Contract selling preys on Chicagoans - Metropolitan Planning Council

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Contract selling preys on Chicagoans

Decades after its heyday, conditions again ripe for predatory selling

Chicago residents protest discriminatory housing at a demonstration organized by the Contract Buyers League

“I’m all cried out. I’m frustrated. I don’t know what to do,” said Karen Edwards despairingly as she described the home that was supposed to offer her freedom and independence. On March 1, if Karen doesn’t pay a $27,000 lump sum—difficult for many Chicagoans, not just one who works at a hospital for $10.25 an hour—Edwards will lose her house.

Karen is the victim of a form of predatory lending called “contract selling.” Contract selling is a type of financing where the buyer makes payments with the agreement that legal title will only be conveyed once paid in full, but the seller can cancel it at any time if the buyer fails to make a single payment. It is a practice that is virtually unregulated and newly on the rise again in Chicago. On September 29, the Metropolitan Planning Council hosted a sold-out forum on contract buying in partnership with Woods Fund Chicago and Polk Bros. Foundation. Karen Edwards generously told her story at the event.

On March 1, if Karen doesn’t pay a $27,000 lump sum—difficult for many Chicagoans, not just one who works at a hospital for $10.25 an hour—Edwards will lose her house.

In 2013 Edwards’ home was foreclosed while she endured a difficult divorce and cared for her mother who had just undergone heart surgery. She needed a roof over her head, quickly. A neighbor recommended a lender, and soon Karen was signing forms and placing a $5,000 deposit. The situation went downhill quickly, between the home not being the “gut rehab” she was promised and the realization that her contract called for a balloon payment in short order.

Edwards’ agreement is bad. Jack MacNamara, the former lead organizer of the Contract Buyers League Chicago, and another guest at MPC’s Contract Buying Forum, explained the severity of Edwards’ mortgage agreement. “I’ve looked at a lot of contracts and I think this is the worst one I’ve ever seen.”

Still, Edwards joins a long tradition of unfair buying and selling in Chicago. It began on the West Side of Chicago in the late 1950s in the vacuum created by traditional lenders refusing to lend in predominantly African-American communities. Traditionally, the contract buyer, usually a private citizen, would purchase a property with the intent to resell, often to people of color who were excluded from the mainstream mortgage system, with high markups and unfair contracts.  Often contracts would involve exorbitant interest rates that would double or quadruple the property’s original price. When the new contract buyer failed to meet a full payment they would be evicted, leaving the contract seller to repeat the process.

Contract selling had primarily been a “mom and pop” operation in the past, but today is institutionalized.  The DePaul Institute for Housing studies indicated that more than half of residential properties in Chicago sold for under $150,000 in 2015.  The large amount of low value sales means the environment for housing and lending is ripe for exploitation in Chicago. 

Contract selling had primarily been a “mom and pop” operation in the past, but today is institutionalized.

MPC’s Contract Buying Forum walked listeners through the history to the present day, beginning with Beryl Satter, a Professor of History at Rutgers University and author of the book Family Properties: Race, Real Estate, and the Exploitation of Black Urban America.  Satter sat down with Alden Loury from MPC to discuss how contract buying evolved out of early discriminatory housing practices.  Contract selling, in the words of panelist Beryl Satter, was and is “the systematic transfer of wealth from black communities to white speculators,” to the tune of $1 million a day drained from black communities during the height of contract selling.

The forum continued with Karen Edwards sharing her own experience with Caronina Grimble, a program officer at Woods Fund Chicago, and with Jack MacNamara mentioned above. It is too easy to dismiss the admirable efforts of MacNamara and Clyde Ross, who, decades ago, formed the Contract Buyers League in North Lawndale to fight the discriminatory practice, as work needed in a long-ago, more discriminatory time. Ms. Edwards’ story tells us the contrary: unfortunately, eager would-be homebuyers with few loan options are still being preyed upon to this day.

The history and present circumstances of such predatory practices led to questions of what can be done today.  Deborah Bennett with Polk Bros. Foundation, Matt Cole with Neighborhood Housing Services Chicago, Je Yon Jung with Consumer Finance Protection Bureau, Sharon Legenza with Housing Action Illinois, and Karen Yarbrough, the Cook County Recorder of Deeds, discussed those solutions in detail.  The importance of recent legislation to protect rent-to-own buyers, using anti-predatory lending databases and promoting low-to-zero interest lending programs were recommended as integral strategies to fighting predatory lenders. Financial guidance was also stressed to ensure that people do not get tricked by bad lenders. “For us the solutions in many ways remain tried and true,” Matt Cole of NHS said. “They are education and housing counseling.”

Many of Chicago’s most vulnerable neighborhoods are still struggling to recover years after the recession.  The fact that many of these struggling neighborhoods are majority people of color makes the systemic racism of predatory lending all the more apparent. 

Watch the Entire Forum


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For more than 80 years, the Metropolitan Planning Council (MPC) has made the Chicago region a better place to live and work by partnering with businesses, communities and governments to address the area's toughest planning and development challenges. MPC works to solve today's urgent problems while consistently thinking ahead to prepare the region for the needs of tomorrow. Read more about our work »

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