By Jennifer French Giarratano
The Contract-for-Deed (CFD) home “sale,” a predatory financing practice with a notorious urban history, has reemerged in predominantly black neighborhoods 30 years after federal laws were created to end the practice, according to research by Georgia State University urban policy expert Dan Immergluck.
Profits from this activity have been lucrative, Immergluck found. His study was recently published in the International Journal of Urban and Regional Research.
Contract-for-deed sales financed almost 3.5 million owner-occupied housing units nationwide, with 9 percent of African American households and 12 percent of Latino households reporting using CFDs, as last counted in 2009. Lawyers representing lower-income households in cities across the U.S. have reported an increase in CFD activity.
Institutional contract-for-deed sellers purchase residential properties in distressed areas for low prices, mark them up by large margins and sell them directly via a CFD to a “buyer” who makes a down payment and monthly payments over 20 or 30 years. The CFD is sold as a tool for homebuyers who don’t qualify for traditional lending or want faster financing. But there’s a catch.
“Although the CFD transaction resembles a home purchase with a traditional mortgage, the seller retains legal title to the property until the buyer makes his or her final payment,” said Immergluck, a professor in the Urban Studies Institute in the Andrew Young School of Policy Studies. “CFD buyers do not build equity. In most states, CFD buyers are not protected by homeowner laws, and the transaction is rarely scrutinized.”
His study stems from research he conducted for the Atlanta Legal Aid to analyze the activities of Harbour Portfolio, a well-known national CFD lender and one of most active firms purchasing Federal National Mortgage Association (FNMA) properties in Fulton County. Immergluck identified the geographic patterns of Harbour’s sales and lending activities and compared them to those of the FNMA across the nation. In doing so, he uncovered the reemergence of CFD sales in the county and nationally after the 2007 mortgage crisis.
“Fulton County neighborhoods that are 80-100 percent African American have been the predominant prey for Harbour’s CFD sales,” he said. “These neighborhoods have attracted a disproportionate share of high-return schemes meant to extract as much cash flow out of vulnerable residents as possible, offering them the illusion of home ownership.”
“Families and communities of color, especially those who have suffered at the hands of previous cycles of financial exploitation, are again being rapidly connected to high-cost and predatory sources of finance. At the same time, low-cost providers competing vigorously to serve more advantaged households and communities with fair and advantageous financial services.”
Along with the racial disparity, Immergluck identified other long-term implications for urban housing markets and policymakers who find themselves dealing with the reemergence of institutional CFD sellers:
- The ability of global capital to rapidly switch from one channel to another will require policies and regulations to be dynamic and adaptive to new or reemerging predatory financial services.
- Existing policy and market environments matter. If Federal Housing Administration lending had not grown so rapidly following the mortgage crisis, opportunities for predatory lending would have been much greater.
- Community resistance and higher-level policy responses to housing market predation are crucially important and can have long-term transformative effects on communities of color.
“Unfortunately, at the time we wrote this report, the Trump Administration had begun rolling back the strengthened, post-crisis regulatory regime, including weakening the Consumer Financial Protection Bureau” said Immergluck. “As a result, continued prospects for regulatory action that constrains contract-for-deed activity appear, at best, highly uncertain.”