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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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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