After months of waiting, money from the Neighborhood Stabilization Loan Fund (NSLF) is starting to flow onto the commonwealth’s streets to fund the purchase and repair of foreclosed properties.

While private liquidity, as well as state and federal subsidies, has started to become available, the nonprofit and for-profit developers qualified for the program still experience problems out on the open market in dealing with lenders and battling with investors.

To date, nine developers have purchased 37 units in 14 buildings with NSLF money, according to the Massachusetts Housing Investment Corp. (MHIC), which is administering the program. MHIC has approved $6.33 million in loans, $2.26 million of which is subsidized by state and federal money.

Kink In The Hose

The NLSF LLC was created in November 2008; Chelsea Neighborhood Developers made the earliest purchase using the funds for 98 Marlborough St. in Chelsea on April 28 of this year. Then things abruptly went quiet as new federal and state funding became available, with several tangled strings attached.

“There was a standstill earlier this year because of the lack of clarity regarding the timing and availability of funds, and the rules and regulations pertaining to those funds,” said Bruce Ehrlich, an investment officer at MHIC. “In order for the developers to give us applications for financing, we needed to understand what the complete timing and availability of these subsidies were.”

There are two types of loans the NSLF provides: a short-term line of credit at 7 percent with a term of three to six months, or a 12-month loan for acquisition and rehab costs, at 6 percent.

In both cases, MHIC needs to know just where and when that money is coming back.

“Before we provide the funding, those sources have to be identified and committed,” Ehrlich said.

City, state and federal subsidies are a large part of that equation. So when the program was announced earlier this year, it was stuck, tires spinning, while the timing and availability of the government funding was ironed out.

The rest of the funds are either the property’s sale price or a long-term financing deal from a private lender if the property is to be used for rental.

On July 31, Chelsea Neighborhood Developers finally made another purchase using the NSLF. Then, on Aug. 19, the spigot opened and several deals started to close. Eight loans in Boston – all for properties in Dorchester and Roxbury – closed between the 19th and Sept. 3.

Still Street Fighting

There are developers who have been approved the commonwealth, but the majority of loans so far have been in the Boston and Chelsea area. That’s where community development corporations had already been purchasing property, and the NSLF is now refinancing their loans.

“Our money has to have the first mortgage position, so we’ll pay off the other lender, if there is one,” Ehrlich said. “Some organizations are using their own internal cash, and we’ll reimburse them.”

Ehrlich said there will be several more projects funded soon; now that the rules have been set, they are trying to acquire properties more aggressively. But many developers are having trouble in the marketplace outbidding investors willing to pay well above what they consider market value.

“It’s still extremely difficult to acquire properties in this market in what our developers consider responsible prices for the properties,” Ehrlich said. “They are not willing to go beyond the bounds of reason.”

Joe Shelzi, a developer who works mostly in Lawrence and is approved for NSLF loans, said he put in offers, mostly at asking price, on 19 different properties in Lawrence in August, and came away with nothing.

Shelzi said the other investors or developers buying the properties can’t be considering any sort of serious repairs; the economics of their deals won’t allow it and still bring in profits.

“It seems like the connection to the business fundamentals doesn’t really seem to have much to do with submitting their prices and trying to buy the property,” Shelzi said. “These properties are not the Taj Mahal. They need work if you want to make them into decent housing. At the prices they’re paying there is not enough capital in to make it into respectable housing.”

Ehrlich said banks and lenders are still difficult to corral to the closing table, have tried to back out of signed purchase-and-sale agreements as the market has improved, and often are trying to spin off properties with clouded titles.

“It’s difficult in dealing with many of the sellers,” Ehrlich said. “They do not have a transparent sales process, and there are many title issues. Roughly half the properties have at least one title problem.”

The state-sponsored “foreclosure clearinghouse” is supposed to give community developers a first look at REO property, but only a handful of lenders are participating, and the majority of properties are hitting the open market first.