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State Paid Double Estimated Market Value for Some Sandy-Damaged Homes

By James Fanelli | March 17, 2014 6:50am
 New York has so far purchased at least 142 Staten Island homes as part of its Superstorm Sandy buyout program. In some instances, the state paid more than double the market value of the home. 
State Paid Double Estimated Market Value for Some Sandy-Hit Homes
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OAKWOOD BEACH — A Superstorm Sandy recovery program Gov. Andrew Cuomo created last spring to purchase homes in flood-prone neighborhoods has paid top dollar for many properties — sometimes more than double their estimated value.

As of March 10, the state program has purchased at least 141 Staten Island homes for a total of $48.3 million, Richmond County Clerk property records show.

That’s way more than what they were worth before the storm, according to city estimates. A DNAinfo New York review of city Finance Department property tax records shows the estimated market value of the 141 homes before Sandy struck on Oct. 29, 2012 was about $44.1 million.

The analysis showed wide gaps between many of the sale prices and the city’s pre-Sandy appraisals.

One example is the purchase of 49 Foxbeach Ave. in Oakwood Beach on Dec. 20, 2013. The state paid $415,620 for the clapboard single-family home, but in August 2012 the Finance Department appraised the home’s value at $198,000 — less than half that, records show.

In an Oct. 31 purchase, the state ponied up $465,000 for 118 Foxbeach Ave., a one-story, 512-square-foot home, records show. The sale price was a 130 percent mark-up from the Finance Department’s estimated pre-Sandy market value of $202,000.

In another Dec. 20 sale, the state forked over $540,000 for a home at 151 Foxbeach Ave. The city Finance Department placed the estimated pre-Sandy market value at $329,000.

So far the highest amount the state has paid was $806,031, for 633 Cedar Grove Ave., a two-to-three-family home, on Dec. 19, records show. The Finance Department estimated its pre-Sandy market value at $579,000.

The buyout program, created at the behest of residents hard hit by Sandy, is open to homes in the Staten Island neighborhoods of Oakwood Beach and Ocean Breeze, plus parts of Long Island. The state plans to turn the acquired land — which remains susceptible to tide surges — into coastal buffer zones.

The state has offered the voluntary buyouts to more than 1,300 properties, stating it will pay owners the pre-Sandy market value of the home as determined by an independent auditor, plus a 10 percent bonus as incentive to take the offers. Staten Island homeowners can earn an additional bonus of 5 percent of the value of the home if they relocate within the city.

A DNAinfo analysis of records found that in 42 of the state’s property purchases, the sale price was at least 30 percent higher than the city’s estimated pre-Sandy market value.

Most — 51 percent — of the buyouts were higher than the market value plus 10 percent level, DNAinfo's analysis found. In 32 purchases, the sales price was more than $40,000 below the Finance Department’s pre-Sandy estimates, records show.

Prices can be below market value because of deductions based on flood insurance, among other things, according to state documents.

Last April the state’s Housing Trust Fund Corporation awarded no-bid emergency contracts worth more than $55 million to Minnesota-based firm ProSource Technologies to run the program, records show.

ProSource administered a similar buyout program in Cedar Rapids, Iowa, after floods and tornados struck the region in 2008. But a June 2013 investigative report by the Des Moines Register showed the program approved inflated prices for properties, costing taxpayers an extra $9.3 million.

The ballooning sales prices came when Cedar Rapids property owners appealed the city-issued appraisals with the help of their own private assessors. The program generally accepted the new values without question or independent review, the newspaper reported.

The practice allowed one property owner to be approved for a $4.7 million buyout, $2.2 million more than the city’s initial valuation, the Register reported.

The Cedar Rapids program relied on federal funding through the Department of Housing and Urban Development and later became the subject of three federal audits.

In a May 6, 2013, audit, the HUD’s Office of Inspector General found it lacked assurance that the state received the best value for a $23.2 million contract with ProSource, according to the Register.

The New York program also allows homeowners to appeal the initial appraisals of their properties.

ProSource declined to answer questions about the New York program or the appraisal process, referring DNAinfo to Cuomo’s Office of Storm Recovery.

In December, DNAinfo made a Freedom of Information request to the Housing Trust Fund Corporation asking for a list of all the properties the program had purchased so far and their determined pre-Sandy market values.

In a Feb. 28 email response, the HTFC said, “We have been informed by program staff that no such list exists at this time.” In a follow-up email sent March 14, HTFC said it had some of the property information but would not provide it, citing privacy for the homeowners.

HTFC's initial email provided some broad figures on the program, noting that at that time 140 homes had been purchased with an average sales price of $360,000, with the median price around $400,000. The email added that the sales prices ranged from $105,000 to $850,000.

The average pre-Sandy market value was about $316,000, according to the data obtained by DNAinfo.

When DNAinfo asked an HTFC spokeswoman follow-up questions, she directed all queries to the governor’s Office of Storm Recovery.

The Storm Recovery office has ignored DNAinfo’s emails and calls for comment since March 5.

The idea for the buyout program took shape in Oakwood Beach in the months after Sandy as residents decided to rebuild or move away.

Located on Staten Island’s southeast coastline, the tiny neighborhood was a seasonal bungalow retreat in the 1930s. After the 1950s, it grew to a year-round community.

Sandy devastated the neighborhood, causing 12-foot-high flooding that left three dead and lifted some homes off their foundations.

It wasn’t the first time Mother Nature wreaked havoc on Oakwood. A 1992 hurricane destroyed a sea wall and caused 7-foot-high floods.

The neighborhood sits in Staten Island’s Bluebelt — a system of streams and inlets used as natural drainage corridors to channel out stormwater — making it prone to future floods and fires from marshland grass.

Joe Tirone Jr., a real estate agent who owned a bungalow in Oakwood, realized that even if residents rebuilt their homes, they would always be vulnerable.

Seeing that many residents were wary of starting over, Tirone formed the Oakwood Beach Buyout Committee and helped organize the community to lobby the state for a buyout program.

“This was their only possible form of relief,” he said. “There was no way that these people wanted to rebuild again.” 

The grassroots campaign worked.

In February 2013, Cuomo, who has made the state’s Sandy recovery a priority in his first term, proposed spending $400 million in property buyouts, with funding coming from HUD grants.

Oakwood Beach became the pilot program for the buyouts. Cuomo has since expanded the program to include the neighboring community of Ocean Breeze and parts of Long Island.

Tirone, whose home was purchased by the state on Oct. 24, said the program has been a tremendous success so far.

“I can tell you for sure this was a godsend,” he said. “After what [Oakwood Beach] went through, it was a really a wonderful thing, and I hope that other communities can enjoy it.”

Tirone said Oakwood residents were allowed to apply for the buyout, then Long Island appraisal firm Standard Valuation Services would determine the pre-Sandy value of a home on the state’s behalf. Tirone said residents could appeal Standard’s appraisals, but he did not know the outcome for those who had. 

Standard Valuation did not respond to questions about its appraisals.

HUD spokesman Adam Glantz said it doesn’t have any appraisal guidelines for states overseeing federally funded buyout programs. A state is allowed to come up with its own way of determining a property's market value, he said, but once established, the state must apply the methodology uniformly.

Since neither the Housing Trust Fund Corp. nor the Office of Storm Recovery would explain its appraisal methodology or the specific appraisals of the homes, DNAinfo used the city Finance Department’s estimates.

The Finance Department uses computer modeling to determine market values for property tax purposes. The methodology is based on the size and location of the property, as well as recent sales of comparable homes.

The city’s watchdog, the Independent Budget Office, examined a sample of the buyout properties for DNAinfo and said the Finance Department’s market values were fairly accurate estimates for that area of Staten Island.

Tirone said he worked closely with about 50 to 75 Oakwood Beach homeowners on their applications and thought the buyout purchases were fair.

However, he was surprised by some of the bigger sales prices DNAinfo mentioned to him. One was the state buying 163A Foxbeach Ave., a two-story attached home with a garage, for $531,000 on Dec. 20. The Finance Department estimated its pre-Sandy market value at $315,000.

“That seems high,” he said. "I’ll have to look into that one."