Seems No End to Some Rent-to-Own Contracts

New Orleans   As the teams of ACORN Home Savers Campaign student volunteers came in from the field on Sunday afternoon with their reports on the families they visited who were under various housing contracts in Memphis, the stories were stirring and profound. Having been greenhorns on Saturday, now many of them spoke in the language of veterans about their experiences. The campaign had learned from their first day and made the maps tighter and pruned the list, while the teams had buckled down better on the reporting and their own efficiency. We were on a learning curve and making progress. As one canvasser told me, “I wish Sunday had been our long day, and Saturday had been the short one,” as she spoke about the qualitative difference of what she had been able to bring to the work. Skepticism and student sassiness had been replaced with seriousness in the pursuit, as the teams were able to talk to more families and feel both the promise and the pain of their situations.

One of the most harrowing stories was told me by a woman who had asked me the most challenging questions in the first day’s briefing. They had visited a young, 25-year old woman with some children, about their same age. She was in a contract with the local Memphis company, Affordable Property Management. She was paying $700 per month on the contract for a house priced in the range of $70,000 from what they heard. She was reasonably happy with the contract. The kick in the gut came when they heard the term of the contract for her to finally receive the deed. It was fifty-two (52) years. Yes, 52 years! Were she ever to complete the contract, and it’s hard to believe that she will, she would be 77 years old! We didn’t see the contract, but one can imagine for 52 years that the interest rate and other provisions must be incredible. We’ll be speaking to her again soon! The canvasser when leaving turned to me and said, “We may have started out wrong yesterday, but we’re best friends now, Wade.” That’s the story of organizing once boots are on the ground and fists hit the door.

The first thought many would have is that, hey, mortgages are for 30-years. Right, but this isn’t a mortgage. It’s a contract, and contracts can go for 99 years or be in perpetuity for that matter. Even mortgages are not time limited. During the financial crisis, many big league banks in the US tried to modify mortgages by extending the terms to 35, 38 or 40 years. Sweden just reduced the maximum term of its mortgages to 105 years from 145 years. Japan and the UK in their housing affordability crises have extended terms as well.

Many families wanted to convert to conventional mortgages. They were positive about coming to a meeting in early January to push their companies for better deals and a clear path to ownership.

My own visits produced the same range of experiences. One family with Christmas decorations all over the house had been under lease contract for 5 years and desperately wanted to convert. In another case the house seemed abandoned. Windows were boarded and the screen door was tied to the front door. When I knocked, I could hear children inside. There was no answer. They may have been told to never open the door. At one door, I didn’t meet the owner, but tenants who were renting rooms from the lease option holder who was also renting the driveway for commercial trucks. They were the only house on the street, almost within shouting distance of the huge warehouse complex in north Memphis that seemed endless until I drove by the street corner and saw the swoosh known worldwide as the Nike emblem.

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No Pot of Gold at the End of Rainbow Realty in Indianapolis

Detroit  Indianapolis is a surprising city. Not having been there for some years, the first surprise to me was the modern airport built over the last decade that first left me wondering what I might have been overlooking in the heartland. The second surprise was realizing how big the city had become, now over 850,000 by the last Census estimate, putting it even larger than the usual high fliers we see and hear more about in Austin and Charlotte for example. The third surprise was reading that over 70% of the city was white and only a bit more than 20% African-American with 9% Latino. Those figures seemed so not rust belt to me. The final surprise was finding for all of this growth and boosterism, when we hit the doors of over fifty homes in three days, that the Indianapolis neighborhoods were desperately hurting. Indy seemed to almost be the rent-to-own capital of the United States, if anyone is keeping those statistics, but it would be no surprise to find out that no one is doing so.

There wasn’t a section of city where ACORN’s Home Savers Campaign didn’t hit the doors. There were large lots, but small houses. I kept thinking of John Cougar Mellencamp’s song about “little pink houses.” Thousands of small, frame houses covered with siding, marked by black plastic, accordion extension tubes into the yard, and often gaps around the doors and roof edges to let in the cold. The level of abandonment wasn’t Detroit-scale, but every neighborhood was pocked with deserted properties, sometimes boarded up, but often vacant with the markings of the rent-to-own industry in the city.

Rainbow Realty is without much doubt the largest. Their signs in a garish red and yellow with their rainbow trademark were easy to spot as we walked or drove by. Often when visiting a family in one of the homes, we could tell where we were by the fake security sign in the window with a picture of a police car and the false claim that there was 24-hour protection. The huge eye-bolts where a padlock had been affixed outside the door were always present as well. They weren’t alone. A sign saying Casa Barato, complete with pictures of sombreros in the colors of the Mexican flag, meaning Cheap House proclaiming Rent-to-Buy with a phone number were sure signs that someone thought there were Latinos moving into the area. Others were less florid, but still ubiquitous.

We had been curious about Rainbow from stories in the Indianapolis Star about a fair housing suit filed against the company in June claiming discrimination and targeting African-Americans. The owner claimed innocence of course. He claimed he only asked for a couple of hundred down and allowed people to rent-to-own the houses for two years, and then it was theirs. On the doors, talking to recent occupants, we found more white families than blacks in the homes. We also found that most of the properties were contract-for-deed agreements with Rainbow for 30-years with interest near 11%. One contract for a $72,000 home had a minimal $700 down payment but a clear statement on the $163,000 in interest that the occupant would pay if they completed the agreement. Big “if” of course because missing payments means evictions and losing everything. Two other occupants, one white woman and one African-American woman told us how the company had changed terms in the first month in one case and allowed the wiring to be ripped off after she signed, but before she moved in in the other. It was unclear if Rainbow realized that with contract-for-deed agreements they are now under the jurisdiction of Dodd-Frank and the Consumer Financial Protection Bureau, but ACORN’s Home Savers Campaign will have to make sure they get the news on that ASAP.

Indianapolis may be growing into a modern city, but there’s a dark, unregulated horror happening in the low-and-moderate income neighborhoods. There’s no pot of gold at the end of these rainbows.

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