A security guard working the night shift at a construction site on Salinas’ East Market Street took note of routine drug deals going on next door, where his counterpart was a pitbull. That three-unit property has since foreclosed, and major rehab is underway. Workers are replacing rusted plumbing, damp drywall and upstairs flooring so soggy that Gabriel Torres, vice president of operations at Central Coast Residential Builders, calls it “the bounce house floor.”


The renovation is funded by a federal stimulus initiative, the Neighborhood Stabilization Program. The U.S. Department of Housing and Urban Development awarded $3.5 million to the Community Housing Improvement Systems and Planning Association, a Salinas nonprofit, to buy and flip foreclosed homes. 


Since receiving the award a little more than a year ago, CHISPA has purchased 15 homes. The revenues from sales and rentals will fund additional purchases toward their target of 30. 


Monterey County and the city of Salinas are also buying and selling NSP homes under an earlier round of grants, but their progress has been slower than predicted. Now that the properties have started moving, they’re in the real estate business: continuously buying foreclosed homes with revenues from those sold. Once there’s enough income from sales to purchase additional units, they’ve got 90 days to invest in another property, or that money goes back to the feds. 


Of the 10 homes Salinas purchased with its $2.6 million award, four have sold, and six are in escrow. The county purchased 13 homes with its $2.1 million grant; nine have sold, two are in escrow, and the last two are expecting offers. 


The county’s balance sheet is $134,000, just shy of what county Housing Program Manager Jane Royer Barr needs to buy another property. Assuming an imminent deal goes through, she’ll have to buy again within 90 days. “I’m betting on the income,” she says. “You keep anticipating.” 


While the houses are moving, the pace has been slower than expected. County officials say it’s been hard to close deals. Barr says about three in four qualified buyers have withdrawn because they’re worried about layoffs or unhappy with the available homes. 


Of the 13 homes in the first round of county purchases, all but one were in South County. “Ninety percent of the applications we were getting were from people who were looking for homes in Seaside and Marina,” says Leila Emadin, executive director of the Housing Resource Center, the Salinas nonprofit that educates prospective buyers. “The homes were just in the wrong place.”


“We’re trying to get every part of the county an equal share, though we started a bit heavy in South County,” says Jurgen Herzog, vice president of Prunedale-based Cottage & Castles Real Estate, the city and county’s agent for NSP. Cottage & Castles tries not to spend more than $250,000 on a home, and South County had affordable homes that met HUD’s criteria. Homes older than 1978 would have required extensive testing for lead-based paint, for example, so they stuck to newer units. 


“You can’t buy a $220,000 home and expect a low – to moderate-income family to afford it,” Jurgen says. Under NSP, the county or city must sell homes to families earning up to 120 percent of the median income, or $81,360 for a family of four. 


Even though Cottage & Castles kept units affordable, the program was slow to gain traction among realtors. The county and city started out offering 1-percent commissions, which they boosted to 2.5 percent after the Monterey County Association of Realtors spoke up. 


“Initially, there was no money to provide an incentive,” says Sandy Haney, CEO of MCAR. “Agents weren’t bringing their clients to the table.”


Though the program has met its target dates, the scattershot locations in the first round of county purchases, spread across five cities, didn’t produce HUD’s desired neighborhood-scale effect. With a new $1.3 million award, the county will stick to a smaller geography – Soledad – instead of a home here and a home there. 


“Neither the county or the city made the best use of the funds they got, but they made it work, ” Emadin says. Her preference: more neighborhood-oriented purchases and down-payment assistance.


The city also has stuck to relatively new units, including in Creekbridge. Eight of the city’s 10 properties are there or in other subdivisions. Cottage & Castles is trying to keep any necessary rehab to less than $15,000 per unit.


Meanwhile, CHISPA is specifically targeting properties in need of major renovations. “Our goal is not to just go spend the money,” says Dana Cleary, their director of real estate development. “Our goal is to find the homes in bad shape that will benefit from us purchasing them.”


At the dusty East Market Street property, Cleary surveys new electrical wiring where there was once a safety hazard. 


“We know how to deal with bad,” she says. “It’s going to be beautiful.”