“Contract for Deed” Housing Purchases are Predatory and Discriminatory

House and Money with Pad of Paper and Pen

Little Rock   Reports indicate that more than three million people have bought houses under “contract for deed” purchases. Since many, if not most, of these kinds of housing purchases are not recorded, who really knows what the real numbers might be. The one thing that can be certain, is that the happy buyers, meaning the precious few that ever actually end up with a deed, are the very rare exceptions proving the rule that this is a gray, desperate part of the housing market founded on predatory practices and discrimination.

I’m always surprised this part of the housing market is not either strictly regulated or banned. I first encountered such “contract for deed” purchases in Little Rock, Arkansas in 1972 as ACORN mounted its “Save the City” organizing drives neighborhood by neighborhood in the central and eastern parts of the city. Six years before the passage of the Community Reinvestment Act banning lending discrimination based on race among other reasons, it was very difficult for many African-Americans to get mortgage financing historically. On the doors we would regularly run into people involved in “contract for deed” or “rent to purchase” agreements with landlords or absentee owners because of their inability to get bank loans or FHA guarantees in previous years to acquire the home outright. We heard one story after another from older members about either having lost houses or almost lost houses because of some snafu or crisis when their payment was a day late or lost in the mail or whatever. Some were just plain robbed, having paid in cash with no recourse in courts or often even a paper trail. How do you prove the existence of a paternal handshake over a piece of real estate you’ve lived in for 15 or 20 years? We tried to get such sales banned in Little Rock, despite the fact that the real estate industry was the most powerful force in the city.

Many states allow “contract for deed” transactions though they are lightly regulated with almost nonexistent oversight by strapped city housing departments. The Times recently did a piece that highlighted a Dallas-based slumlord named Charles Vose, III, who owns Harbour Porfolio Advisers and has been one of the largest purchases of distressed properties from the government. They reported that,

…Harbour has bought more than 6,700 single-family homes in Ohio, Michigan, Illinois, Florida, Georgia, Pennsylvania and a handful of other states since 2010 — most of them from Fannie Mae, according to the mortgage finance firm and the foreclosure research firm RealtyTrac.

One tale followed another including onerous requirements to repair a home in 4-months or default on the contract purchase, more than 100 times that the company has sued in bankruptcy court, hiring a captive firm to appraise the houses condition sometimes indicating no repairs being needed, all in the service of swindling a lower income family wanting to realize their dream of home ownership but not having the credit under current standards to enter the standard housing mortgage market. We could say that there “ought to be a law,” but in fact there seem to be plenty of laws, including housing code requirements, but nothing stout enough to stop the predatory cycle where a Vose lives in a Dallas mansion by stealing the homes of poor, usually minority families, and everyone else tries to turn a blind eye and shift the problem houses off of their books and onto someone else’s until the exploitative music stops.

The government at all levels shouldn’t allow it and should do the right thing upstream by funding rehab or demolition, rather than allowing the swindlers to operate downstream, hurting even more families and damaging communities, already beleaguered and often blighted, even more so.

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