HUD abruptly cancels auction of 144 area houses Overseer company was set to bar many individual buyers


A government auction of 144 Baltimore-area homes was abruptly canceled yesterday when federal officials in Washington learned that the company they had hired to oversee the auction would have shut out many individual homebuyers.

The last-minute decision by the Department of Housing and Urban Development left more than 100 potential buyers waiting for answers at the downtown Hilton Hotel and capped several days of confusion about the auction.

"We're very disappointed," said Donald Wheeler, 24, of Pasadena. "We both took time out of work to be here."

Wheeler and his wife, Erin, 20, went to the auction to bid on a two-bedroom house in Glen Burnie. They wanted to close on a deal as quickly as possible -- they're expecting a baby in November and want to move out of their one-bedroom condo by fall.

Golden Feather Realty Services Inc., a nationwide real estate services company based in San Antonio, is the company that was to hold the auction on behalf of HUD. Company officials declined to comment and referred all questions to HUD's Baltimore office.

The government last year awarded Golden Feather a contract to manage its properties in Baltimore in hopes of reducing costs and increasing sales to single-family buyers, rather than developers and investors.

But Golden Feather was set to do just the opposite yesterday, according to HUD officials in Washington.

Golden Feather, with permission from the Baltimore HUD office, was planning to prohibit buyers from getting a low down payment mortgage from the Federal Housing Administration, said Sandy Allison, special assistant to the deputy secretary for single-family housing at HUD.

This would have effectively eliminated many individual buyers because they would have had to secure financing privately.

"That's very difficult to do without a proven track record or larger resources," she said, because most of the HUD homes "require substantial work," making them a bad risk for banks.

Why did Baltimore's HUD office go along with Golden Feather's decision to cut out buyers using the federal loan program?

"The bottom line is, we wanted to get these properties sold and out of our inventory as quickly as possible," said James S. Kelly, an economist with HUD's Baltimore office.

According to HUD officials, it typically takes at least 90 days to close a sale when buyers use the federal loan program because of the paperwork required. Thus, houses sold under the program yesterday would have remained on the government's books well into the next fiscal year, which begins Oct. 1.

The houses that were listed for yesterday's auction had been on the market for months, Kelly said. Typically HUD assumes ownership of properties with mortgages insured by the FHA when borrowers can't make payments and lenders foreclose.

HUD then pays off the balance of the mortgage and tries to sell the home. It often takes the agency six to eight months to sell a home.

The Baltimore office, which represents all of Maryland except Montgomery and Prince George's counties, has an inventory of 700 to 750 homes, two-thirds of them in the city, Kelly said. HUD's goal is to sell 95 percent of those properties by the end of this fiscal year.

"The point of the auction -- of any auction -- is to get a quick turnaround," Kelly said.

But the decision to prohibit buyers from using the federal loan program had mortgage lenders who work with buyers -- and make commissions on the sales -- up in arms because it was the first time use of the loan program was prohibited at an auction in Baltimore.

The mortgage lenders argued their case in Washington this week and persuaded HUD officials there to order the auction rescheduled. It is now slated for 3 p.m. July 27 at the Hilton. Registration will begin at 1 p.m.

The 127 people who registered at the Hilton for yesterday's auction each received a $200 certificate from HUD that they may use if they bid successfully on a house July 27.

HUD officials in Washington also decided yesterday to reverse a department policy that allowed the ban on the loan program, to guarantee that individual house buyers are not shut out of future auctions.

"Based on calls we've received from lenders, we've decided to change our policy," Allison said. "We know how important [the federal loan program] is to first-time homebuyers."

Pub Date: 7/11/97

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