The Racist Roots of a Way to Sell Homes
The situation exposed black families to hucksters who peddled homeownership through contracts for deed, in which a home seller gives a buyer a high-interest loan, coupled with a pledge to turn over the deed after 20 to 40 years of monthly installment payments. These contracts enriched the sellers by draining the buyers, who built no equity and were often evicted for minor or alleged infractions, at which point the owner would enter into a contract with another buyer. In the process, families and neighborhoods were ruined.
Contracts for deed are making a comeback. They are increasingly being used by investment firms that have bought thousands of foreclosed homes and want to sell them to lower-income buyers “as is,” ..
.. Contracts for deed make gouging possible, because unlike traditional mortgages, there is no appraisal or inspection to ensure that the loan amount is reasonable. They also let an investor swiftly evict buyers for missed payments, rather than giving them time to catch up, as required under a mortgage. And they usually require the buyer to pay hefty upfront fees. Unlike a rental security deposit, however, the fee is almost never refundable.
Contracts for deed are similar in some ways to the subprime lending that contributed to the housing bust in this century. Investors in the contracts include some of the Wall Street players who inflated the mortgage bubble, including Daniel Sparks, the former Goldman Sachs executive, whose department was betting on a crash in 2007 even as the bank was selling toxic mortgage securities.