Car loan quick title

HOME FLIPPING

Speculators, loan schemes cause housing foreclosures

She signs are everywhere in Cincinnati's poor and working-class neighborhoods. "Cash for Homes." "Quick Closing." "No down payment needed."

These signs sprouted throughout Cincinnati as the city struggled with a record foreclosure rate over the past four years. When set out to investigate the impact of these loan defaults, I uncovered a handful of questionable housing practices that many community leaders cited for the rapid decline of some working-class neighborhoods. The result was a two-day series in The Cincinnati Enquirer, "Home Schemes, Broken Dreams."

I focused on Hamilton County because it's the region's core with more than 800,000 residents and has a foreclosure rate far surpassing suburban counties. It also shares many of the urban woes of aging cities in the East and Midwest - population loss, diminishing tax base and, in some neighborhoods, deteriorating housing.

My original plan: analyze home forfeitures by community to determine which areas were hit hardest. The data was easy enough to get. The Hamilton County Clerk of Courts provided a spreadsheet of more than 11,000 foreclosure case filings from 1999 through 2002.

The data included the lender, the property owner and date of foreclosure. Yet one key piece of information - property address - was absent in nearly 1,000 cases. So I set off on the laborious task of pulling each foreclosure case file via the court clerk's Web site to compile a complete list of property addresses. That was the only major glitch in assembling a useful database.

From there, I imported the data into a mapping software program and began tracking trends by community. While wealthier, predominately white communities were largely untouched by the foreclosure spike, many city neighborhoods and older suburbs ringing the city were decimated. During a period of unprecedented prosperity, African-American communities had the highest loan default rates with up to eight foreclosed homes per block in some areas.

Real estate speculators

With the help of CAR reporter John Byczkowski, we were able to determine that about one of every five defaults came from loans written by subprime lenders. These lenders specialize in loans to people with weak credit or low income.

The data provided the foundation, but the real story came from knocking on doors and talking to homeowners struggling to keep their property. Many owners cited conventional reasons for foreclosure -job loss, divorce, health problems. And the trend of high-interest rate subprime loans with difficultto-meet terms, such as balloon payment loans, led to many property forfeitures, too.

But it quickly became apparent that a handful of real estate speculators using neighborhoods as their own personal Monopoly boards helped accelerate the foreclosure rate. Ramshackle homes sold at prices two to three times the value of neighboring properties due to inflated appraisals. Unwary buyers signed mortgage applications that included false information such as exaggerated income and assets. This combination - called flipping - resulted in loans that far exceeded property values.

Investors working with friendly title companies and mortgage lenders targeted rookie homebuyers unfamiliar with the process. One buyer bought a home for $55,000 from her former elementary school gym teacher. The ex-teacher, a major investor in poor city neighborhoods, purchased the home just six months earlier for $10,300. Shortly after moving in, the buyer discovered the gutters didn't work, a clogged bathroom sink, blocked plumbing lines and stained ceiling tiles. Like dozens of others, the buyer never thought to ask for an inspection by a certified home inspector. The repair bills and mortgage payments proved too much of a burden. The buyer lost the house to foreclosure within months.

She wasn't alone. I compiled a small database on the ex-teacher with dozens of records from foreclosure cases, property sales and lawsuits. It turned out this investor had a well-established pattern of buying rundown homes on the cheap, making minor repairs and selling the properties at inflated prices. Virtually every sale resulted in foreclosure - and those homes often were snapped up in auction by other investors who started the process over. This probe led to other investors also engaged in the ultimate buy-low, sell-high gambit.

Other techniques used by investors, including one operating from a card table set up in a fast-food restaurant's parking lot, involved enticing those with credit problems to sign rent-to-own contracts. These contracts require renters to pay an up-front fee ranging from $1,000 to $5,000 (depending on the price of the home) and make above-market rental payments for a couple of years before purchasing a home. Some contracts make the renter pay property taxes and complete maintenance. Renters often forfeit the up-front fees and are evicted within months of signing such contracts.

After a month of research, I knew I had some good information on these real estate practices. Yet I wanted to report the story beyond isolated tales of slick operators, jilted buyers and spurned lenders. The biggest impact was the toll on communities. On the very same blocks where this activity was most prevalent, long-time homeowners were leaving in droves. They told stories of trash-filled streets, empty homes and petty crime. Some of Cincinnati's bedrock, middle-class communities were fast becoming unstable.

This led to more opportunity for speculators. A favorite investor technique was to persuade long-time homeowners to sell homes at below-market prices. They did this by calling homes, circulating flyers and posting signs in yards and on street corners. The idea was to stir fear among middle-class homeowners who already noticed problems, trying to get them to sell at low prices in a move reminscent of blockbusting of yore.

Class-action lawsuit

We collected data to show how the collective impact of this activity triggered changes on neighborhoods. Census figures documented declining home ownership and a rapid increase in vacant buildings in many of these communities. Meanwhile, crime was up. The second day of the series zeroed in on one particular neighborhood with widespread flipping and rent-to-own deals.

After the stories ran, reaction from community leaders was swift. The Cincinnati City Council immediately formed a new blight task force to investigate housing and other complaints in neighborhoods with the most foreclosures. A lawyer filed a class-action lawsuit on behalf of some unsophisticated buyers who fell victim to the scheme. And the FBI has continued its investigation into the practice. The feds served five search warrants on title companies and lenders connected to this investment activity. No criminal charges have been filed yet.

State lawmakers, too, are looking to introduce legislative fixes to curb some real estate practices. A representative on the west side of Cincinnati wants to better regulate the rent-to-own contracts and change the way foreclosed properties are sold at sheriff's auctions. The idea is to give more than a handful of investors a legitimate shot at purchasing these auction properties.

Meanwhile, we're working on several follow-up stories such as the impact that inflated sales have on property taxes for long-time homeowners.

BY KEN ALLTUCKER

THE CINCINNATI ENQUIRER

Ken Alltucker covers growth, development and the census for The Cincinnati Enquirer. He joined the Enquirer in 2000 and previously worked as a reporter for the Reno Gazette-Journal and The Sun in Bremerton, Wash.