38 Studios passes second mortgages onto some former employees

Some of the hundreds of 38 Studios employees laid off yesterday were hit with a second round of bad news this week when they were told by banks that homes they thought the company had sold for them hadn't been and that they may be stuck with a second mortgage, Polygon has learned.

Some of the hundreds of 38 Studios employees laid off yesterday were hit with a second round of bad news this week when they were told that homes they thought the company had sold for them hadn't been, and that they may be stuck with a second mortgage, Polygon has learned.

Several sources directly impacted by the mortgage issue confirmed the news today and a 38 Studios official, who asked to not be named, said the company is working to try and get to the bottom of the notifications and find a resolution.

One former employee said they discovered this week that their Massachusetts home, which they had been told was sold last year, actually hadn't been. The bank contacted them this week to ask why they mortgage wasn't being paid.

It is unclear how many of 38 Studio's 288 Rhode Island employees may be impacted, but it will likely only affect some of those who were part of the company's relocation program. The program, we were told, was used to help employees moving from Massachusetts to Rhode Island when the company relocated.

The bank notifications raise the specter of how the financing for the relocations was handled. If the company used state-backed money to finance homes or pay mortgages while the homes were being sold, it could mean that 38 Studios violated the terms of the agreement with the state.

Reached for comment this afternoon, state officials told Polygon they had no independent knowledge of the mortgage issue.

During an afternoon press conference today, Gov. Lincoln Chafee told a gathering of press that because 38 Studios didn't alert the state ahead of time about the layoffs the company is once more in default on the agreement.

Chafee spent much of the conference answering increasingly hostile questions and reminding the gathering that he opposed the deal, which was made under another governor.

He also said that celebrity may have played a factor in the state making the agreement, but that it never impacted his opinion on the deal.

"When I looked at him I saw a business man, not a baseball player," he said.

38 Studios laid off all 379 employees, 288 of them in Rhode Island, yesterday afternoon in a terse email. Sources tell Polygon that the company had not been communicating with employees, or paying them, for nearly a month prior to the mass layoffs.

Schilling's only public response to the financial turmoil that has embroiled both his company and the state of Rhode Island had been a tweet thanking people for sending "prayers and well wishes" to the team and families of 38 Studios.

A similar post on his Facebook account was met with a tide of well wishers including a number of former employees and John Smedley, president of Sony Online Entertainment who wrote, "Curt – the game you are building is amazing. Find a way. I'm sorry you're having a tough time right now."

The studio's financial turmoil came to light earlier this month when it first missed and then later made a $1.125 million payment to the state of Rhode Island.

Founded in 2006 in Massachusetts as Green Monster Games, 38 Studios was lured to Rhode Island in 2010 by a $75-million loan guarantee from the state. At the time state officials argued that the studio would bring hundreds of jobs and millions in tax revenue to the state.

While 38 Studios made its first partial payment, it then missed a $1.125 million loan payment to the Rhode Island Economic Development Corporation on May 1. During a series of meetings with the state, 38 Studios said it couldn't pay its employees and asked for more help from Rhode Island. The studio later delivered a payment to the state, but then said it couldn't cover the check. On May 18, it made good on the payment.

"When I looked at him I saw a business man, not a baseball player."

Schilling, and the state, both continue to hunt for private investors for the company.

If 38 Studios remains closed, the state says it has the money to make the first year of payments on the loan from a reserve they set aside from the loan amount. But after that the state would then have to start making the payments to the bank.

The developer was working on a massively multiplayer online game codenamed "Project Copernicus." It released Kingdoms of Amalur: Reckoning through publisher EA in February. The game reportedly sold 1.2 million copies in the first 90 days, according to Schilling, and was positively received by critics. Last month, 38 Studios released a downloadable expansion pack for the game titled "Teeth of Naros."

Gov. Chafee dismissed the possibility of the state taking over the studio during a press conference earlier this week, saying it would be too costly to create and maintain an MMO.

The director of the Economic Development Corporation resigned earlier this month, two other members of the board have asked not to be reappointed, and yet another resigned this week. The state is also discussing asking for the resignation of other board members who supported the decision to back 38 Studios.

A slew of developers from around the country have been Tweeting that they are hiring in hopes of finding the hundreds of displaced employees jobs.

Catch up on the history of the studio and its deal with Rhode Island here.

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