Units at 2497 Massachusetts Ave. were reserved for lower-income residents before the city began using more more ironclad agreements guaranteeing affordability even in the case of foreclosure. (Photo: Bing)

It wasn’t your usual foreclosure auction. Up for sale was a North Cambridge condominium that was earmarked for low- and moderate-income families, and one in which the city had invested thousands of dollars. Once the bank sold the unit, the affordability requirement would disappear.

To officials’ relief, a nonprofit agency funded by the city won the bidding for the unit in October, preserving it as affordable. But the victory came at a hefty price – in addition to the city’s previous investment. And an unknown number of other units in the city’s affordable housing portfolio, mainly those developed earlier than in the past few years, might not have affordability protection that survives foreclosure.

The city paid $445,000 to win the bidding for the three-bedroom condo. The city had already invested $140,881 to make the unit affordable when it was developed in 2006, according to court papers. Just-A-Start, the nonprofit housing and employment training agency that owned this condo in the Gateview Condominiums project at 2497 Massachusetts Ave., estimated that its “affordable price” was $197,000.

Rare occurrence

The good news is that foreclosure of an affordable home is very rare, officials said. Only one unit besides this one has gone to full foreclosure, and only “a handful” have been at risk, said Brian Murphy, assistant city manager and head of the Community Development Department.

Still, more than 8oo affordable housing units are set to expire in the next several years, according to a report last year from the City Council’s Housing Committee. The city is working to preserve them and add units to the stock.

The city now attaches a more ironclad affordability agreement to sales of its low- and moderate-income units, Murphy said. It provides that units remain affordable after foreclosure, and says the affordability requirement outweighs even a first mortgage. Earlier documents, such as the one used for the North Cambridge condo, weren’t as strong because “in the past lenders would not accept such restrictions,” Murphy said in a statement. The original agreement covering the foreclosed condo provided that foreclosure would wipe out the requirement that the unit be affordable.

The stronger agreements have been used in Cambridge since at least 2009, two years after the foreclosed condo was developed. The state published a “universal deed rider” for affordable housing that survives foreclosure, though, as early as 2006. It is used by communities throughout Massachusetts. “Our document is a pretty standard document accepted by the mortgage industry,” said Brenda Clement, executive director of the Citizens Housing and Planning Association, which monitors many affordable housing programs in the state.

“As programs develop and evolve, you start to fine-tune and learn,” Clement said.

Lessons learned

There may be other lessons from this case. The condo owner, Lejuanna Harris, stopped paying her mortgage and her condo fees and filed for bankruptcy three times to avoid foreclosure, yet the city didn’t move to take back her unit early on when she defaulted, as it could have, for much less money than it ended up paying at the foreclosure auction. Instead, officials even loaned Harris extra money to pay off the condo fees in hopes of keeping her in the unit. In the end, she defaulted on that loan too.

“Circumstances can change for anyone,” said Michael Haran, executive director of Cascap, the nonprofit housing and service agency that bought the three-bedroom condo at auction with city money. The city’s handling of the case was “well-intentioned,” he said.

Still, “I think the city has has learned from this,” Haran said.

House history

The Massachusetts Avenue condo, lived in by  Lejuanna Harris and family members, gets new occupants after Jan. 12.

Harris, a single mother, won a city lottery to buy the unit for $195,000 in January 2007. The bank made two loans to her to buy the condo: $150,150 as the first mortgage, and $39,000, presumably to help her make her down payment.

She fell behind on her mortgage and condo fee payments, and first filed for bankruptcy protection to avoid foreclosure in November 2009. Harris filed again in 2010 and in 2011, both times after a judge dismissed her previous case because she didn’t make payments she promised.

During the third bankruptcy case – which is still open – it was disclosed that Harris also owned a share of a single-family home in Cambridgeport at the time she won the affordable housing lottery. Her grandmother lives in the house, and Harris and two relatives can’t assert ownership claims until their grandmother dies.

Haran, of Cascap, said the foreclosure of a three-bedroom condo in Cambridge with no affordability restriction drew many bidders. There were actually two auctions, one in August and one in October. Cascap, with $550,000 from the city, won the first auction, but as officials were signing the final paperwork in August, a bankruptcy court judge barred foreclosure temporarily while Harris’ lawyer fought the sale. The judge soon ruled against Harris, allowing the final auction in October.

“It was fascinating,” said Haran, who was at both auctions. The bidding was fierce, he said. In October, after Haran put in his last bid, the auctioneer nodded to the other bidders. “They were on their cellphones,” but remained silent, Haran said.

Aftermath

Said Murphy of the community development department: “We weighed the cost of keeping this unit as an affordable unit against the cost to replace the unit if affordability were lost. We are pleased that Cascap was successful at the auction and this three-bedroom unit will continue to be part of the city’s affordable-housing stock.”

Murphy said the city will get any money left over from the sale proceeds after the bank takes what it’s owed. Murphy didn’t answer when asked whether the city had received anything.

Harris still lives in her condominium at Gateview Condominiums; she has agreed to leave Jan. 12, Haran said. “Nobody wants to see anyone lose their housing,” he said. “In this case there was a good outcome. We worked out an agreement that she would leave Jan. 12.”

Then Cascap plans to spruce up the unit for sale to another low-income family, he said. That sale will include the beefed-up affordability agreement.