Repetition in Land Contracts Confronts Simple Predatory Assumptions

New Orleans  One of the most interesting things the ACORN Home Savers Campaign has learned is to pay very close attention to what families are saying on the doors when we visit. Over and over we have had some of our operating assumptions challenged by what we learn when we are actually visiting with contract signers who are the owner-occupants in these deals.

None of this changes the basic paradigm at the heart of all potentially predatory transactions. On one side a company or individual or slumlord-wannabe is seeking to take advantage of a market dysfunction, usually financial, for consumers, usually low-and-moderate income. On the other side the consumer, often a family, is desperate for its tax refund or for affordable housing or for money to pay a health or funeral or education expense or access to credit for anything and everything. It’s the premise that allows banks and payday lenders to charge usurious interest rates, tax preparers to advance refunds a couple of days quicker than the IRS at incredible rates, and hundreds of other schemes.

In the real estate market it is why a Harbour Portfolio can charge 12% interest on a 30-year loan with a low downpayment on a contract-for-deed property when mortgage interest is running at 4%. It’s why thousands of slumlords in city after city can charge exorbitant rents, deposits, and fees for barely livable housing to families who are simply desperate for housing. It’s also what hovers around the rent-to-own, lease-to-own, lease-option markets that offer below market rents in “as is” condition, often with minimal assurances of habitability to families also desperate for housing but also sometimes hoping for ownership.

In the first months of doorknocking in Philadelphia, Pittsburgh, Akron, Youngstown, Detroit, and Atlanta listening taught us that the search for lower rent and bargaining power against rising eviction rates for tenants was making various land purchase schemes more of an attractive alternative for many lower income families than any hope of ownership. Often in the early doorknocking when we actually explained the contracts they had signed with various companies, families would ask us straightforwardly whether they should flee or fight, though most wanted to fight if they had a way to do so and had already put too much money and sweat into their places to want to walk away.

More recently in Detroit visits we are finding that families are often on their second or third contracts with various companies. In Detroit we also found in talking to people and warning them about the predatory nature of some of the contracts, almost as many people were asking us how they could get into a contract as were asking us how to protect themselves in a contract. In Detroit and Atlanta we were finding family after family where people were asking us how they could get into additional contracts. One young man in Detroit told us he was embarrassed that his mother, uncle, and sister were all “bettering themselves” in contracts, and he was still just renting a place. In Atlanta a Harbour contract holder told me her mother had also had a contract with another company, and she had tried to see if Harbour had other properties available.

So, yes, in some cases people are willing to sign a contract to have secure rent, regardless of the situation for a couple of years, but others, along with their families, are climbing up the contract ladder in the hopes of owning a home and doing so over and over again, even after slipping to the bottom, and they are bringing friends and relatives with them. Sometimes what you learn in organizing is not what you expect, but you have to adapt, and in this case it is clear that the Home Savers Campaign has to fight on one front to make sure the homes on various contracts are habitable for families and fairly understood, and on the other hand has to devise the ways and means to help families over the last rungs of the ladder to their dreams of home ownership.

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Wall Street and Big Corporations Go Rental and It Means Trouble

ACORN Home Savers Campaign Crew in Atlanta gets organized to hit doors in metro Atlanta suburbs
l to r: Fred Brooks, Karimah Dillard, Marcus Brown, and Lou Sartor

Atlanta   Marcus Brown from North Carolina is new to the Atlanta area, and he has yet to fall in love with it. Marcus was my navigator as we teamed up to hit the doors on rent-to-own contract buyers in metro Atlanta as one of ACORN’s Home Buyers Campaign teams visiting throughout the area. I’ve hit a lot of doors in urban America and around the world. I’ve even hit a good number in rural areas on different campaigns and organizing drives. On union organizing drives I always knew we were in trouble when I drew names in the suburbs of this city or that, but I would never put my name on the top of any master list as a suburban organizer, but that may have to change. Marcus and I were in for a learning experience and some miles to drive it turned out as we plowed through our list. We were a half-hour outside of Atlanta working our way in through one small community after another, and we were in grassy yards, and cookie-cutter, aluminum siding suburbs, and never saw a white family all day. We also saw more “for rent” signs than we saw “for sale” signs, and, frankly, we didn’t see many of either in this red hot real estate market.

But, we started connecting the dots as we looked at the cases in point.

Freddie Mac announces a billion dollar fund to back up efforts to create rental housing last week. The article was scratching its head from sentence to sentence.

 

Even while we were walking up to the doors in Atlanta suburbs, I had an article I had pulled out of the Wall Street Journal in my pocket entitled “Wall Street is the New Suburban Landlord.” In the wake of the housing crisis a lot of Wall Street money and big time realty firms are specializing in renting single family homes in the suburbs. They are betting that in the wake of the Great Recession and housing implosion of 2008, the bloom is off the rose of housing ownership for many families. They estimate that more than 200,000 homes have been bought in a $40 billion spree of bottom fishing from the foreclosure crisis and flipping the homes into rental units. Where the foreclosure epidemic went viral in the South and Southwest, they fed at that trough.

In Atlanta, we were at ground zero it would seem. In a June 2017 estimate of the top markets for the largest single-family-home rental companies, Atlanta led with 24,075 homes on offer, Tampa-St. Pete had over 14,000, Phoenix, over 13,000, Miami almost 11,000, Charlotte right behind at 10, 570, Orlando over 9000, Dallas almost 9000, and Houston over 8000. You get the picture.

This also dovetails with a research report written by Elora Raymond at the Atlanta Federal Reserve Bank that found that the eviction rate in greater Atlanta was over 20% for rental units, and, hear the drumbeat now that will surprise no one, corporate owned rental properties evicted tenants at a significantly higher rate than privately owned landlords. She also noted that eviction rates are increasing significantly in markets all over the country.

Connecting the dots leads to some frightening conclusions where vacancy rates are low in hot markets and affordable housing is a mirage for working and lower income families. The business model depends on quick evictions and the extra cash from late payment fees as tenants try to scrounge to catch up with their landlords, who are now using the courts to pad their payments.

Just the kind of business that Wall Street would love obviously. But, just as we found on the doors, don’t think this is just an urban problem, it’s in the suburbs as well, and as gentrification has increased and rents have soared, many suburban neighborhoods are now populated with our families as well.

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