INDIANAPOLIS - Central Indiana residents who made a gut-wrenching decision to find a way to sell their homes because they couldn't afford them anymore are now facing another crisis.
The homeowners were counting on a short sale to get them out of a financial bind, thinking it would help them avoid foreclosure, keeping banks from being stuck with empty homes.
The deal turned into a disaster for Leslie Pinnick and others. Pinnick, who recently moved to Tennessee, was surprised to find Linda Reese living in her Indianapolis house, and she was troubled by the conditions she found inside the home.
A rancid smell and other problems were apparent in the home.
"That room is infested with fleas. It's the only room in the house that's like that," Reese said. "If you walk in, just a hundred fleas jump on you."
"When I moved out of this house, it was in good condition," Pinnick said.
Pinnick fell on hard times financially and signed a contract with David Garden, who runs Garden Home Realty, in August 2011 to complete a short sale.
"I did that to avoid foreclosure and having to file bankruptcy, which now I'm kind of forced into," Pinnick said.
Here are the basics of how a short sale is supposed to work:
• A short sale can happen only if the mortgage company agrees.
• Under a typical deal, the house is sold for much less than owed on the mortgage.
• The bank decides that getting some money is better than getting none.
• An approved short sale could negatively affect the homeowners' credit report for at least two years.
Short sales accounted for 8.9 percent of all home sales around the country last year, according to CoreLogic, an information analytics company.
Pinnick turned to a licensed realtor for help and signed a listing contract with Garden. She also signed a quit claim deed that turned ownership of the property over to Garden.
Pinnick said Garden told her the deed would let him work out details of the sale.
"I had no idea he was renting the house, pocketing the money," Pinnick said. "The bank hasn't seen anything. I've spoken with people at the bank, and they're asking me what I plan on doing with the property."
Kenneth McCallep found similar issues at his home. He signed a short sale contract with Garden Home Realty in October 2011.
"It's been stressful for me because I haven't been able to sleep at night," McCallep said. "He said he was going to sell the property. He never did that. He just wanted me out so he could rent the property out."
State regulators told the Call 6 Investigators that their hands are tied in these cases. Current law does not see the situation as a threat to the safety or health of the public, but neighborhood advocates disagree.
"When a house deteriorates, it affects the entire neighborhood," said Joshua Abel, executive director of the Neighborhood Legal Clinic.
Rep. Woody Burton, R-Whiteland and also a real estate agent, plans to introduce legislation that would allow regulators to crack down on questionable short sale practices.
"I've seen terrible things that happened to people and their houses the last four to five years," Burton said. "We've worked very hard to try to clean up the industry and get the bad actors out."
Garden, who runs the business from a house on Indianapolis' south side, agreed to an interview with RTV6 with his attorney present after Call 6 Investigator Rafael Sanchez camped out at the end of his driveway.
Garden said that short sales have been delayed for months because customers failed to communicate with him.
"I'm a problem solver, and I'm a foreclosure expert," Garden said. "I have nothing to hide, sir."
Garden blamed the conditions of the houses on homeowners and also claimed a former employee instigated the complaints.
"I am very sincere that I like to make peace with everyone, and so I'd like to try to resolve every issue," Garden said. "I simply give people hope with my knowledge and my commitment to helping them."
Customers have a different opinion.
"I figured this was a way for me to get him exposed," McCallep said.
A real estate board will hold a hearing on the future of Garden's license in a couple of weeks.