Cleveland City Councilman Tony Brancatelli greets buyers at a recent foreclosed house auction in Strongsville's Holiday Inn. He's handing out a list of houses in his ward up for sale on this day that are condemned or not up to code. Then, to his surprise, James Odell Barnes comes over to chat. The South Carolinian's name appears on no property title in the county, yet he's becoming one of the biggest brokers of foreclosed houses in Cleveland.
Odell Barnes: I'm going to try not to buy any that have to be demo'd today, unless you want me to...
For almost 30 years, Barnes has been the first call for many Wall Street lenders looking to get foreclosed properties off their books. Right now Barnes says he's buying 100 houses a week in Cleveland and Detroit. Barnes helps investors buy property in bulk for prices as low as $250 a house. That's right, $250 a house. The investors resell them for prices 20 to 30 times what they paid for them. Restaurant worker David Green saw their handwritten signs on houses in his neighborhood, offering property for fixed monthly rates less than half what he was paying in rent.
David Green: When I first started this I thought that it was going to be one of those gimmicks that I've been hearing about, but it did not turn out to be that way.
Green says he plans to slowly fix the plumbing and windows in the house he paid $18 thousand for in midtown. With his credit score, Green says no other lenders would help him buy. Jeff Ball heads the company that sold Green the house, Austin-based Econohomes. Ball says since last summer they've sold 50 of the 120 houses they've bought in Cleveland.
Jeff Ball: Our financing model is designed to be appropriate to families who have annual incomes in the neighborhood of about $35 thousand and who have either limited or distressed credit.
But not all the companies working here have endeared themselves to locals. Tulsa-based Destiny Ventures was tried in Cuyahoga County's Housing Court twice for code violations. They didn't show up in court and refused to pay fines. The court seized money in Destiny's local bank account to pay one fine. Destiny Ventures wouldn't return phone calls. Housing Court Judge Raymond Pianka.
Raymond Pianka: With a tsunami, there's a receding of the wave and then the next wave comes to do even more damage. And that damage are the wholesalers who buy the properties for pennies on a dollar and then flip them.
Some wholesalers sell online when they can't find a local buyer for their properties. Gabriel Kirchner from Ontario, Canada has bought five houses on ebay from wholesalers: two in Toledo and three in Cleveland.
Gabriel Kirchner: How can you go wrong if you buy it now for $5000 or $6000. You put another ten in and you bring it back to life and rent it out for $1000, at least. Each unit for $400, $500 bucks. You can't go wrong there. But I have now a couple other friends, I convinced them and they're buying a lot of stuff down there too.
And because the houses are so cheap, some out of state eBay buyers find they can make money doing nothing more than reselling them on eBay again. Cleveland's Regional Economic Development Director Chris Warren.
Chris Warren:Where we learn of this we are tracking each and every one of their property transactions and we're assigning -with finite resources - our inspectors to go and inspect and hold to account those new property owners.
Last week, two eBay buyers were fined for housing code violations. But in a recent editorial, The Plain Dealer argued that the city's building and housing department isn't doing enough enforcement. Only a few inspectors are actively writing tickets and sending cases to housing court.
Chris Warren: Some have suggested, and we're looking at this, is that we institute a point of sale inspection program That's a difficult issue when you have thousands and thousands of transactions. What we're faced with is what's left at our doorstep: the wreckage.
Take for example Argent Mortgage. The lender was once Cleveland's largest, but many of its loans have gone bad. Last summer, CitiGroup bought Argent's parent company. Argent became Citi Residential and it has sold off thousands of properties. In a written response to WCPN, Citi says it does not sell houses in bulk but sells to investors who are "positioned to absorb numerous properties."
Gary Kotlarsic: This one, as you can see, siding's missing, downspouts missing. The windows are boarded up. But if you've got $500 down, for $350 a month it's yours.
Realtor Gary Kotlarsic is showing me one of the wholesalers' houses. It's near his own house in Slavic Village. He says the low prices these houses are fetching is destroying any value that might be left in his neighborhood.
Gary Kotlarsic: I've had other clients who worked their whole life to have a house, to build equity for their families. Then they get up in age and then the families need to liquidate that to pay for their expenses and they don't have anything to liquidate. The value is gone.
But wholesalers say there aren't a lot of options for cities like Cleveland that are struggling with high poverty rates and lots of vacant property. Foreclosed property buyer James Odell Barnes.
Odell Barnes: There's either got to be people like us - me and my investors - or you're going to have to have a whole lot more bulldozers bulldozing these houses.
Tomorrow we'll hear how some Cleveland suburbs are taking a big hit from falling taxes due to the foreclosure crisis. Mhari Saito, 90.3.