Investors scoop up former Omni homes

On one day, the FDIC sold 176 of the properties for $3 million, or an average of $17,247 apiece.

Altogether, the FDIC sold 546 Georgia residential properties on those four days for $47.4 million, according to FDIC records.

According to some critics, the FDIC’s massive sale of the former Omni bank homes — a third of its statewide total last year — undermined efforts to stabilize some of Atlanta’s hardest-hit neighborhoods by taking homes out of the reach of the HUD-backed neighborhood stabilization program.

“These properties never had ‘for sale’ signs” after Omni National Bank failed last March, said Patrick Berry, vice president of the Westview Community Organization. His group has been working with one of the HUD-backed neighborhood stabilization programs to buy and renovate foreclosed homes in his area.

“Instead of the federal government connecting ... they sold them in pools, 100 or 200 houses at a time, to outside investor groups,” said Berry.

HUD funds unspent

HUD’s $5.9 billion Neighborhood Stabilization Program was created in 2008 in response to the nationwide tidal wave of foreclosures. The program aims to help cities and nonprofit groups buy foreclosed and vacant homes to fix up and rent or sell to would-be homeowners. Metro Atlanta communities got more than $68 million.

But recently, after an audit, HUD told Atlanta that it isn’t spending $12.3 million in grant money quickly enough. The agency already rejected the city’s bid for another $58 million under the program.

“It seems odd that [FDIC] would bulk-sell these properties at very reduced amounts when they had this federal [HUD] program over here,” said Brent Brewer, member of a community group battling property-flippers in Atlanta’s West End. At the prices the FDIC sold them, “the city of Atlanta could have bought all of those properties” with its HUD grant money, he said.

In an e-mailed statement, FDIC spokesman Greg Hernandez said a contract marketing representative for the FDIC advertised the asset sales locally and nationally and notified many local housing entities, including participants in HUD’s Neighborhood Stabilization Program, the Atlanta Housing Authority and Habitat for Humanity. He said the FDIC decided it should dispose of the homes quickly in order to maximize return and reduce costs and risks from holding the properties. He said three bidders out of 34 bought the Georgia properties, but did not disclose the buyers or how much they paid.

The head of another participant in the HUD program, the Atlanta Neighborhood Development Partnership, said the FDIC recently has become more responsive to neighborhood groups’ concerns. The FDIC recently offered five of its properties to his organization, said John O’Callaghan, president of the development partnership.

“I think they have opened up the properties literally in the last 60 days,” he said.

Worries about flipping

To be sure, the FDIC has had its hands full lately, dealing with hundreds of banks that have been crippled by heavy losses on mortgages and other real estate loans.

The agency, which insures bank depositors’ accounts up to $250,000, has seized more than 200 banks nationwide since the beginning of 2008. About three dozen have failed in Georgia, more than in any other state.

The FDIC sold almost $202 million worth of Georgia residential properties last year, mostly homes in metro Atlanta. The 1,391 Georgia properties sold last year accounted for a fourth of the agency’s nationwide residential sales.

O’Callaghan, with Atlanta Neighborhood Development Partnership, said he believes at least one of the big buyers, the privately held Carter real estate firm in Atlanta that bought 271 of the former Omni homes, will repair the homes and manage them properly.

But he worries that many other houses the FDIC sold have gone to absentee investors who will simply keep them vacant and “flip” them later.

Indeed, a unit of Denver-based Phoenix Capital, which bought roughly 190 former Omni homes from the FDIC at steep discounts, apparently has already sold about 80 percent of them to other investors, records indicate.

“I just don’t see evidence of enough homeowners moving in ... these properties,” said O’Callaghan. “If we have a bunch of absentee owners, that may perpetuate the problem.”

‘We’d like neighbors’

Ironically, Omni’s demise was tied to an epidemic of fraudulent property-flipping schemes in which the bank allowed investors to finance and sell the same homes three, four or five times, artificially inflating values. Four people, including the bank’s co-founder, Jeffrey L. Levine, were arrested in a wide-ranging federal probe into the bank’s operation.

Last week, Brent Merriell of Atlanta pleaded guilty to identity theft and making false statements in what prosecutors said was a scheme to avoid foreclosure on millions of dollars in loans from Omni.

Omni’s failure last March cost the FDIC’s insurance fund an estimated $289 million.

Meanwhile, many of the houses sold by the FDIC continue to sit vacant in neighborhoods that are already pockmarked with abandoned and decaying houses.

“When you see prices like that, it’s like messing with the value of the other houses around,” said Joseph Dukes, whose west Atlanta home is next door to a house Phoenix Capital bought for $2,558. It was in turn sold to a Loganville firm for $7,550.

The house, a boarded-up green frame house, was renovated about a year ago but has been empty for about five years, he said.

Dukes’ wife, Andreata, said half the houses are vacant on their street in the Dixie Hills neighborhood about four miles west of downtown Atlanta.

“We’ve been here since 1998. We’ve seen them coming and going,” she said. “We’d like to have neighbors.”

Some revamping planned

While most of the other former Omni properties a reporter visited last week were vacant, some homes had a happier fate.

About a mile away, Tasha Smith said she and her four kids like the four-bedroom, two-bath home she rented last month.

“I feel safe, and I feel that people take care of their homes. It’s a nice neighborhood,” she said.

Her eye’s grew wide, however, when she heard the price that John Galt Enterprises, the investment unit of the Denver firm, paid for the house: $18,059. Asked if she would have bought the house at that price, she said, “Yeah, I would have.”

Six weeks after buying the house, John Galt Enterprises sold it to another investor for $28,000.

Phoenix Capital did not return a reporter’s phone calls. On its Web site, the company said John Galt Enterprises is its newest unit, aimed at buying $2 million to $20 million pools of foreclosed properties, “providing sellers a smooth and swift method of portfolio monetization.”

The firm, by the way, is named after a mysterious character in Ayn Rand’s novel “Atlas Shrugged.” Galt, an engineering genius, became a folk hero to some readers by exposing the cracks in an industrial society overwhelmed by government controls.

Rufus Chambers Jr., senior vice president at Carter, the other big buyer of former Omni homes, said the Atlanta company will repair and rent its homes until it sells them in perhaps three to five years. The firm eventually may try to sell some homes to community groups hoping to sell the homes to families, he said.

“While this is an economic transaction for us, we do hope to do some social good,” said Chambers.

FDIC’s fire sale

The Federal Deposit Insurance Corp. sold 1,391 residential properties last year in Georgia ranging from foreclosed homes to unfinished subdivisions. Some neighborhood groups in metro Atlanta – where most of the properties were concentrated -- are unhappy that the bank regulator auctioned hundreds of foreclosed homes to investors at steep discounts even as another federal program to stabilize neighborhoods has had trouble buying such properties.

How we got the story

After the Atlanta Journal-Constitution recently looked into a federal probe of alleged fraud involving the failed Omni National Bank, some community groups complained the Federal Deposit Insurance Corp. had sold hundreds of the bank’s foreclosed homes to investors rather than selling them to programs aimed at stabilizing neighborhoods.

To investigate, we analyzed FDIC real estate sales reports, county property records and similar data collected by one of the neighborhood activists.

We interviewed representatives with some of the community groups, a HUD-backed neighborhood stabilization organization, one of the investment firms and the FDIC. We also visited some houses sold by the FDIC and interviewed area residents.