American Homeowner Preservation, Inc. (AHP) wants Cincinnati City Council to pass a resolution acknowledging the work of local non-profits assisting homeowners going through foreclosure, but the Legal Aid Society of Southwest Ohio wants the City to beware of whom it supports.

AHP has been working with the City for several months to identify sources of funding that could be used to aid more than 500 troubled homeowners in a pilot program using the "lease buy-back" model.

In a communication to council, AHP gives an example of a typical AHP participant and how the lease buy-back program works:

"The Smiths purchased their home for $150,000, but their home value has since dropped to $120,000. Due to a recent ARM reset from 7% to 9%, their mortgage payment increased from $1,147/mo to $1,356/mo. The Smiths have fallen behind on their payments to the lender due to loss of income.

"AHP will purchase the Smiths' property for 75% of the current appraised value, which equals $90,000. The Smiths will be expected to pay a monthly lease payment of only $900. The lease is an annual lease renewable for 10 years.

"The Smiths receive the option to repurchase their home for AHP's purchase price, plus 10% ($99,000) after three years. The option is recorded in the deed to preserve the Smiths' interest in the home. Assuming an 8% fixed interest rate on a $99,000 mortgage, the Smiths' new monthly payment, including insurance and taxes, will be approximately $875.

"The Smiths receive quarterly financial counseling from a HUD-approved housing counseling agency to prepare for the repurchase of their home. After the purchase, they now owe $99,000 on the property they originally purchased for $150,000."

But Legal Aid says that such an arrangement is fraught with problems.

"Similar approaches have been used to scam unsuspecting homeowners for many years," they say in a letter to council. "Numerous federal, state and local officials, as well as community groups and the media have found that the 'lease buy-back' is a defective model and not a legitimate response to the foreclosure crisis."

Klekamp cites recent articles from USA Today, the Los Angeles Times, and the Seattle Post-Intelligencer in which homeowners were conned out of their properties, many times by having their home's equity extracted.

The homeowners' lease payments then were not used to service the mortgage and the property ended up going into foreclosure anyway, leading to financial ruin.

Legal Aid also warns that, many times, homeowners will have tremendous difficulty regaining the title to their own home, and are sometimes evicted - leaving the "rescuer" with the deed to a home that they obtained for a fraction of its value.

AHP has since scaled down the scope of the proposed program and has stopped seeking City financing, deciding to focus on saving the homes of its current applicants.

But AHP executive director Rob Fredericks says that they still believe the City can be helpful in their mission.

"The attached resolution, when approved by Cincinnati City Council, will send a clear message to potential issuers of tax-exempt bonds, bond underwriters, and institutional investors who purchase these bonds that the City of Cincinnati supports the efforts of all organizations, including AHP, which assist homeowners with viable alternatives to foreclosure," he says.

The resolution is likely to be considered in council's Vibrant Neighborhoods Committee on August 5, though the agenda has not been released.