Owners of nearly 300 houses in a Fairfax County affordable housing program took out risky secondary loans on the homes, violating county rules and in some cases leading to foreclosure on the highly sought-after dwellings.
In a memo to supervisors, the county attorney’s office said 284 units appear to have been financed for more than the set price, with 12 now facing foreclosure.
County officials, who are considering legal action, are still trying to piece together how the phenomenon of “overfinanced” affordable units — mostly town houses — grew so widespread. They blame owners for cashing in, willfully or not, on a program meant to help working families live in Fairfax.
Also at fault, they said, are some mortgage lenders and title companies that failed to check restrictions that would have barred the overinflated loans. Supervisors also questioned whether county staff provided adequate oversight.
“You have a real estate agent who was asleep at the switch, not paying attention,” said Lee District Supervisor Jeff McKay. “You have a lender who wasn’t paying attention, then you have a settlement attorney who wasn’t paying attention, and you had a homeowner who wasn’t paying attention.”
County housing officials, citing the pending lawsuits, would not release the names of owners or lenders in question.
The homes are part of a county “affordable dwelling unit” program in which developers seeking to build large housing projects set aside a number of artificially underpriced homes for low- and middle-income families. As part of the agreement, the deed forbids the beneficiaries to sell or refinance their home above that established price.
That restriction, however, failed to stop the owners from taking out second mortgages, home equity loans or other financing deals based on what the house would fetch at market rate, often twice the value of the affordable units. That means in many cases, they owe much more than they could sell the home for.
In at least one case, the owner sold the home for more than the allowed price, effectively removing it from the county’s affordable housing stock. The county’s housing authority recouped $180,000 in a settlement over that sale.
County staff, in a statement, called the situation “a huge risk” for owners and lenders, though the loans are apparently not illegal.
The controversy has left county supervisors fuming and caused massive headaches for a housing staff already besieged by a handful of other affordable housing controversies.
While some of the cases can be explained by ignorance of the financing restrictions, McKay said he believed the scope of the problem signaled that “word got out, too, that you can do this and get away with it.”
Board of Supervisors Chairwoman Sharon Bulova said, “Obviously, it’s wrong for these folks to have taken advantage of their ownership of an [affordable dwelling unit].”
