Kimberly Gates sits in her small, fenced in back yard because the inside of her two-story brick bungalow has been taken over by construction workers. That's because Gates says she didn't ask enough questions when she bought her Slavic Village house in 2004. Later she discovered the house had structural problems, that her adjustable rate mortgage was completely upside down...MEANING SHE OWED MORE THAN THE HOUSE WAS WORTH, and the OWNER OF THE title company who worked on her loan went to prison for fraud. Things got worse when she temporarily lost her job as a home health aide. She fell behind on her mortgage and the penalties and interest kept mounting.
Kimberly Gates: The value of the house is $36,000 and the land is $14,000 and I'm owing almost $100,000 on the principal.
The not so lucky servicer of this toxic asset was Florida-based Ocwen Financial Corporation. In late June, Ocwen charged off the loan. That means that the company WROTE THE LOAN OFF ITS BOOKS AS A BAD DEBT, but IT DIDN'T MEAN GATES WAS OFF THE HOOK. SHE still owed them.
Kimberly Gates: So I called the mortgage company and he said I can settle for my home and I said settle for how much? And he said well, you owe between $90,000 and $100,000 so you can settle for $9,000. So I said wow, I'll call you back.
Gates then called her housing counselor at Cleveland's Community Housing Solutions. Andy Nikiforovs heads the nonprofit and says Ocwen ultimately agreed to take $6,000 to settle Gates' debt.
Andi Nikiforovs: We have seen a number of cases now in the last month or two where lenders are in fact willing to write off a significant portion of the outstanding mortgage, some cases 80 percent, some cases 90 percent.
Gates ...WHO DIDN'T HAVE SIX THOUSAND DOLLARS TO SPARE...got her payoff funds from the state of Ohio THROUGH A FOREGIVABLE LOAN PROGRAM and FROM a low-interest loan PROVIDED BY her county GOVERNMNT, Cuyahoga. Gates' mortgage is now JUST $53 a month.
Paul Bellamy heads the Cuyahoga County Foreclosure Prevention program. He says the rescue fund was set up to help keep people in their homes with their original mortgage.
Paul Bellamy: Now people come to us and say we've got a servicer, if we can get $3,000 together, they'll walk away from a 5-figure debt and call it a day. So we're using the rescue funds to do that whenever the opportunity arises.
Bellamy says the county has helped nearly a dozen of what he calls "extreme short payoffs." Loan servicers willing to cut this kind of deal say avoiding foreclosure costs is smart in tough real estate markets. A Cleveland State University study found that the median price of foreclosed houses in Gates' neighborhood is $8,000. Paul Koches is senior counsel at Ocwen Financial.
Paul Koches: To the extent that we can cut a deal with the borrower on a short payoff that according to our calculations would return more money to the investor than the investor would realize in a foreclosure, that all makes sense.
Borrowers and loan counselors say an extreme short payoff offer can feel like winning the lottery. But the lucky streak ends if you can't make the payoff. Bus driver Matthew Sloan fell behind on the mortgage on his Cleveland Heights house after diabetes forced him off the job. Earlier this month, his loan servicer GMAC offered him a payoff deal on his $140,000 mortgage.
Matthew Sloan: $40,000! You just don't see that every day. I just don't have $40,000. If I did, you know, I'd buy this house...I'd buy this house, just like that.
Sloan has 45 days to find funding and is considering his OPTIONS...A loan from ANOTHER bank OR FROM private investors. He hasn't had much luck.
Despite the challenges, loan counselors welcome these extreme short payoff offers as another tool to help clean up the mortgage mess. Mhari Saito, 90.3.