San Francisco The first organizing meeting in Detroit of the Home Savers Campaign had spirited discussion when families discovered that they only had one thing in common in the contracts they had signed with Vision Property Management or its subsidiaries: the contract itself. When it came to the terms, to everyone’s shock and anger, everyone had a different deal!
The differences were not simply where we might expect to find them in the price of the houses they were hoping to buy or the number of years to term. In fact the prices were all very close to each other. As the campaign has come to expect from visiting so many families in Pittsburgh, Philadelphia, Akron, Youngstown, and now Detroit, some families attending the meeting were still shocked to find out that in seven years they would not own the home as they expected, but simply face wrenching choices between balloon payments, long term agreements, or walking away from extensive investments in money and labor in repairs.
The differences in the contracts were huge. Excitedly talking about their contracts, they found for example that in some contracts as little as $14 of their monthly payment was going to principle on the purchase while in others as much as $150 was being applied. That was often the case when the payments were virtually identical. In several cases, they discovered they had not been clearly told how much of their payment was going to principle at all. Even when the purchase price of the houses were roughly equivalent, families were finding that the amount of their monthly payment being applied for insurance was often different.
Looking at the question of tax payment which is especially freighted with concern, since nonpayment of taxes to the county could lead to loss of the property on tax delinquency sales. Only one family could determine from their payment the amount that was supposedly being paid to taxes, while the other families at this first organizing meeting became worried that since there was no indication, Vision might not be paying their taxes at all. Even in the one case where the tax level was stated at $150 per month or $1800 per year, there was skepticism that the house valued so modestly really was sustaining such a relatively high cost compared to true value.
Many of the people at the meeting were also on their second contract with Vision. The first had given them up to 45 days to make good on their payments, while the more recent gave Vision the right to void their option to purchase if they were late on the payments at all, making the contracts essentially no more than rental agreements, despite the fact that this was a triple-net lease with the “buyer” paying everything including thousands and thousands in repairs. One family was livid having invested over $50,000 in repairs, yet still debating whether or not they should walk away. Everyone at the meeting shared stories of about the “fishing” Vision’s representatives did with them over the phone to try and suss out the amount families had invested themselves in repairs, presumably for the company to guess whether the property might have been fixed off enough for them to seize the first opportunity to evict and flip.
People were happy to meet, but that was the only happiness in the room once the members and organizers cleared the fog away that hung over the legalese of the agreements. There was anger and plans for quick action. On the question of fight or flight, people were ready to fight. Powered by people, the campaign now begins in earnest.
Oakland The back of the envelope figures from three days on the doors, based on reports logged into the database by our teams in Detroit, indicate that of more than 125 doors hit, half of the properties are abandoned. That’s not good for neighborhoods, the City of Detroit, or the future prospects of building viable communities there. We increasingly began to question how good this level of abandonment of land contract and rent-to-own properties is even for the companies that specialize in this seamy side of the housing market in urban areas.
As a business model that fits snugly in the category of what a reporter for the New York Times termed the dominant modern “flagrant exploitation economy,” the companies operating within this most predatory segment of the housing and rental market face challenges. By process of elimination of usual factors, an economist speculating on principal cause of the 2008 real estate collapse is now arguing that there was an irrational psychology that almost spread virally that vast sums were to be had by “flipping” real estate, which like the tulip craze in Holland and so many other bubbles of the previous centuries, led to the unsustainable inflation of prices until the crash. Detroit Property Exchange is still pushing that myth in lower income communities with its signs that urge potential customers to call 888-FLIP to connect with the company.
Certainly the lease and contract documents starting from “as is” and including the company’s rights to evict the “buyer” immediately for even a single missed payment at any point in the term of the agreement, lead one to believe that these companies are making their money by flipping the contracts from one “sucker” to another, as an on-line Detroit magazine called the Bridge, writing about our campaign described the buyers. We are not convinced that theory translates into facts on the ground from our doorknocking. Additionally, Professor Josh Akers shared with us an overview of research he and a colleague are soon publishing on land contracts in Detroit over the 10-year period from 2005 to 2015. The largest dozen contract sellers were involved in almost 7500 acquisitions, which was less than 10% of the over 80,000 properties in Detroit that had been acquired through tax auctions or REO’s from various governmental foreclosures. In that period contract sellers had gone through eviction procedures for about 1 out of every 3 properties, but evictions with specific properties acquired by all buyers involved eviction procedures at the ratio of 1 out of every 4 properties, which is not a world of difference. Over a 10-year period that doesn’t translate into a constant churn, likely because there is tepid demands that these practices have inevitably created in these neighborhoods.
Because there is not a robust market for these properties from stories the Home Savers Campaign is hearing on the doors, it seems that tenants wanting or willing to stay in these properties are able to negotiate a fair amount of forbearance even when missing payments because the sellers realize there isn’t a line waiting to open the door behind them. It also explains stories we have heard from several buyers where they are able to negotiate shorter terms when they are willing to take over the properties.
One reason may be the fact that many of these companies are not forwarding payments made by the buyers to resolve tax payments nor are they disclosing past liens on the properties. Lawsuits like those filed against Harbour Properties and Vision Property Management in Cincinnati to collect back taxes, fines, and penalties for their properties in that jurisdiction reveal a business model of nonpayment that seems to typify this part of the industry. That’s a ticking time bomb for the tenant-buyer for sure, especially given the rigid collection and delinquency procedures of Wayne County, and we have heard cases falling into this bad basket every day in Detroit, but it also seems to be leading to shorter term contracts and more negotiating opportunities if the campaign could engage the parties successfully.
We’re finding the handles, but we are not convinced yet that people want to grab them, given that many still see themselves as renters, rather than potential owners. That’s the puzzle we still need to find, even as we are understanding more and more about the market and these companies exploiting it.
Detroit It was a rough day on the doors in Detroit. One team recorded 14 abandoned houses out of the 17 on the walk list. Remember that these were all homes according to all available records that are owned by one of the big three land contract companies operating in the city: Harbour Portfolio, Vision Property Management, and Detroit Property Exchange, the only local outfit. Another team had eight on its list, and we had six on ours. The math is unsettling and profound, meaning that more than half of the houses these companies owned were abandoned and therefore open wounds bleeding on their blocks, neighborhoods, and community.
There were three dumpsters in the driveways of the abandoned houses our team visited and a trailer at another with a couple of bags of trash on it, but no signs of workers or work being done at these locations. At one location that we marked as “not home,” because the neighbor across the street told us that there were people going in and out of there and work being done, who knows what the story might have been, but the impression from the other locations on our list, left me wondering if these were dumpster “decorations,” rather than construction sites. We were roughly, and it was often rough, in central Detroit, if there’s such a thing, while one team was on the East Side and another was on the West Side. They reported no dumpsters and signs of construction on the abandoned houses on their lists. Don’t get me wrong, the land contract houses were absolutely not the only abandoned houses, and we saw abandoned houses on our route that were not not on our list but had signs offering them for sale, if one could call it that, or auction, with come-on’s hawking $400 a month down payments and lures advertising opportunities to flip the homes or rent-to-own more cheaply that buying. Once we were back at the offices of the historic and giant Ford Motor based UAW Local 600, which had opened their doors to the Home Savers Campaign for this project, we discovered, to no one’s surprise at this point, that both of the names on the signs we saw were simply other eye-candy LLC’s that were part of Detroit Property Exchange.
rent-to-own signs from Detroit Property Exchange subsidiary
Visiting with people, the contradictions are confounding. Our first visit was a woman with had just completed a contract with DPX as locals call Detroit Property Exchange, though her house had been listed under their French Sirois subsidiary. She had been in the home for 12 years and dutifully paying off a mortgage, until two years ago. She was informed then that DPX had bought her home by purchasing a $6000 tax lien. She had being paying everything in the usual bundle to her mortgage servicer, who had gone bankrupt and not paid her taxes, so Wayne County had put her in play without any notice. DPX gave her a contract to buy back the house for $20,000 while paying $750 per month as part of a lease to live there. She was happy because she had managed to pay them off in 18-months, partially by taking advantage of two “matching” opportunities, one at income tax refund time, where they had matched her $2500, and another a month or so later when they matched her $1000. She was proud of herself for getting them off her back and saving her house, but the math still adds up to street-side robbery. She had paid DPX $16,500 on the contract plus another $13,500 in rent, or whatever you might want to call it, so they had $30,000 from her in a year-and-a-half by stealing her house from the taxman when her mortgage servicer went belly up. The day before another team had stumbled onto a similar case, so this woman’s story is, tragically, too common.
Vision Property Management lockbox on abandoned hous
All of these contracts are predatory, though and people were being ripped off right and left, but one home we visited we talked to the brother on the porch, who was apologetic that he had not gotten his act together to buy a house, while both of his sisters had just done so, though we knew this sister was on a rent-to-own contract with Vision Property Management and suspected that was the case with the other as well. Earlier in the morning, I had briefly addressed more than 50 people in the regular meeting of the Detroit Action Commonwealth at the Capuchin Soup Kitchen. People there knew about land contracts, and they knew ACORN, so I was in good company. After a brief explanation of what the Home Savers Campaign was there were questions flying from the crowd. One caught me up short and has left me thinking more and more about these contradictions. A young man said he was on SSI payments of $750 per month. His question: how could he get one of these rent-to-own houses?
Detroit Preparing for the Home Savers Campaign teams to hit the doors in Detroit and visit with victims of the various installment land purchase and rent-to-buy schemes in the city, a crew of us sat down for a preliminary briefing with Joe McGuire, a staff attorney with Michigan Legal Services who has tussled with a number of these companies while representing their low-income clients. Joe was a fount of information and couldn’t have been more helpful, but much of what he told us was depressing in the extreme.
Perhaps what demonstrates this bleak credit desert for lower income and working families in the Motor City most vividly are the terms of one lease he shared with us promulgated by a company called Bean. It’s hard to make a rent-to-own agreement look good, but the Bean agreement was a “residential lease and option agreement,” which, when read closely, was really only a one-year option to buy the property with absolutely no guarantee that the agreement would be extended past the one year allowing the “lessor” to finally purchase the home, even if they had met all conditions of the agreement perfectly, unless of course they magically came up with the full purchase price within 30 days of the end of the lease. The mishmash of legalese really was simply a one-year ripoff and an option-to-steal by the lessor from the lessee. The terms started with a $4000 down payment for the “privilege” of purchasing the house for $30,000. An additional “option consideration of $130 per month” would be paid toward the “down payment/purchase” of the property as well as $645 per month throughout the one-year term which was the lease on this “as is” house. Any repairs, “major and minor” would be paid for by the “optionee,” and if any are paid by the “optioner,” they are added onto the purchase price. McGuire was as stunned by the agreement as all of us were.
Much of what he told us was equally bleak. The city requires an effective warrant of habitability before people move in, and all rental units, including those on rent-to-own contracts are required to be registered, but it became clear there was little to nonexistent enforcement. Even so, McGuire felt the protections for rent-to-own were better than those for land contracts, because they were even better shielded by state law with little thought that the legislature would improve them. In a sobering catch-22, McGuire actually made the case as we were leaving that he worried that tightening down on rent-to-own abuses might lead to more land contracts, which given their legal protections would be even worse for the victims. Forfeiture to the city and the Detroit land bank seemed equally fraught and neighborhood crippling.
The conversation was not without some rays of hope. Work by some of the anti-eviction groups was encouraging. Data being prepared in cooperation with local universities and professors might offer some opportunities. Focus on concentrated neighborhoods where this kind of activity might be curtailed, McGuire felt could show results.
The odds were long, but we were welcomed into the fight. Any push back would be a positive. Any effort to force more accountability by victims would be helpful. Detroit might be ground zero for this campaign, but there were mountains to climb with uncertain footholds on every route.
New Orleans A couple of years ago I wrote a book called, Citizen Wealth: Winning the Campaign to Save Working Families. It was commonly known that for low-and-moderate income families the largest index of any wealth they possessed was based on whether or not they had managed somehow to become a homeowner. At ACORN we had fought that battle for years in order to get banks to fairly offer mortgages to lower income families so that they could acquire single-family homes or coops, and in those fights had won billions allowing millions to own their own homes. It was certainly not enough to achieve any semblance of equity, but it was a good step forward, particularly increasing the home ownership percentages of African-American and Latino families to record levels, although almost all of those gains were wiped out by the 2008 Great Recession.
In doing the research for the book, I was shocked that the largest so-called social program in the nation’s budget, dwarfing direct welfare, food stamps, and all other housing benefits, both singly and collectively, was the mortgage interest deduction, which now totals more than $70 billion annually. As disturbing was the degree to which the mortgage interest deduction was largely not a social program which benefited the citizen wealth of lower income families but was disproportionately benefiting middle class and wealthy families. After all, at the threshold where such an income tax deduction had real financial weight and meaning, a family had to be in an income bracket high enough to justify itemizing their deductions.
As the Home Savers Campaign this year has visited with families in a number of cities in the Midwest and South, it has also struck all of us that as blatantly predatory as many of these contract for deed and rent-to-own scams have been to the families victimized by them, many of these families have accepted the risks even accepting the dangers and the deceit, simply because they were desperate for housing they could afford, no matter its condition. For the same reason, the reaction of many victims when they realize they have been swindled has often been as much anger as it has been resignation, and a feeling they should walk away, rather than fighting for justice for their investment, all of which speaks to the crisis in affordability.
Reading “House Rules” by Matthew Desmond in the New York Times there were more facts and figures that underlined the affordable housing crisis which is driving income and racial inequality throughout the country. Some facts:
The average homeowner boasts a net worth ($195,400) that is 36 times that of the average renter at $5400.
With rising housing costs the housing standard where 30% or less of a family’s income equals affordability, half of all poor renting families spend more than 50% of their income on housing costs and 25% spent more than 70%.
In 2011, the median white household had a net worth of $111,146, compared with $7113 for the median black household and $8348 for the media Hispanic household. If black and Hispanic families owned homes at the same rate as whites, the racial wealth gap would be reduced by almost a third.
There was much more, but you get the point. Worse, the consensus is that there is no political constituency for reform of the mortgage interest deduction, nor in the absence of reform an equivalent program or benefit that would help renters or bring balance to this wealth and racial inequality.
Greenville Here’s a guest blog run on the workingclassstudies.wordpress.com blog for Working-Class Perspectives shepherded by Professors Sherry Linkton of Georgetown University and John Russo, Visiting Scholar of the Kalmanovitz Initiative for Labor and Working Poor at Georgetown, and formerly of Youngstown State University in Ohio.
Yes, Donald Trump is President, and he accomplished this upset in part by shattering the working-class firewall in long time Democratic, heartland strongholds of Pennsylvania, Michigan, and Ohio. We cannot respond only with resistance. An effective defense, in the Rust Belt or anywhere else in the country, requires a deeply rooted offense focused on the traditional Democratic working-class base, and that requires organizations and organizers who will to listen and offer meaningful responses to real pain being felt by so many at the grassroots level.
Amid repeated promises from the White House and Republicans to cut from healthcare, Medicare, and other elements of the already tattered safety net, there are few issues so stark, or so predatory, as the credit desert that keeps working families from securing decent and affordable housing. This is a problem the Real Estate Developer-in-Chief should well understand.
Since the 2008 Great Recession, the devastation of foreclosures, for individuals and communities, has become well-known. Less appreciated has been the banks’ response. As the subprime market ended, many lenders now demand higher credit scores, larger down payments, and higher minimum loan levels for mortgages. Marginal financial institutions, specializing in predatory products, moved in, reviving instruments that had largely disappeared from urban home ownership markets with the Home Mortgage Disclosure Act of 1975 and the Community Reinvestment Act of 1977, laws that also ended redlining in minority communities. Contract-for-deed, installment land purchases, rent-to-own, lease purchase, and other deceptively-named transactions lured families into hoping for affordable housing and home ownership into agreements that exploited them instead.
Worse, much of the housing stock involved was had been acquired from Federal National Mortgage Authority (“Fannie Mae”) auctions of foreclosed properties by hedge funds, Wall Street, and vulture financiers pyramiding one injury on top of another. Companies like Harbour Portfolio embraced contract “sales,” while others, such as Vision Property Management, repurposed thousands of homes using rent-to-own scams. More well-known operators, like Goldman Sachs, bought more than 26,000 homes to satisfy securitization settlements with the government, while Apollo has specialized in similar flip-and-trick in Memphis and other cities. The National Consumer Law Center estimates that there are more than six million contract buyers in the United States now. More shockingly, more contract sales were recorded in Detroit last year than traditional mortgage transfers.
Organizers with ACORN and the Home Savers Campaign have spoken with lower income working families in Philadelphia, Pittsburgh, Youngstown, Akron, Detroit, and other cities as diverse as Memphis, Little Rock, and New Orleans. These conversations reveal huge issues that bring this emerging housing crisis into tragic relief and demand action and response. The stories are heartbreaking.
A Harbour Portfolio buyer spoke to us from her couch, where she was recovering from a fall on a faulty stairway in Pittsburgh. In Akron, another Harbour Portfolio purchaser told us about the ceiling in the shower falling on his sister, leaving her unable to work. A Vision Property Management family in Pittsburgh told us of moving into a house after signing the papers only to find that it had no plumbing or electricity. They were forced to “camp” in their house for six months. Vision’s callous indifference to the deplorable condition of the housing stock meant that one Youngstown family had been forced to move to a second Vision house because their first was ordered demolished by the city! Many of the buyers were on Social Security or Veterans payments. Meanwhile, one Harbour buyer was having problems getting the contract in his name — even though the payments were made from his pension.
Sadly, this story from Philadelphia is typical, as the organizing team’s notes reveal:
Maria Rodriguez and her husband “purchased” the house at 917 Sanger St., in the Frankfort section of Philadelphia for $65,500, almost 4 years ago. They both worked: he as a landscaper and she worked at a hotel doing housekeeping. . . . They put down $2000, plus $465 as the monthly lease payment, $105 for real estate taxes, $30 for general liability insurance, or $2600 as an initial payment and $600 a month. The contract runs until August 2020. $57.06, +2000 initial option, of the monthly payment is credited toward the purchase price. Maria and her husband have put about $25,000 in the property because of huge issues like unpaid water bills, no heating or electrical system. They believed that at the end of the contract, in 2020, they would own the property and get the deed. Instead, they will have paid $6,793 toward the $65000 house price. On Aug 30, 2020, they have 3 options: give Vision a check for $58,206, walk away, or convert to seller financing with a new contract for the remaining $58K. Like all the Vision properties people we’ve talked to, this was a total surprise.
At the end of our visits with working families, we often left people enraged by anger salted with tears.
Laws to protect would-be buyers vary state-to-state, and many are weak. Are these “buyers” tenants, or are they owners without a deed? Many they cannot connect utilities or get contractors to work on their houses because of the confusion. Although contracts are required to be filed, they usually are not. In Green Bay, Wisconsin Vision whistleblowers told television reporters that they were instructed not to pay sales taxes or transfer fees. The city of Cincinnati sued Harbour for $335,000 of uncollected fines and penalties.
Some cities have taken action. Toledo passed an ordinance requiring contract sellers to obtain a certificate of occupancy and habitability before a contract was executed and a potential buyer allowed to move into a property. Lorain, Ohio, required the same, but only at the point of sale, which sadly may never happen. In Pennsylvania, lawyers believe there is an “implied warrant of habitability” that should force sellers to make repairs before occupancy. Other lawyers argue that none of these agreements can be valid contracts because their terms are “unconscionable” on their face. The Uniform Code Commission is debating offering state legislators a model law to clarify some of the mayhem.
As the Home Savers Campaign and partner organizations get their arms around this issue, one thing is clear: these contracts are misrepresented and rarely understood by working families desperate to obtain affordable and decent housing with the opportunity of home ownership. Millions of families are now caught in this dilemma. For them, the American Dream turns out to be an American Nightmare.
As our campaign against these predatory practices gains traction and the raw exploitation involved becomes even clearer, and as more working families demand justice, it will be harder for anyone or anybody to deny the exploitation at the root of these transactions.
Real estate is perhaps one thing that President Trump does understand. The fight needs to move from these houses to the White House.
Wade Rathke is best known as Founder and Chief Organizer of ACORN from 1970-2008, and continues to serve as Chief Organizer of ACORN International working in 13 countries.
Special thanks to Gary Davenport, former community organizer and currently with Mahoning County Land Bank for assistance in Youngstown work. We’ll have more to say about Youngstown as we assemble the data later this summer!