the house, now assessed at $34,170.

211 E. Locust St., acquired in 2005, is in process of rehabilitation, including removal of lead paint. The city granted a forgivable loan to NHS in August for $65,000 to finish the rehab. The house is assessed at $53,390.

1428 Carey, acquired in 2005, also is undergoing renovation that includes lead remediation. The city granted a forgivable loan to NHS in August for $35,920 to finish the rehab. The house is assessed at $48,930.

2038 Iowa Ave., acquired in 2007, is nearly complete.

121 S. Birchwood, acquired in 2007, is for sale.

Five properties are in what NHS calls its R2M, or rent-to-mortgage program. The properties are at 822 Pershing, 622 Farnam, 1318 Washington, 1108 E. 14th St. and 1116 E. 15th St.

Two properties recently sold:

1019 E. Locust St., acquired in 2005, sold in August for $63,000. It is assessed at $60,890.

1341 W. 15th St., acquired in 2006, sold in September for $77,000. It is assessed at $65,000.

Budget for 2008-09 for Neighborhood Housing Services

Income — $626,850

Grants and donations — $287,450

Lending — $184,400

Rehab — $140,000

Uncategorized — $15,000

Expenses — $521,473

Payroll — $214,476

Building — $53,800

Construction — $72,000

Property — $48,980

Professional fees — $21,000

Office — $21,200

Vehicle — $15,700

Insurance — $10,882

Other — $63,435

Board of directors

Doug Cunningham

Tom Carstens

Dave Nauman

Bob Lantz

Ann Davis

Trudy Cane