Jerry and Carol Ptacek bounced from one cramped apartment to another most of their adult lives, so they could hardly believe their luck when they were able to buy a San Bernardino house for the bargain price of $63,000.
Nine years later, they are renters again -- a testament to the failure of the federal government's Dollar Homes program.
Congress launched the program in 1998 to clear the Department of Housing and Urban Development's books of foreclosures and provide affordable housing. Local governments would buy the homes for $1, fix them up and resell them at a discount to poor families, who would get a chance to put down roots in the community.
At least that's how it was supposed to work.
A Times investigation has found that the Dollar Homes program has helped housing contractors and investors, but there is no evidence that it has provided any lasting benefit to people like the Ptaceks. The findings offer a cautionary tale as the Obama administration works to craft similar efforts to help communities ravaged by the housing slump.
"This is bad for taxpayers on both sides of the transaction," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington.
More than 2,300 homes have been sold by HUD for $1 each nationwide, with 326 in California. Nearly half of the homes in California were bought by companies or individuals who typically resold them at a much higher price. Only 15% were sold to nonprofit housing groups such as Habitat for Humanity, records show.
The city of San Bernardino bought more Dollar Homes -- 62 -- than any other city or county in the state. But San Bernardino officials could not provide The Times with any account of what happened to the homes after they were sold.
"They went back to the private market, and hopefully they were maintained and kept up," said Carey Jenkins, the housing director of San Bernardino's economic development agency, which oversees the city's Dollar Homes purchases. "And that was pretty much the end of our involvement."
Using county property tax and assessor records, federal bankruptcy files and real estate listings, The Times tracked every property sale to San Bernardino under the program since 2000. Among the findings:
* At least 43 of the 62 homes were sold to housing contractors and investors. Within months after purchase, nearly all were resold, and for an average of three times the original sales price.
* The homes continued to change hands frequently. Some homes have been bought and sold eight times in as many years, defeating the intent of the program to encourage buyers to put down roots and revive downtrodden neighborhoods.
* Instead of continuing to provide opportunities for low-income buyers, these homes have become priced beyond their reach, shooting up more than 450% in value from 2000 to 2008, based on sale prices. Moreover, there are no rules to ensure the homes remain affordable when they are resold.
* Nearly half of homes ended up with buyers who struggled with homeownership, missing property tax payments, defaulting on their loans, and in at least nine cases falling into foreclosure.
* The program goes unmonitored. Cities are by law required to give HUD detailed accounts of who bought the homes and for how much. But in at least 31 cases, San Bernardino provided inaccurate information, incorrectly listing either the buyer or the sale price, the review found.
HUD officials said that because the Dollar Homes program was mandated by Congress, it does not receive the same type of attention and follow-up as programs created by HUD itself.
"You have to keep in mind that this program wasn't created for success," said Vance Morris, the director of HUD's office of single-family asset management, which oversees the Dollar Homes program. "Sometimes you have programs created for success and others that were created to be compliant with the law. In this case, we are just complying with the law."
Morris also said that new rules were being written for all homes sold by HUD at a low cost, and should be implemented this year.
In 1997, Jerry Ptacek was unloading concrete off the back of a flatbed truck when he lost his balance and fell, wrenching his back and hips. Despite several surgeries, he has walked with a cane ever since. His disability payments and a few odd jobs pay the bills. His wife, Carol, also has been declared permanently disabled after years of struggling with depression.
Getting by on Social Security checks, currently about $1,600 a month, the Ptaceks figured they were never going to own a home.
Their luck changed in 2000 when a real estate agent steered them to a two-bedroom home on Conejo Drive in San Bernardino. The price was right: $63,000, with just $500 down. They said they had no idea it had been foreclosed on by HUD and that it had been sold to the city for $1.
The home had fallen into HUD's hands when the borrowers defaulted on their federally guaranteed loan in 1998. San Bernardino acquired it under the Dollar Homes program and sold it for $2,000 to Schechtman Construction of Riverside, one of several companies that had applied with San Bernardino to buy and repair Dollar Homes and other HUD-owned properties, records show.
The city required that these companies make repairs noted by a city inspector and that they sell the homes to low-income families when they were finished. But San Bernardino did not screen the buyers to make sure they met any income requirements, Jenkins of the city housing department acknowledged. Nor did HUD place any restrictions on the local governments after they bought the homes for $1.
The Ptaceks said they started the process of buying the home in August 2000 while Schechtman was working on it. When they took possession that November, they said they had presumed the home had been completely overhauled. But it still needed substantial repairs, they said.
They say that the home's electrical wiring was connected to one circuit breaker and that the plumbing leaked. The home's one bathroom didn't have a window, they said; it had been covered up with stucco from the outside.
"It seemed like once we got through fixing one thing, we would have to turn around and fix something else," Jerry Ptacek said.
Steve Schechtman, the construction company's owner, said he made costly repairs, although he said he could not recall specifically what was done and no longer had records on how much was spent. He also noted that city inspectors had signed off on the work.
"How much more could we have possibly done to put people with marginal incomes into a home?" Schechtman said. "There is no justification for saying anything other than that we did a fabulous job."
To cover the costs of repairs and other improvements, the Ptaceks said they refinanced their home several times, so that by July 2006 they owed more than $220,000 on the home they had bought for $63,000. One of their loan brokers, La Verne Scruggs of Inglewood, supported the Ptaceks' account that the home needed extensive repairs. But the Ptaceks acknowledged that they too made mistakes.
One was to get a negative amortization loan, which kept their monthly payments artificially low, but at the cost of adding to the principal they owed. They also gambled thousands of dollars from their home equity at Indian casinos, they acknowledge.
"They never should have been allowed to buy that house in the first place," Scruggs, the loan broker, said. "That house needed a lot of work, and they didn't have the money to do the work."
The Ptaceks obtained their loans in the now-ended era of easy financing. The institutions that fronted the money for Dollar Homes purchases -- New Century Financial Corp., Ameriquest Mortgage Co., Washington Mutual Inc. and Countrywide Financial Corp. among them -- ultimately collapsed under the weight of soured mortgage loans.
Before they fell, lenders benefited in two ways. First, HUD bought their bad loans and got them off their books, taking over the homes that the agency later sold for $1.
Secondly, when the same homes were resold, these same lenders often provided the mortgages. In one example, Union Planters Bank, which is now part of Regions Bank in Tennessee, foreclosed on a Barstow home for $66,000 in 1999. HUD covered the bank's losses, and then sold the home to Barstow for $1.
When the home was sold in 2001 to a buyer, Union Planters provided a $38,000 loan, records show. So the bank was able to shove a bad loan off its books and onto the federal government and turn around and secure the income from a new loan on the same home just a few years later.
The Ptaceks refinanced their first loan in November 2003 with Ameriquest, which charged them a 9.9% interest rate. In June 2007, the Ptaceks decided they could no longer make their payments, and they signed the home over for nothing to Scruggs, the mortgage broker who had first helped them refinance, and her husband. They now rent the home from the Scruggses.
When Scruggs decides to resell the home, there will be no restriction on her to price it for low- or moderate-income buyers. A few blocks from the Conejo Drive house, a Dollar Homes residence that was sold by the city for $27,000 to an investor was resold several times before being sold for $355,000 less than six years later. The final buyer ended up in foreclosure.
Housing advocates say HUD has done a poor job of overseeing the program. The Times asked HUD for all documents that San Bernardino had provided to the agency as part of its annual reporting requirement through the program. It provided eight pages, mostly listings of property addresses and buyers.
These lists were peppered with inaccuracies. The city told HUD that in most cases it sold the homes directly to first-time home buyers, such as the Ptaceks. It did not mention to HUD that it had actually sold these homes to developers like Schechtman.
The Ptaceks did not realize until they were contacted by The Times that the home was sold under a government program.
"The only time I've seen someone from the city out here was when there was a code enforcement guy telling me I had too much dirt next to my driveway," Jerry Ptacek said.
Housing advocates such as the Rev. David Kalke, executive director of the Central City Lutheran Mission in San Bernardino, think cities could better serve poor people if they used the homes for subsidized housing and tapped nonprofits for the rehabilitation work.
The mission bought two of the Dollar Homes residences for $2,000 in 2001 and turned them into low-income rental housing for homeless people with HIV.
Because of the grants he receives from HUD to help subsidize the program, Kalke said he has to provide extensive documentation every month on how he spends the money. His homes are two of only three that were sold to nonprofit groups in the city.
"Sometimes the government doesn't do things very brightly, and the people who are supposed to be helped end up being hurt," Kalke said. "This kind of initiative could be supported in a much bigger way for less money."
The Ptaceks say they wish they'd never tried to buy a home. They would have been better off renting, they said, and are now trying to qualify for federal rental assistance funds.
Sitting in the living room under a portrait of Jesus, "The Jerry Springer Show" blaring on the TV, the couple look defeated.
"I've started going back to church," Carol Ptacek says. "This whole thing has just been so hard. Praying helps, but it doesn't pay our bills."
Jerry stares blankly at his wife as she talks, leaning against a shelf full of DVDs, many of them Disney films. Their economic situation is so bad, she explains, that the Ptaceks have started watching their friends' kids in exchange for groceries.