Monday, September 1, 2003

Speculators profit, Price Hill pays

Foreclosures, turnover enrich a few, while damaging proud neighborhood

By Ken Alltucker
The Cincinnati Enquirer

Greg and Debbie Claypool of Price Hill talk about the deterioration of their neighborhood.
(Gary Landers photo)
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Sandy Wooten moved to West Price Hill six years ago to escape the crime, drugs and despair of her old neighborhood. Her purchase of a four-bedroom bungalow symbolized her family's step up to the ranks of middle class.

But these days, Wooten's new neighborhood seems anything but secure.

Every few months, another family on her street moves out. Some are evicted renters. Others are quitting "rent-to-own" contracts that never benefited them. More and more long-time homeowners are getting out, too.

And as the residents move out, real estate speculators move in.

"I get a lot of offers to buy my house," Wooten says. "I get letters and fliers all the time."

Wooten fears her neighborhood is a target - and she may be right. Property and foreclosure records and interviews with dozens of community residents, activists and real estate dealers show that a few investors have staked claims on parts of West and East Price Hill.

The investors find unsophisticated buyers willing to sign high-interest, high-fee mortgages that they can't afford. When homeowners later lose their homes to foreclosure, as many do, the untended houses languish empty for months.

Meanwhile, the turnover heightens fears among long-time residents who see their neighborhoods suffer. As blight takes hold, middle-class homeowners pull out - just ahead of the speculators who buy block after block.

The FBI is looking for possible fraud in more than 500 suspicious mortgage deals, many of which led to foreclosures in Hamilton and Butler Counties over the past few years. Nowhere are foreclosures and the decline they bring more evident than in West and East Price Hill, ranked No. 1 and No. 3 for foreclosures among city neighborhoods.

Together, the neighborhoods accounted for 710 foreclosures from 1999 through 2002.

Genesis of an exodus

From 1999 to 2002, lenders initiated 379 foreclosures in West Price Hill and 331 in East Price Hill. This map (Acrobat PDF, 209k) shows details, along with pie charts on how the communities have changed in the past decade.
(AP photo)
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Long-timers say they don't need to understand the intricacies of mortgage lending to know that changes are reshaping their neighborhoods. All they have to do is look out the window.

Unsupervised children loiter on street corners along Glenway and Warsaw avenues, the main drags. Trash piles up in gutters, and a merry-go-round of families shuttles in and out of rent-to-own homes.

Check cashing, rent-to-own furniture and instant tax refund shops have cropped up in the neighborhood business district. At the corner of Glenway and Grand avenues, residents who can't afford a pack of smokes have paid 35 cents for a single cigarette at the "25-Hour Store."

In many ways, Price Hill reflects Cincinnati's struggle to keep families from fleeing to the suburbs. More than 4,200 residents, or nearly 11 percent of the population in West and East Price Hill, left in the 1990s. That compares to a 9 percent population drop citywide.

Significant numbers of white residents left, and those who choose to stay or don't have enough money to leave voice frustration over real estate practices. Homeownership declined, and income barely kept pace with inflation.

Price Hill leaders say they feel largely ignored, especially as City Hall seeks to reinvigorate downtown by crafting multimillion-dollar aid packages for employers such as Kroger Co. and Convergys Corp.

Neighborhood leaders cite, too, the renovation and new housing in downtown and near-downtown neighborhoods such as Over-the-Rhine and West End. Activists say that low-income tenants there are being shoved out to neighborhoods such as Price Hill, bringing the problems of poverty with them.

Meanwhile, long-time Price Hill homeowners such as Patti Gaskins are leaving.

Gaskins says changes - gunfire and nightly police sirens - so unsettled her that she had trouble sleeping through the night. Still, she spent $5,000 on new laminate floors and rehabbed the third floor of her well-kept, yellow Victorian home on Rosemont Avenue.

Finally, the improvements couldn't make her ignore her surroundings. Gaskins, who works as a nurse and had lived in Price Hill for more than two decades, bought a home in Fort Wright last summer.

"I really did believe things were going to turn around," Gaskins says, her eyes welling with tears. "I just decided to leave, my tail between my legs."

Aiding her decision was the constant turnover of neighbors. In the past four years, banks or mortgage lenders foreclosed on 10 of 78 homes on a four-block stretch of her old street.


Foreclosures may be an eyesore for some, but they're an opportunity for others.

Property records show that Dave Lockwood has been one of the most active residential real estate investors in Cincinnati over the past several years. Bus bench ads have boasted that his companies have bought or sold 500 homes, many in West and East Price Hill. Billboards tacked to buildings and signs stuck in yards promote his offers to buy, rent or sell homes.

A common strategy is to offer tenants rent-to-own deals. The idea is that renters, too, can achieve the American dream.

"I provide an opportunity for people," Lockwood says. "They come to me when they want to live in a better neighborhood."

Lockwood says his contracts allow people to repair their credit and establish the financial discipline to own a home. After they successfully pay rent on a property for two years, they're eligible to buy it.

Yet community leaders and former tenants say rent-to-own deals rarely help aspiring homeowners.

A typical contract requires an up-front, non-refundable "option fee" of $1,000 to $2,000, above-average monthly rent, insurance and home maintenance costs. Contracts also typically include clauses raising payments about 5 percent each year.

And the benefit? The opportunity to buy a house that is often priced well above comparable neighboring homes.

Rent-to-own contracts often prove too expensive for inexperienced buyers, especially when older, dilapidated homes generate large repair bills. These would-be homeowners often end up evicted.

Lockwood says problems arise when investors don't explain the terms of a contract to a potential tenant. He says he makes sure his tenants fully understand all details.

Even so, Lockwood's companies evicted 28 families for failing to meet terms of rent-to-own contracts in 2002, Hamilton County Municipal Court records show. Each of those would-be homeowners forfeited up-front fees ranging from $1,200 to $5,000.

Painted-over cracks

Robert and Carol Hammond filed for bankruptcy two years ago in a final effort to keep their three-story Victorian on First Avenue.

Their troubles started in September 1997 when investor Roger Pepples convinced the long-time renters that they could buy the house with just $500 down.

Pepples, a former Cincinnati Public Schools math and gym teacher, helped arrange through a mortgage broker a $59,255 loan to cover the $50,000 purchase price, fees and closing costs. Pepples bought the property for $28,000 in 1991.

"I thought I'd love to own a home, so we rushed to it," says Carol Hammond, 45, a lifelong renter.

But soon after moving in, the Hammonds discovered that large cracks in the walls had been covered with fresh paint. Some of the kitchen pipes didn't work. They spent $800 to fix plumbing problems.

The repair bills mounted, and the Hammonds soon fell behind on mortgage payments and other bills.

The debt and stress became too much when Robert Hammond, a driver for Busken Bakery, suffered a stroke and could no longer work. Carol Hammond, a concession stand cashier at River Downs, wasn't able to support the family alone.

Two months after the lender initiated a foreclosure in April 2001, the Hammonds filed bankruptcy and kept the house.

With their other debts wiped out, the Hammonds have kept current on their monthly $571 mortgage payment.

But their house is a mess. Gutters don't work. Walls need repairs, and the exterior paint has peeled away. The couple can't afford basic repairs.

Pepples says he made all necessary repairs to the house, but he wouldn't discuss financial details.

Hamilton County Court of Common Pleas records show that Pepples sold or arranged sales of at least 45 homes totaling more than $2.7 million from 1996 through 2003. Of those homes, all but four ended up in foreclosure within three years.

Pepples says he no longer sells homes to the working poor. Today, he says, he buys and sells homes to other investors like himself. He says he still "bird-dogs" Price Hill and other neighborhoods for potential deals, knocking on doors and distributing fliers.

"I don't want to see these houses go in foreclosure," Pepples says. "We sell these off to investors who have good credit."

Circling the wounded

The constant shuffle of people in and out of homes riles long-time residents.

John Everson and his newlywed wife were desperate to get out of Price Hill, where she had lived for more than two decades.

There was too much crime, too much litter and too many fliers from investors offering to purchase their Price Avenue home, Everson says.

The couple hired a real estate agent last year. Soon, two next-door neighbors put their homes on the market, too. A third followed.

Wooten, who lives on First Avenue, worries that real estate speculators are circling her street, "buying up property and lowering my home value."

The home ownership rate in the 15 blocks surrounding her house dropped 8 percentage points in the 1990s to 37.2 percent today.

Wooten's block now includes at least two rent-to-own houses and a couple of homes that have been empty for nearly two years. A single-family house across the street has been foreclosed on twice in six years.

The first foreclosure, in 1996, triggered a bank review and an FBI criminal probe that led to the convictions of three investors who artificially inflated home prices and lied to get home loans for buyers.

Now the FBI says similar mortgage fraud is hitting the neighborhood hard. No investors have been criminally charged, but investigators are sifting through evidence gathered in July raids of two mortgage lenders - Charter First Banc and Oaktree Financial of Fairfield - and two title companies - Premier Land Title in Glendale and Global Title of Sharonville.

Wooten can hardly believe what she sees on her street.

"These people should know they're just getting ripped off," she says.



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