Home Loans for Poor Leave Some Feeling Misled
By Michael Kanell
The Atlanta Journal-Constitution
August 2, 2016
Al Butts and his wife thought they were becoming homeowners when, in 2011, they moved into their Decatur, Ga., residence.
“It sounded too good to be true, because it was such an achievement for me,” Butts said. “They said, ‘This is your house.’ ”
The too-good-to-be-true part could be right.
The Butts didn’t have a mortgage loan on the home but rather something called a “land contract,” a little-known form of lending marketed to people who can’t get regular financing.
People with a land contract put money down, make regular payments plus interest, and pay taxes and insurance. If they make payments all the way to the end of the contract, they will own the home. If they don’t they can be evicted and lose everything they put into it.
That’s what could happen to Butts and his wife, who this summer got an eviction threat after some late payments.
“It’s a 30-year contract. You could make payments every month and lose it in year 29,” said Kristin Tullos of Decatur Legal Aid, which is representing the couple as they try to stay in the home.
Georgia, like most states, does not regulate land contracts, which are also known as “contract for deed.” Critics generally do not argue that they are illegal. But they say companies offering them target credit-starved, minority neighborhoods and deceive consumers. The deals typically carry interest rates well above those for mortgages.
Fueled by housing crisis
The practice was fueled by the housing crisis, which put millions of homes on the market at huge discounts while also savaging consumers’ credit ratings.
No one has recent numbers, but 3.5 million people bought a home through a land contract in 2009, according to the U.S. Census. “Evidence suggests that land contracts are making a resurgence in the wake of the foreclosure crisis,” a recent report from the National Consumer Law Center said.
Equity firms and real estate companies bought thousands of depressed properties as investments, renting them until the market made a resale lucrative.
A small group of companies have added “contract for deed” deals as a profitable variation aimed at minorities, according to the group’s report.
Dallas-based Harbour Portfolio Advisors — the name on the Butts’ deed — is one of the largest with an estimated 6,700 properties in five states.
Calls from the AJC to Harbour over the past several weeks were not returned, but earlier this year, a lawyer for Harbour told the New York Times that the company’s business model is “to purchase unproductive residential properties and sell them to other people who will make them productive again.”
Local attorneys say there’s no indication Harbour set out to exploit minorities. But in choosing low-income, foreclosure-afflicted areas and appealing to people who cannot get traditional mortgages, Harbour ends up with a clientele that is largely black.
In metro Atlanta, Harbour had 94 properties, in Fulton, DeKalb, Cobb, Gwinnett, Clayton and Rockdale counties, the report said. “The common theme is that land contracts were being sold predominantly to borrowers of color.”
Shut out of mortgages
From the 1930s to 1950s, when blacks were shut out of many mortgage programs, land contracts were often the most common form of home-buying. But the contracts did not fulfill their promise then — and still don’t, the Law Center report concluded.
“Then, as now, homeownership through these deals was often a mirage, and buyers lost their homes, their down payments, their sweat equity, and the money they paid for repairs, maintenance, insurance, and interest,” the report said.
For depressed areas, the impact is not all bad — it puts people into houses that might otherwise be vacant, said Deirdre Oakley, sociology professor and housing expert at Georgia State University.
But for people who aspire to own a home, it isn’t a good deal due to the risk and interest charged, she said.
A big motive for buying a home is to build equity — to gain wealth as the property value rises. With a contract for deed, the consumer only gains if he or she completes the full payment schedule and becomes the owner.
“They are basically like renters but also paying interest and insurance and taxes and paying for repairs,” Oakley said. “You are giving them a chance to own a home, but you are not giving them much of a chance.”
For the deal to be at all fair, customers need to know exactly what they are getting into, said Svenja Gudell, chief economist at Zillow, a national real estate research firm.
“They target people who are less informed. They are often taken advantage of,” she said.
Al Butts doesn’t claim to be blameless, but he feels misled.
‘Flim-flam from the git-go’
“I told them right up front I was on a fixed income, and I have made up every payment I’ve been late on,” he said. “The way I think of it, it was a flim-flam from the git-go. It was like we were their cash-cow.”
Irene Cole and her husband thought they were buying an East Point home from Harbour in 2013 for $49,000. They put $1,500 down, agreed to a 9.9 interest rate on the rest and started paying $605.92 a month.
“We were told that the house was ours,” Cole said.
Their land contract was sold, however, and they dealt with a series of other companies. They had a disagreement with one about which bank account the company was taking money from — when it came from the wrong account, there wasn’t enough money.
Later, they missed some payments but say they weren’t sure who to send a check to.
Now, they’ve received notice that their house is scheduled for a foreclosure hearing. They are working with attorneys at Legal Aid to fight the foreclosure.
They first sought to refinance through Home Safe Georgia, a state program aimed at helping people avoid foreclosure.
“But when we went to Home Safe Georgia,” Cole said, “they said we can’t help you because you don’t own the property.”
© 2016 The Atlanta Journal-Constitution. Distributed by Tribune Content Agency