On Contract for Deed Agreements.

Contract for deed agreements are predatory housing agreements that originally targeted African-Americans in the 1950’s and 60’s, prior to the Fair Housing Act of 1968. 

In these contracts, the buyer purchases an agreement for the deed and not the deed itself. If the buyer fails to meet the conditions of the agreement, such as home repairs, timely rent payments, taxes, etc., they can be evicted. Once evicted these individuals lose all of the equity they put into the property. 

“In a contract for deed, the purchase of property is financed by the seller rather than a third-party lender such as a commercial bank or credit union. The arrangement can benefit buyers and sellers by extending credit to homebuyers who would not otherwise qualify for a loan,” (Myslajek, 2009). 

Predatory lenders offered these types of agreements to individuals whose credit scores were negatively impacted by the 2008 recession, a recession that disproportionately affected non-white homeowners. 

“Non-Hispanic whites represent the majority of at-risk borrowers, but African-American and Latino borrowers are more likely to be at imminent risk of foreclosure (21.6% and 21.4% respectively) than non-Hispanic white borrowers (14.8%),” (Bocian, Li, Ernst, 2010). 

Studies have shown that non-white Americans on average have lower credit scores than white Americans, making them especially vulnerable to predatory lenders. 

“In 2017, an Urban Institute study found that predominantly nonwhite areas in 50 out of 60 cities studied had median credit scores that were 660 or lower and most cities had median credit scores that were 600 or lower. In comparison, predominantly white areas in only four out of 60 cities studied had median credit scores that were below 660,” (Holmes, 2019). 

Perhaps the worst exploiter of low-credit homebuyers is Harbour Portfolio Advisors, a real estate consulting firm based in Dallas, Texas. 

Harbour Portfolio purchased over 6,000 houses that foreclosed following the 2008 recession from Fannie Mae, a mortgage loan company (Goldstein, Stevenson, 2016). “Harbour, which raised more than $60 million from wealthy investors, was the single largest buyer of foreclosed homes from Fannie Mae’s bulk sale program from 2010 to 2014, which the mortgage giant used to unload more than 20,000 homes that were hard to sell.” 

Between 2010 and 2014, Harbour Portfolio purchased these houses at an average price of $8,000, and then sold these houses at inflated prices with high interest rates, (Jackson, 2018). 

These high interest rates make it virtually impossible for homeowners to meet the demands of the agreement, thus forcing their eviction, and allowing firms like Harbour to begin the cycle anew. 

One such homeowner, Zachery Anderson of Atlanta, spent over $35,000 on a Harbour Portfolio house from 2011 to 2018, and still owed the company $43,000, because most of the share of his payments went to interest, (Semuels, 2018). 

In 2018, the Atlanta Legal Aid Society filed a lawsuit against Harbour Portfolio alleging that the firm “purchased homes located in communities that are majority African-American and designed a marketing scheme to draw primarily African-American buyers,” (Horne v. Harbour Portfolio VI, LP, 304 F. Supp. 3d 1332, 1337 (N.D. Ga. 2018)). 

The Atlanta Legal Aid Society also alleged that “the interest rates charged were 9.9% or 10%, while the prevailing interest rates for mortgage loans was around 4%,” and “that the contracts included forfeiture clauses giving the Harbour Defendants the option to cancel the contract and keep all amounts paid.”

In response to the question of whether or not Harbour deliberately targeted Black communities “the Harbour Defendants argue[d] that Plaintiffs have not and cannot allege a robust causal connection between any alleged facially neutral policy and the alleged disproportionate racial outcome.” (Horne v. Harbour Portfolio VI, LP, 304 F. Supp. 3d 1332, 1341 (N.D. Ga. 2018)).

Figure 1.

Figure 1 was provided by the Atlanta Legal Aid Society, and presents Harbour Portfolio Properties’ locations in DeKalb County, Georgia, as part of their complaint.

It is apparent that NONE of the properties owned by Harbour Portfolio are located in areas in which less than 60% of the residents were African-American. The majority of properties in this area are located in places where at least 80% of the residents are African-American. 

The Harbour Defendants' filed a motion to dismiss the complaint, which was granted in part and denied in part.  

African-Americans looking for housing prior to the Fair Housing Act of 1968, were lured into contract for deed agreements because they had few other options available to them thanks to overt discrimination. 

African-Americans and other non-white Americans today find themselves in contract for deed agreements because little has been done to heal the wounds from the 2008 recession that has negatively impacted their credit scores.

So long as firms such as Harbour Portfolio are able to exploit communities with inexcusably high interest rates, non-white Americans will find themselves in a vicious cycle of trying to find affordable housing.  

SOURCES:

Myslajek, C. (2009). Risks and realities of the contract for deed. Federal Reserve Bank of Minneapolis. Retrieved from https://www.minneapolisfed.org/article/2009/risks-and-realities-of-the-contract-for-deed

Bocian, D., Li, W., Ernst, K. (2010). Foreclosures by Race and Ethnicity: The Demographics of a Crisis. Center for Responsible Lending. Retrieved from https://www.responsiblelending.org/mortgage-lending/research-analysis/foreclosures-by-race-and-ethnicity.pdf

Holmes, T. (2019). Credit card race, age, gender statistics. creditcards.com. Retrieved from https://www.creditcards.com/credit-card-news/race-age-gender-statistics/

Goldstein, M., Stevenson, A. (2016). Market for Fixer-Uppers Traps Low-Income Buyers. The New York Times. Retrieved from https://www.nytimes.com/2016/02/21/business/dealbook/market-for-fixer-uppers-traps-low-income-buyers.html

Jackson, V. (2018). Predatory land contracts strip wealth from communities. Policy Matter Ohio. Retrieved from https://www.policymattersohio.org/research-policy/pathways-out-of-poverty/consumer-protection-asset-building/predatory-land-contracts-strip-wealth-from-communities

Semuels, A. (2018). A House You Can Buy, But Never Own. The Atlantic. Retrieved from https://www.theatlantic.com/business/archive/2018/04/rent-to-own-redlining/557588/

Horne v. Harbour Portfolio VI, LP. Retrieved from https://casetext.com/case/horne-v-harbour-portfolio-vi-lp