The mid-20th century practice of private lenders offering a deed contract to credit-starved minorities has returned with the housing crash according the May 13, 2016 Washington Post article “Why a housing scheme founded in racism is making a resurgence today”, Deed contracts are different from mortgages. With a mortgage, the buyer takes ownership of the home, so the mortgage payments build up equity.
In contrast, with a deed contract the seller retains ownership of the home until the entire amount is paid in full, so that the would-be buyer has no equity. In other words, under a deed contract the would-be buyer stays as a tenant in the property that they wish to purchase. It was common place for the would-be buyers under deed contracts to lose all their money and be evicted for a missed payment or a failure to make repairs.
With historical patterns of discrimination against minority communities obtaining financing to buy a house, these precarious deed contracts became the only path to home ownership. It was not uncommon for investors to issue deed contracts to several different families in series on the same property so they made their money several times over. This situation has been heightened by the predatory lending in minority communities which has recently caused there to be a glut of foreclosed homes for sale in minority neighborhoods.
Both the US financial watchdog, the Consumer Finance Protection Bureau, and its New York State counterpart, the Department of Financial Services, are already investigating this process according to the May 14, 2016 New York Times article “New York Lenders Subpoenaed over Seller Financed Mortgage Alternatives” shows. The same article states that the New York State Department of Financial Services has subpoenaed Battery Point Financial, New York Mortgage Trust, Apollo Residential Mortgage and Apollo Global Management as part of an initial investigation of deed contacts in New York.
To report these deed contracts in Nassau and Suffolk counties, please contact Marian D. Reid at Long Island Housing Services at 631-567-5111, ext. 312 or email Marian. More information about our Fair Lending program.
- Toxic Transactions: How Land Installment Contracts Once Again Threaten Communities of Color (NCLC)
- Federal Watchdog Agency Steps Up Inquiry Into Home Contracts (NY Times)
- How a Home Bargain Became a ‘Pain in the Butt,’ and Worse (NY Times 7/7/17)