Workouts resolve bad mortgages 

Specialists work it out with banks. 
It sounded great - a free house. But Beverly Newman's little dream soon turned bad. The house her mother gave her in Hughsonville soon gave her more trouble than she could afford. 
She remortgaged the house to raise money to fix it, but ran short when the boiler died, leaving her without heat. She fell behind on the payments. The bank started to foreclose on the mortgage and take the house. 
"It was only worth $65,000 and the mortgage was for $82,000. I couldn't sell it for that much," Newman said. 

Getting away from it 
At wit's end, she saw an advertisement claiming to help homeowners out of tight spots. She was in one. She responded to the ad and the house was sold, getting her out from a crushing debt. She now rents a home in the Town of Fishkill. 

 "They settled for what we could get for the house. I got rid of that house and I'm away from it," Newman said. 
Her story illustrates a quiet, but powerful trend at work in the mid-Hudson Valley and many other parts of America: Falling property values mixing with personal setbacks are forcing people out of their homes. 

But it also shows another trend,  which is that lenders are making concessions that stop short of foreclosure. 
Rick Cowle of Source Properties, Inc. in Carmel has made a business out of what are called workouts. That's the banking term for resolving a defaulted mortgage through means other than foreclosure. Cowle claims a success rate of 85 percent, with 176 completed deals under his belt. 

These are not fun deals. They all involve people with hardships who are losing their homes and every dollar they've sunk into them. And for the banks, these deals involve losing money, often lots of it. 
Cowle got started through personal experience. In 1991, he fell behind in payments on his Yorktown  Heights condominium and faced foreclosure. He had bought the unit at the top of the market in 1987 for $265,000. "I knew I was probably paying too much but I liked it, I figured I would stay there for a long time," Cowle said. 
But the stock market crashed. Then the waves of corporate cutbacks washed over the region. Cowle was selling real estate, but earning too little. 

"The real estate market went down the tubes," he said. "I knew what it was like. I had creditors calling me on Easter Sunday. I empathize. I can feel for them-I was there." He was "upside down" on his loan, owing more than the house was worth. He sold the condo for $207,000 and cut a deal with his bank to forgive the rest. He operates from his home in Carmel, which he bought in a foreclosure.  

No deadbeats here 
His clients are not deadbeats. 
A typical case is a 55-year-old employee of a major firm like IBM Corp. or Ciba-Geigy who loses a job and all of a sudden can't make mortgage payments. Divorces and separation are the other main contributors. "One stays and the other leaves. The one in the condo or house can't make it," Cowle said. Medical problems also lead to mortgage defaults. 

Cowle says his approach isn't for people who simply made an untimely investment. "I can only work with hardship cases. I get people who call and say the value of my place went down and I want to sell. But there must be something that put them in a position where they can't make their mortgage payments," Cowle said. 
For Mike Martin, that hardship was paying rent in western New York's Canandaigua while making mortgage payments on an empty house in the town of Poughkeepsie. 
Martin and his wife, Linda, moved upstate so he could take a different job with his employer, the federal Veterans Administration. 
"We put the house on the market," Martin said. "We made payments and tried to sell. It wasn't going anyplace. Just to break even, we had to drop it 5 percent and then 10 percent below what we owed on the house. It became evident that we were going to end up selling the house for a 25 percent loss. We continued to have a mortgage on a piece of property we no longer continue to use. 
" That meant a  $1,200 mortgage payment and $500 rent. "That's where we ended up in trouble. We were missing and we would catch up but only to go on into debt  on other items," Martin said. 
When they brought Cowle in, he negotiated a deal that involved sale of the house for $59,000  and forgiveness of the mortgage of $114,000. The lender lost out on $55,000. 
Why do banks take such loses? "Lenders have no desire to be in the business of owning property," said Patrick McEnerney,  mid-Hudson head of the Bank of New York Mortgage Co. 
But he cautions that banks don't just roll over. "Merely the loss of value of a house doesn't motivate the lender to do anything, or to take a loss. For example," he said, "New York is a state where you can obtain a deficiency judgment. A mortgage is a promise to pay, and is not contingent on the value. If a borrower has the ability to repay through earnings, I think you're going to want to see it." 

Creativity beats a foreclosure  
"Lenders as a rule in the last several years have come to realize that intervention  during the delinquency and working creatively with the consumer who has the ability to pay in some way is better than a foreclosure," McEnerney said. 

Cowle usually works through local brokers, though he is a broker himself and often lists directly. 
Frances Chiu of Weichert Realtors, LaGrange, says Cowle has found a market niche that's sizable. "A lot of people that I've met have no idea that there is a possibility of hope down the road," she said. Chiu reports closing six "short sales" through Cowle. 
She figures that depressed property values will put many sellers in the same straits, and the banks are recognizing it. "We're starting to see the foreclosures sort of slow down, because of this type of transactions that we're able to do," Chiu said. 
 
How one go-getter gets it done 
Rick Cowle of Source Properties Inc. has  developed a specialty of working out mortgages that have gone bad and helping everyone get on with their lives. 
The surprising element is where most of the money comes from - the banks. 
He charges several hundred dollars upfront to the homeowner facing foreclosure. But his big payment the lender, enven though most are already losing on the deal. "That's one of my major battles", he admitted. 

"Banks have workout departments. They get very arrogant when they find out there's a guy like me. But when they find out there's all those liens they don't want to be bothered." 
Cowle won't tell all the details of how the wins. But one of his secrets appears to be prodigious work and persistence. Many deals involve liens - legal blockades that must be lifted to permit the sale of the property. Often work must be done to  bring a house up to code. 
"He's just a go-getter," said Beverly Newman, a Fishkill woman whom he was able to help out with a heavy debt, although it meant giving up her house. "He just continually works to help you." 
Cowle says he does better than brokers, bankers or attorneys in settling these sticky cases because he is able to talk to all of them. 

Jay P. Rolison of Poughkeepsie, an attorney and a retired state senator, has worked on a case with Cowle's help. He's settled two such cases and has a third pending. 
"It works to the advantage of everybody. The lender comes out with less but they're saved a longer-term expenditure, the dragged-out affair of a mortgage foreclosure. Plus, they have to take over the property, maintain it, sell it, pay taxes and so on." 
"This process seems to work, but I can't say it works in every case," Rolison said. "Banks won't just roll over," he said. 

But Todd Beitler, Florida-based publisher of the New York Foreclosure Report and similar magazines, said banks are becoming more flexible. "It's a myth that banks sell for only what's owed on the mortgage." 
Another category of workout specialist is called the pre-foreclosure investor. Beitler said these investors are normally paid by the homeowner, assuming the owner owes less on the mortgage than the house will sell for. They sell the house, satisfy the mortgage and split the remainder with the homeowner, who thus avoids foreclosure and a total loss. 
Beitler cautions homeowners about these investors, warning that some are honest and some are sharks. 
"If you are skeptical, get references, call them, call the Better Business Bureau, do the basic verification. Beware of someone who is not a professional, or who promises quick cash. If it sounds too good to be true, it probably is, " Beitler said.