How Nonprofits Use a Legal Loophole to Flip California Homes — for a Profit

Dale Riggins was 7 years old when, in 1968, his father began building the small Richmond apartment complex where Riggins now lives. 

Every day during the 10-month construction, he went to the site after school, dragging tools and two-by-fours on the sloped lot set against a small hill where the building began to rise.

“I have touched everything in this building. I have painted every corner, put in every window,” Riggins said of the triplex he inherited. “This building was my parents’ life, and it became my life.”

Riggins, 67, retired early from his career in construction and maintenance for the city of Richmond after a knee injury put him on disability in 2008. But, the income from his tenants helped keep him afloat. 

“The building was in good shape, and I had good tenants,” Riggins said. “Everything was just happy. Until. Yeah, until.”

Riggins went through a divorce and sought a modification on his mortgage in 2019. While that was being considered, his lender foreclosed. Everything his parents had worked for seemed to slip through his fingers. 

“That sent me through a great depression for a year,” he said. “When you do everything you can do, and it seems like it’s not enough, it’s like everything is against you.”

The ultimate buyer was Southside Neighborhood Stabilization, a limited partnership registered to an Encinitas, Calif., address. The general partner was a Virginia nonprofit, Southside Community Development and Housing Corporation.

It was this partnership with a nonprofit that allowed the organization to buy the house under a 2020 California law, SB 1079. It allows tenants of foreclosed homes, owner-occupants, governments and nonprofits an exclusive 45-day window to match the winning bid at a foreclosure auction. It was one of 15 housing bills signed into law that year aimed at creating more affordable opportunities for renters and homeowners.

Southside’s website states its mission is “advocating for the needs of communities and families” to “stabilize communities throughout the United States.” 

And while that should have been a relief to Riggins, it wasn’t. He couldn't understand why a nonprofit, nearly 3,000 miles away, had purchased his property. 

"Why would they want to buy something in California?" Riggins wondered. "And I think that's the part that just really has me just furious. Why would you want to invest in something that you have never seen?"

The two-story triplex, with its salmon-colored stucco and white trim, was one of at least 74 properties Southside Neighborhood Stabilization scooped up since it formed in early 2021. 

The organization is one of at least three such entities created in California after SB 1079’s passage to purchase homes in partnership with nonprofits that have the stated goals of providing affordable housing to communities in need. But in a review of nearly 200 property records, and interviews with over a dozen homeowners and investors who've purchased properties from them, there’s little evidence these homes are actually being used as affordable housing.

“They’re all just being flipped,” said Jeff Cagle, a Central California house flipper who’s lost dozens of foreclosure auction bids to purchasers who invoked SB 1079. “The whole idea was that if nonprofits bought this, this was supposed to benefit affordable housing, but none of them were being retained as affordable housing.”

'Homes for homeowners, not corporations'

State Sen. Nancy Skinner (D-Berkeley) first introduced SB 1079 in February 2020 on the heels of a powerful, two-month-long protest that caught the nation’s attention.

A group of unhoused mothers, called Moms for Housing, had been occupying a vacant home in West Oakland in late 2019 and early 2020. The home was owned by Wedgewood, a Redondo Beach real estate firm that specializes in flipping foreclosed homes. 

The moms’ protest intended to spotlight increasing corporate ownership of housing, which they said led to rising rents and growing homelessness. 

And SB 1079 was Skinner’s response. She dubbed the bill “Homes for Homeowners, Not Corporations.”

“The intention of SB 1079 was to give a fair chance for tenants, the homeowner who may have lost their home in the foreclosure, or affordable housing groups to be able to buy a foreclosed home at auction,” Skinner said. 

After the Great Recession between 2008 and 2010 left millions of homeowners in foreclosure, private equity investors began buying the devalued homes by the thousands. Today, Wall Street-backed corporations own more than 200,000 single-family homes across the country. 

Skinner’s bill made it illegal to bundle properties together at foreclosure auctions, to make it easier for individuals to bid on them. 

She thought nonprofits would use the homes they purchased through SB 1079 to create more affordable housing, but the bill doesn’t specifically require it. Nor does it include any enforcement or accountability mechanisms to ensure that’s the case. 

“We thought we didn't need to,” Skinner said. “We do a bill with the best intention, but we can't always see exactly how it's going to be put into practice.”

A new bill, AB 1837, by Assemblymember Mia Bonta (D-Oakland) would mandate homes purchased by nonprofits be used to house residents with lower incomes for at least 30 years. The bill is expected to be voted on in the Senate this week, and return to the Assembly for a concurrence vote by the end of the month. 

“We want to ensure that a nonprofit housing developer actually is the recipient of this particular opportunity,” Bonta said, “and that it doesn't end up being a nonprofit that is kind of clothed in wolves’ clothing.”

An opportunity

In many ways, the same economic forces that drove Moms for Housing’s protest also prompted a Richmond, Va., nonprofit to get into the business of buying foreclosed homes. 

Tim Hayes is the director of distressed assets for that nonprofit, Southside Community Development and Housing Corporation. He said the Blackwell neighborhood where SCDHC was born was gentrifying, in part due to the organization’s work improving the community. The organization turned to local banks for loans to help purchase properties in the neighborhood and keep people from being priced out. But, the banks wouldn’t lend to them. 

“Therefore private developers reaped the benefits of the years of SCDHC's work,” Hayes said.

Then, in 2015, President Barack Obama directed the U.S. Department of Housing and Urban Development to begin selling some of the foreclosed homes to verified nonprofits.

Hayes saw an opportunity. SCDHC could buy the debt on homes going through foreclosure and sell the houses to homeowners, rather than allow investors to buy and rent them out. The sales would generate income for the nonprofit, which could help them expand their work developing affordable housing in and around Richmond, Va.

“We had frustration with our community now being overtaken by developers,” Hayes said. “We go to the bank, they say no. HUD then says, ‘Hey, y’all might be able to work in this program. We think if done right, you can help people, but at the same time, you can make some money to help you expand your operations, to grow, develop.’”

SCDHC became certified through HUD’s distressed asset stabilization program and began buying non-performing loans on homes going through foreclosure across 33 states. 

They partnered with Louis Amaya, the CEO and founder of PEMCO Capital Management, to help them comply with each state’s policies around buying distressed assets.

Amaya didn’t respond to multiple requests for an interview. But his company’s website describes itself as “an institutional platform for investors to gain exposure in niche sectors within the distressed residential mortgage and real estate markets.”

“There were certain expertises that we just didn’t have,” Hayes said. “We hired PEMCO to be part of the distressed asset sale team.”

As soon as SB 1079 went into effect in 2021, SCDHC formed a limited partnership, Southside Neighborhood Stabilization, with Amaya managing the properties. Hayes said it was an extension of their ongoing work in California and other states. 

The goal, Hayes said, is to help residents stay in their homes, either through refinancing or credit counseling. In instances where a tenant is living in the home, Hayes said Southside offers cash to help relocate. 

But there’s always a balance, Hayes said. SCDHC partners with private investors to front the money to purchase the foreclosed homes. Those investors expect a return, he said. 

“What we attempt to do also is balance outcomes with returns,” Hayes said. “We endeavor to do what’s right, to allow people an opportunity to remain in their homes.”

'Where are we going to go?'

Before Riggins’ mother, Susie Riggins, died in 2003, she told her son, "'Whatever you do, try to keep the building because your father built it,'" Riggins said. 

“That’s all she had to say,” he said. “And that’s what I set out to do.”

For Riggins’ parents, the apartment building wasn’t just a source of rental income; it was an investment in the community. They had moved from Arkansas and Louisiana to Richmond, Ca., in the mid-1940s as part of the Great Migration, when millions of African Americans moved from the South to the North and West in search of safer lives. 

Riggins’ father, Clinton Riggins, took a job as a steelworker at the Hunters Point Naval Shipyard in San Francisco. And despite the lack of traditional mortgages available to Black residents, Clinton Riggins was able to buy a home in Richmond. 

“People didn't have nothing back then in the '30s and '40s,” Riggins said. “But when (my father) got here, he was able to do it.”

Riggins said his parents always instructed him to keep the rents low, and if he had to raise them, to do it gradually. 

“My mother said, ‘Your father built this to help people, not to make money,’” Riggins said.

It’s one reason Riggins’ tenants stayed so long and, in some cases, came back. 

Cynthia Hernandez first moved from the Mission District in San Francisco to Riggins’ building with her mom in 2009, when she was just 18 years old. She eventually left to live on her own as a young adult but returned in 2019, when she and her husband moved back in with her mom.

“We were looking more towards buying a home in this area,” Hernandez said, “so we wanted to save a few bucks.” 

When the pandemic hit, the unit next door became vacant, so she and her husband moved in. And it was around this time that she said their relationship with Riggins changed from a typical tenant-landlord relationship to one that was more familiar. 

“We got a lot closer,” Hernandez said. “We were helping each other out with groceries, with toilet paper, with all the essentials.”

After he separated from his wife, Riggins said he worked with the community group Richmond Neighborhood Housing Services to fill out mortgage modification forms required by his lender, World Savings Bank.

He couldn’t understand why the company, in the midst of that process, started to foreclose. Riggins has since hired a lawyer that’s suing the servicer on the loan, Rushmore Loan Management Services, for allegedly violating the state’s Homeowner Bill of Rights — a set of laws that protect homeowners facing foreclosure. 

When the notice of default on the mortgage appeared, speculators began bombarding the house with flyers, letters and calls. So Hernandez began looking for help — both to understand what was happening and to figure out what her rights were if she faced eviction. 

“I freaked out,” Hernandez said. “Where are we going to go? Like, what can we do?”

Hernandez eventually found Richmond Land, a new community land trust based in Richmond, Ca., that was looking for its first project. 

By this point, Southside had already purchased the property, and had served the residents with eviction papers. Hayes said the company first offered the residents $5,000, but didn’t get a response, so they proceeded with the eviction process. 

“We made it clear to (Southside) that what was happening was problematic,” said Mia Carbajal, director of place-keeping at Richmond Land, “and that we are really interested in stopping the eviction by purchasing the building.”

Southside Neighborhood Stabilization eventually agreed to sell the building to Richmond Land for $600,000 — which is $59,000 more than the $541,000 it paid to purchase it. The amount barely covered Southside’s expenses, Hayes said. 

Looking back, Carbajal said she doesn’t begrudge Southside for wanting a return on the purchase, or its practice of buying foreclosed homes as a way of generating income for the nonprofit’s work in Richmond, Va. 

“I think it just really speaks to our nation's austerity, our disinvestment in housing,” Carbajal said, “and organizations that are in the business of affordable housing, doing what they need to do to cover their expenses.”

In the end, it all worked out for Hernandez and Riggins: They got to stay in their homes and will eventually have the opportunity to buy the building. Richmond Land will maintain ownership of the land itself, ensuring the property is sold at an affordable price to all future buyers. 

But others who dealt with Southside were less satisfied with the results. 

Neighborhood stabilization

Southside Neighborhood Stabilization shelled out nearly $29 million to purchase 74 properties under SB 1079. So far, more than half — 47 — have already been sold for a total of about $6 million in gross revenue, according to property records. Of those, 32 are now owner-occupied. The rest have gone to investors.

Southside requires its buyers to sign an affidavit, attesting that they will either live in the property or sell to someone who will. 

Hayes said that’s because the organization’s goal is to create more homeownership opportunities, which is also a stated goal of SB 1079. 

“We view ourselves as a holistic organization, but also realizing that most wealth accumulation comes from homeownership,” Hayes said. “And when I can never access homeownership, it then limits so many things, let alone generational wealth transfers. So, that’s the mission that we really have.”

But some of the homeowners and investors who have encountered Southside question whether their practices actually make it easier for people to afford their homes. 

In Thousand Oaks, Steve Boykin paid Southside Neighborhood Stabilization nearly a quarter of a million dollars just to get the deed to his home back. 

Boykin, a locksmith and lifelong Thousand Oaks resident, had taken out a home equity line of credit in 2007 for $150,000, though he says he only used about $44,000 of it. The loan was sold to another company, which then charged him a higher interest rate. Boykin got a lawyer to dispute the new charges, and in the meantime, the bank foreclosed.

Southside Neighborhood Stabilization bought the debt on his property for $166,100. Boykin negotiated to pay them $239,000 to buy it back, according to property records. 

“I had to pay them, I didn’t have a choice,” he said. “They’re holding (the deed) over my head. You know, ‘We’re going to sell your house. We have the deed to the house, and we can sell it.’”

Hayes said Boykin’s case was “an amazing outcome.”

“Rather than being evicted, we allowed the owner to remain in their home,” he said. “All processes can be improved. However, it continues to feel as if SCDHC — on an incredibly small sample — is being painted as a bad actor, and we are not.”

But Boykin didn’t see it that way. He sold two plots of land in Paso Robles, where he had planned to build his retirement home, to pay Southside. At 63, he expected to retire in two years. Now, he knows he’ll be working much longer. 

“I just feel betrayed by my government,” Boykin said. “You work your whole life. My whole retirement is in my equity, in my home. And these guys legally come and steal it from me.”

Other investors and homeowners who purchased homes from Southside said the sales felt like typical flips and questioned what kind of value the nonprofit added. The homes often needed major repairs, but they weren’t sold at a discount. 

Lauren Every-Wortman purchased a home near Joshua Tree National Park in January for $453,000 — about $100,000 higher than the current median-priced home there, according to Zillow — even though it needed a new roof and floors, a new irrigation system and a new deck.

Every-Wortman’s boyfriend dug into the property records and found that Southside purchased the home for $295,000.

"It’s inflating the market," Every-Wortman said.

Hayes said the organization is transparent about the conditions of the homes it sells.

"We could fix everything," Hayes said, "but the reality of it is that then changes the price point."

They also have to absorb costs, Hayes said, from the real estate agents to lawyers, to closing and filing costs.

By the fall of 2021, Hayes said Southside decided to stop purchasing properties through SB 1079. They had gotten some inquiries about its activities, he said, and they didn’t want to continue “until the Legislature can create more clarity about what we’ve done.”

“We began to get more inquiries that were trying to paint us in a certain picture,” Hayes said. “And in Tim Hayes terminology, we're like, ‘Screw this. We've done too much to now all of a sudden to be backed into a corner.’”

According to property records, Southside’s last two purchases in California were made on January 4. But while Southside began winding down its operations, other nonprofits were just getting started. 

Corporations clothed as nonprofits

In the summer of 2021, two California-based house-flipping corporations created their own affordable housing nonprofits and began using SB 1079 to purchase and flip foreclosed homes, according to public records. 

One of the groups, called the CV Neighborhood Stabilization Foundation, says its mission is to “create and implement programs for the development of and preservation of affordable housing.”

The foundation later changed its name to Dove Street Housing Foundation and formed a number of different limited partnerships, which together purchased at least 68 properties since November. At least 12 of them used SB 1079, according to property records. Dove Street’s nonprofit status is what enables the partnerships to use SB 1079 to match foreclosure auction bids.

The foundation’s president, Matt Regan, is also the co-founder, president and COO of ClearVue Real Estate Services LLC, which, according to its website, “specializes in the acquisition, management, and disposition of residential REO [real estate owned] properties and targeted whole loans nationwide.” Regan did not respond to requests for comment. 

Of the 34 properties Dove Street has already sold, property records show 25 have gone to other investors. 

One of those investors was Gerry Ochoa, a small-time landlord who purchased a property in Bakersfield from one of Dove Street’s limited partnerships. A fire had gutted the two manufactured homes on the lot. 

He expects he’ll spend upward of $380,000 to demolish the homes and construct a five-unit building in their place, which he plans to market as luxury units.

“I’m targeting more of these young folks that work at home nowadays,” Ochoa said. 

In Tulare, William Rawls had just gone through a divorce when, earlier this year, he began looking for a new home. He bought a beige, one-story tract home from RMMC LP in March.

Rawls was surprised to learn that RMMC is a limited partnership with an affordable housing nonprofit, called Affordable Housing NFP Inc., listed as the general partner, and property records show they used SB 1079 to buy the home.

“They just slapped lipstick on a pig,” Rawls said, adding that he’s in the process of replacing all the floors that had grown mold due to leaking pipes. “It was a gut job.” 

RMMC LP formed in July 2021 and bought its first property in November. So far, it’s purchased at least 56 mostly single-family homes, and property records show that at least 22 of the buys were SB 1079 purchases. 

The nonprofit’s president, Armando Banuelos, is also the CEO of Capitol Real Estate Group. A recent Bakersfield meetup described Banuelos as a specialist in “fix-n-flip, rentals,” and other real estate ventures. 

Banuelos and other representatives from the company didn’t respond to requests for comment. 

On the front lawn of Rawls’ eventual home, Capitol had posted signs directing buyers to their company. Rawls said there was never any mention of using the homes as affordable housing. 

“If it’s supposed to be affordable housing, then they lied,” Rawls said. “What a farce.”

Closing the loophole

Under Bonta’s new bill, AB 1837, properties purchased by nonprofits under SB 1079 would carry deed restrictions that mandate the housing remains affordable for at least 30 years. And nonprofits would have to have board members with California addresses. 

Several people involved in the house-flipping industry said the changes would help close the loophole in SB 1079, but the new legislation may not go as far as the author intends. 

Foreclosure auctions typically involve all-cash buys. And it’s unlikely that owners or tenants of foreclosed properties have the hundreds of thousands of dollars on hand to compete. 

“The idea that regular people are just going to (use) this,” said Jeff Cagle, the Central California house flipper, “it's not going to happen.”

Nonprofits may stand a better chance at matching the auction prices, and last year, the Legislature approved a $500 million revolving fund, called the Foreclosure Intervention Housing Preservation Program, to help them do just that. Those funds are expected to be available sometime this year. 

But even with this fund, Hayes said few nonprofits have the capacity to operate at scale, which is why he thinks partnerships with private investors are so effective. 

“We’re just concerned that it's being guided in the path of some unique outcomes that will not really impact all nonprofits. It may connect a sliver of nonprofits,” he said, adding that the vast majority of foreclosed homes will be purchased by “the same people that have always done it.”

For Bonta, however, the goal of her legislation is more narrowly focused on reforming SB 1079 and ensuring that if nonprofits buy the homes, they use them as affordable housing for residents with low incomes. 

“We're trying to make sure that the intention of our legislation,” she said, “matches the actual implementation.”