Study Reveals Black Families in Chicago Lost $4 Billion to Predatory Contract Sales

Inside Subprime: June 7, 2019

By Lindsay Frankel

Black families in Chicago, Illinois, are still feeling the devastating impact of predatory land contract sales that drained billions from buyers in the decades following World War II. In the first effort to reveal the collective dollar amount that families lost due to the practice, a study from Duke University’s Samuel DuBois Cook Center on Social Equity found that “the total amount expropriated from Chicago’s black community due to land sales contracts is between $3.2 and $4 billion in today’s dollars.”

Following the practice of redlining, which started in the 1930s, land sale contracts were effectively the only path to home ownership for black families in Chicago. Blacks could not get mortgages because neighborhoods with large minority populations were considered to be areas of high risk to lenders. This led to even more segregation as whites flocked away from these communities.

In a contract sale, the contract holder would maintain the equity of the home until it was paid in full, which meant that if black families missed even one payment, they would be evicted and lose ownership. And keeping up with payments proved difficult for black owners, since Chicago land contracts cost $71,000 more on average than conventional mortgages, the study found. The report noted that Chicago houses “purchased by a speculator for $12,000 would be resold days or weeks later on contract to a black buyer for $22,000,” with an average markup of about 84 percent. That translates to a whopping $587 more per month in today’s dollars when compared to a conventional mortgage payment. The exorbitant cost of these contracts left black families without the funds to cover maintenance and repairs on their homes.

Often, banks that previously denied mortgage loans for black homebuyers were the same institutions offering the land contracts. In addition, some contracts were provided by  “investment syndicates comprised of white Chicago lawyers, doctors, downtown business leaders, and city government officials, all of whom profited handsomely by exploiting a separate and unequal housing market to the profound disadvantage of black families.”

The lack of equal access to home loans appears to have had a lasting impact on black families. The Urban Institute found that while 74.1 percent of white families in Chicago own their home, only 39.1 percent of black families are homeowners.

target-and-why/”>lenders continue to target minority families with predatory interest rates. Analysis has shown that payday loan storefronts are concentrated in neighborhoods with large minority populations, and research from Pew Charitable Trusts reveals that a greater percentage of blacks and Hispanics have used these high-interest loans when compared to whites.

The report notes that one of the goals of the study was to “encourage policy initiatives to fight contract sales and other forms of predatory lending, which have reappeared in Chicago’s housing market in the aftermath of the Great Recession.”

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