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More than 200 in area sign purchase contracts
By Rick Armon
Beacon Journal staff writer
Published on Thursday, Jan 08, 2009
David Droge has had a tough couple of years.
He got divorced. He lost his job in flight operations. And with his mortgage payments hovering around $1,700 a month, he's at risk of losing his four-bedroom Akron home.
''I have four children and do everything I can to fight and hold on while looking for work and maintaining the home for my children,'' Droge, 46, said. ''I'm left with not many options.''
So he signed up late last year for a foreclosure-prevention program being offered by a new nonprofit company in Cincinnati.
American Homeowner Preservation Inc. wants to buy homes destined for foreclosure in Summit County, then lease them back to the homeowners at monthly rents lower than the mortgage payments. In three years, the homeowners would have the option to buy back the properties at a fraction of what it originally cost them.
The catch? According to AHP, there isn't one.
The company wants the Summit County Port Authority to issue $12.5 million in tax-exempt bonds to support the program here. A public hearing on the proposal is set for 9:30 a.m. today at the Akron-Summit County Public Library downtown.
Housing and legal experts are skeptical, saying the nonprofit's business model has been used as a scam in the past to take advantage of desperate homeowners facing foreclosure.
There also are many questions surrounding AHP itself. Since the company is so new, it has no history of helping troubled homeowners.
''Even if they are well-meaning, and I don't think they are, it's a bad idea,'' said Nick DiNardo, managing attorney at the Legal Aid Society of Southwest Ohio. The city of Cincinnati rejected a request by AHP for financial assistance based on the society's concerns, he said.
''Whoever qualifies could get the same deal for free with a housing counseling agency and keep ownership of their home,'' DiNardo said. ''There's no person who it can help who couldn't be helped by traditional mortgage counseling.''
How it works
AHP Executive Director Rob Fredericks, a former chief of staff for the Hamilton County commissioners, said he understands his company is under scrutiny.
''I favor that. It makes us that much sharper,'' he said.
The business model of purchasing homes and leasing them back has been ripe for con men, with unscrupulous buyers kicking out the homeowner and selling the property in some cases.
The nonprofit's plan is different and has safeguards to prevent abuse, Fredericks said.
''The screwdriver can be used to break into someone's home, but that's not what it's been designed for,'' he said.
The AHP model works like this:
The nonprofit would buy a home at a deep discount from the lender. Then, it would rent the home back to the homeowner, who is required to receive financial counseling.
Between three and 10 years later, the homeowner could buy the home back, paying AHP the sale price from the lender plus 15 percent. An option is placed on the title so the home couldn't be sold from under the homeowner.
The homeowner also would keep the equity in the home. And if the homeowner decided not to buy the home, it would be sold and any money earned over the sales price and the 15 percent fee would be given to the homeowner.
In Droge's case, his agreement states he would pay $550 a month in rent. (AHP would pay property taxes and be the landlord.)
Droge bought the home for $170,000 eight years ago. It is now valued at $163,000, according to county records.
He estimated he pays $1,300 to $1,400 a month because of an adjustable-rate mortgage and another $359 a month because of a second mortgage on the home.
Droge would be given the option by AHP to repurchase the home for $34,500 after three years as a renter, meaning the nonprofit anticipates purchasing the home for $30,000 from the lender. The amount of rent and purchase price could change depending on the deal struck with the lender, he said.
The lender is willing to sell at a deep discount to avoid the legal expense of the foreclosure and the cost of maintenance and reselling the home, Fredericks said. AHP also will have some leverage by bundling multiple properties, he said.
''It works. It all works on paper. Now we're proving it works in real life,'' Fredericks said.
AHP received 452 applications, and more than 200 county residents already have signed purchase contracts — before knowing whether the company will have its financing.
The port authority required the nonprofit to identify properties before considering the request.
Advocates concerned
Housing and consumer advocates are troubled that so many homeowners already signed agreements with AHP without a more thorough investigation of the company. People should not sign documents, especially to give up their homes, without consulting an attorney, they said.
''They are paying a large fee to get their house back, and it's not clear that they are going to have the credit worthiness to buy the house back,'' said Christine Legow, associate director of Community Legal Aid Services in Akron.
The advocates also are concerned about the company itself, saying there is not enough background available on who's running AHP or how it's financed.
''There are more questions than answers,'' said Cynthia Sich, director of the Summit County Office of Consumer Affairs.
Fredericks said the company started in California, but the housing market was depreciating too fast there. Instead, they targeted Ohio — one of the worst states for foreclosures, he said.
According to documents given to the port authority, the company president is Emily Gomez of Glendale, Calif., whose profession is listed as a senior loan officer with Prudential Mortgage Loans. She did not return a call seeking comment.
Prudential Mortgage Loans is not registered with the California secretary of state's office.
The California Department of Real Estate does not have a license issued under the name Emily Gomez.
Misleading information
Port officials are concerned about misinformation released by AHP.
The company has issued news releases, informed state leaders and told at least one homeowner that it is backed by the county agency, even though the port authority hasn't approved the project.
AHP has applied for funding through the Ohio Housing Finance Agency for projects in Summit, Hamilton and Montgomery counties. In three separate letters seeking support, it states the company is backed by $12.5 million in tax-exempt bonds issued by each county.
''I would like to think they are not misleading people on purpose,'' Summit port President Chris Burnham said. ''They need to be more careful.''
He said the port authority is trying to investigate the company thoroughly before making its decision. The port authority is under no obligation to approve the request.
While the county agency would issue the tax-exempt bonds, the port and county taxpayers wouldn't be responsible if there were a default, Burnham said. The bonds would be underwritten by Gardnyr Michael Capital Inc. in Mobile, Ala.
There is a question of who would buy the unrated bonds, which could have an interest rate of more than 9 percent.
Fredericks said the company has investors lined up, but added ''there are a lot of ifs still out there.''
AHP is counting on the port authority to issue the bonds. Without the money, the company can't move forward.
''We are depending on them doing this and there are 204 families depending on them doing this,'' Fredericks said.
Rick Armon can be reached at 330-996-3569 or rarmon@thebeaconjournal.com.
David Droge has had a tough couple of years.
Get the full article here.
Comments
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Front Line, KC
Posted 06:13 AM, 01/08/2009
It could be worse. It could be the government tacking your home. If we trust the government to take our money and do the right thing with it, why should we not trust this non=profit? Maybe it is because they are doing what our government should be doing and won't.
My Heart Is In K-Town, .
Posted 06:39 AM, 01/08/2009
Can't see the entire home from the picture and looks can be deceiving, but, in the city of Akron I can't see $1,700 a month for this place. Did he read the fine print?
Posted 07:30 AM, 01/08/2009
Dear PACMAN, if you'd see my house you wouldn't believe I pay $1200. We chose to make the big payments for 15 years, my house will be paid off in 5 years. So don't judge the book by the cover. On another note, its time leave Akron. I think the city has run its course.
Posted 07:40 AM, 01/08/2009
And we wonder how we got into this financial mess?
$1700 a month on a first and second...plus taxes, insurance, utilities, and let's not forget we need to get back and forth to work (if we've got a job) and eat once in a while! On an ADJUSTABLE RATE? What are we thinking? Do we think that the gravy train runs forever? Get real.
OMG! Why would anyone go in that deep with 4 kids? Do we really need that much home? Can't we start out small, and once we've built equity we can upgrade to more (should we WANT to) and be able to AFFORD it on a FIXED rate? Isn't what our parents did good enough for us? One step at a time doesn't work anymore --we want it NOW?
We've wanted everything our hearts desire...and we've ignored logic and reason in the process. We want our mansion here on earth, and we throw all common sense out the window to go after it.
The whole thing is a big bummer...and we'll all be paying for other's mistakes for years to come.
By the way, I do hope you get back to working and things get better for you. But LEARN from this!
Missesval
Tallmadge, OH
Posted 07:45 AM, 01/08/2009
Sounds like he was one of those ZERO down buyers from the predatory lenders. $170,000 house with 20% down would be about $800 a month. Sounds like he got one of those predatory lender 0% down loans on that house since he has a first and second mortgage to pay $1700 a month which comes out to be about a 12% mortgage rate. He's now upside down on the loan with negative home value. He should just walk away and give the keys to the lender.
barberton, oh
Posted 08:04 AM, 01/08/2009
This guy isn't real smart, that's a given. Adjustable Motgage and a second Motgage 2, WOW.. He's up 2 his lips in hock. That house looks like it's worth about 80k tops. Good Luck, U will need all of it U can get.....
Posted 08:35 AM, 01/08/2009
I agree with some of the other posters. Definetly a second mortgage, probably put all his credit card debt on it, and threw in a new pickup truck to boot. That stuff adds up....too bad....
Bizarrebertucky, OH
Posted 08:39 AM, 01/08/2009
$1700.00 a month is insane ! He should be happy to get out from under that. I can't believe that anyone would ever take that on to begin with...
Akron, OH
Posted 08:51 AM, 01/08/2009
OMG: Just because someone put zero down does not mean they are the victim of a predatory lender-quit being such a whiny alarmist!
This Place, 32
Posted 08:51 AM, 01/08/2009
The Grump coming down on the ZERO downpayment people. Do you wake up in a bad mood or is this your normal way of life?
First off, I am financially stable and bought my first house with no money down, and then bought a second house for no money down. THEN I bought a foreclosure with NO $ Down.
All through Wells Fargo with their streamline loan. I also bundled in my renovation costs in my loan and now have a home that has about 20K in equity even in this lackluster market.
So, before you assume that you know everything about everything, how about you ask around first.
Most of these people facing foreclosure did one of many stupid things....
1) ARM Loans, really, if you can't afford a 235K home on a 30 yr fix, YOU CAN'T AFFORD IT, NOT NOW, NOT LATER.
2) Assumption that you can flip it for a profit in a short term. Most people couldn't flip a house if a gun was held to their head. But HGTV made everyone think they are contractors.
3) Credit Cards. I have NONE. Don't need them. Most of you don't either. (Flat Screens, New Laptops, Gucci Handbags, etc...)
If any of you want out of this mess, think before you act.
Make the world a better place... punch a Steeler fan in the face, .
Posted 09:07 AM, 01/08/2009
All of you old, out-of-touch, "back in my day" curmudgeons are commenting on the wisdom of his purchase decision without even knowing his income. It would seem logical that if one were to criticize this man, or others like him, you would know what percentage of his income was dedicated towards the mortgage. Buying with as little as possible is a good idea, so long as you save and invest the money that would have gone towards the payment. It's not hard to out-earn a 5%-6% rate when factoring in the tax deduction. The notion of everyone must put down 20% and a 30 year fixed is the ONLY product is as antiquated as your perspective on life.
Green, OH
Posted 09:45 AM, 01/08/2009
All I can say is that the house must be a PALACE inside to justify a $170,000 purchase price in Akron. It sure isn't in the land value of that dinky city lot........
Akron, OH
Posted 10:04 AM, 01/08/2009
It is great to see all the Monday-morning quarterbacks posting on this thread. Sure the guy shouldn't have gotten and ARM, 2nd mortgage and potentially pay more than the home is worth. He did. He is just like thousands, if not millions, of others here in our country these days. Why not be a little glad that this poor guy and his family may have a way out.
And, what's with all this garbage about THE AKR being washed up? Has anyone seen what is happening to the WHOLE country? Move if you have to or want to, but don't wail on Akron while your leavin'. And, don't let the door hit you in the arse!
Akron, , OH
Posted 10:41 AM, 01/08/2009
I won't get near those bonds..
They have investors lined up!!!!
so did wall street.
Akron, oh
Posted 10:50 AM, 01/08/2009
What...wait? He paid 170k for that yet the bank is willing to sell it to this non-profit ( sure, right..and what's Mr.Frederick's salary? Well in the 6 figures range I bet ) for 30K? Why not cut out the "non-profit" and rewrite the homeowners loan for maybe 50K in a 30 yr fixed at 8 or 9%. I would think he would have no trouble paying paying that. This does look shady.
Posted 11:06 AM, 01/08/2009
Reality: Unfortunately, as this mortgage, and countless millions of others, have been "securitized", into bundles of instruments, swaps, etc.etc., it is legally impossible to renegotiate mortgages. Hence, why this entire crisis, is a crisis.
There are only 2 options in this type of mortgage situation: foreclosure, or paying it off.....
PS., wait till the Commercial mortgage market blows up later this year. Then you will foreclosed stores, strip malls, even malls...again, securitized, and they can't legally get renegotiated...just my views....
Ravenna, OH
Posted 11:45 AM, 01/08/2009
Why would anyone agree to $1,700/month for that house or live in Akron if you have kids in school?
Tallmadge, OH
Posted 11:54 AM, 01/08/2009
Miss Ann Thrope - a quick look at the Summit County appraisal records backs up what I said about this house and predatory lending. That house sold for $88500 in 1994 then was auctioned in a multi-property PAR foreclosure in 2000 then re-sold to Droge in 2001 for $170000. There isn't a house in Akron that doubled in value in those 7 years. He got taken but good. This was part of some zero down property scheme.
Akron, OH
Posted 12:01 PM, 01/08/2009
Quite obvious this guy borrows too much money, why should he get help. There is no way that house costs 1700 a month. No way unless he borrowed against it on a second or third mortgage. That is being irresponsible.
Akron, OH
Posted 12:03 PM, 01/08/2009
There is no way that that house costs 1700 a month. Sounds like the guy borrowed too much against it. No sympathy here for someone who can't manage his debt.
Akron, OH
Posted 12:08 PM, 01/08/2009
No way does that house cost 1700 a month. No sympathy here for people who can't manage their debt.
My Heart Is In K-Town, .
Posted 12:13 PM, 01/08/2009
COUNTRYWIDE HOME LOANS - is that who Wilan is affiliated with?
Posted 12:33 PM, 01/08/2009
OMG - I bought my first home in Akron in 1998 for 78,900 then sold it in 2005 for 131,000. It was a GREAT investment and a nice home. There are too many people who want everything now, without saving for their purchases. I was taught to save, then buy. My investment and dedication to saving money has enabled me to live mortgage free now. It's a shame so many people are stuck with high mortgages and second mortgages, but didn't they think about their future before they signed the papers?
Posted 12:35 PM, 01/08/2009
Oh yes, the greed from sellers and realtors selling high and profiting high, to the lenders greed, on down to the buyers trying to live a lifestyle they think they deserve whether they would be able to afford it the next day if they had to take a lesser paying job or not. I feel sorry for no one.
Posted 01:07 PM, 01/08/2009
@Grump... what you forgot to mention is that when it was sold at auction, it sold for 152k... so most of the appreciation occurred from '94 to '00. So in the period of very rapid growth throughout the early part of this decade... 18k is not such an astronomical amount.
Akron, OH
Posted 01:27 PM, 01/08/2009
OMG: Wrong! Predatory lending had nothing to do with it. Perhaps-predatory appraising-which is the true culprit in the housing market inflating and deflating. If the loan is disclosed fully to the purchaser-then there was no 'predatory' lending. Go ask the guy if everything was dislcosed before you call it predatory. Like I said-you are being a whiny alarmist.
akron, oh
Posted 02:20 PM, 01/08/2009
Why would anyone sign an APR loan?
Posted 02:22 PM, 01/08/2009
So if you make poor decisions and cannot pay for what you have, you get help.
Yet, there are millions of us that make too much for any help, yet struggle also.
So, let's run up the credit cards, make very dumb loan choices, do everything wrong and then plead "victim here"....come on.
If you cannot afford the home, you lose it. Life is tough, grow up and deal with what your dealt.
Posted 04:48 PM, 01/08/2009
Looks like the crooks are now calling themselves nonpropit organizations. Being a crook is all profit till you get caught.
Ravenna, OH
Posted 05:09 PM, 01/08/2009
A shining example of the housing crisis. STUPIDITY in signing for a variable rate loan.
akron, oh
Posted 07:15 PM, 01/08/2009
Signing an APR is also a shining example of the stupidity crisis.
akron, oh
Posted 07:54 PM, 01/08/2009
Live in a 170k home for $550/mth...Where do I sighn up?
Bank writting off $140,000 like so much loose change ....gee hope they can aford it.
Make the world a better place... punch a Steeler fan in the face, .
Posted 07:55 PM, 01/08/2009
Not Brainwashed by the Media,
How is it stupid to take a loan that for many years was 2 percentage points below a 30-year fixed AND was locked for 5,7 or 10 years (and increased capped at 1% per year)?
If you aren't brainwashed by the media, why are you repeating a general claim made throughout the media? If someone isn't going to stay in the home past the loan period, why should they go 30-year fixed? Just because a loan is variable doesn't mean it automatically had the negative ammortization features of some of the riskier products.
akron, oh
Posted 09:47 PM, 01/08/2009
Please help me to understand..... The homeowner has a loan on this home for 170k. If he allows the house to go into foreclosure or even lets this company buy it at a reduced price -- won't he still owe the amount of the loan to the bank? or does he get out the loan?
akron, oh
Posted 08:17 AM, 01/09/2009
justasking:
The bank agrees to a "short sale" to a third party.
They agree to take a reduced amount for the house ie:30k and release the outstanding mortgages 170k.
By agreeing to this,they also release the mortgage holder from any further collection.
Hudson, OH
Posted 12:33 PM, 01/09/2009
The IRS will want a piece of that 140k gift.
Hudson, OH
Posted 12:39 PM, 01/09/2009
''They are paying a large fee to get their house back, and it's not clear that they are going to have the credit worthiness to buy the house back,'' said Christine Legow, associate director of Community Legal Aid Services in Akron.
Not sure what she means by 'large fee'. They will be renting for about 3 years -- and I'm assuming the non-profit covers the furnace, etc. if it goes out -- but it seems to me that they are still far better off to take the offer. And no, it's not clear that they will have the credit worthiness to buy the house back in 3 years. Who can say what anyone's credit worthiness will be in 3 years? But one things for sure, if they lose the house to foreclosure they will not be credit worthy in 3 years to buy anything.
akron, oh
Posted 11:32 PM, 01/09/2009
Stumpy:
Thanks for the info! I understand now.
