Have you ever heard of buying a house “on contract?” It’s an expression I hadn’t encountered until recently in an article in The Atlantic.
Basically buying a house on contract means getting no loan for the purchase or making a minimal ($1000) or no down payment. Buying a home this way seems like a great idea for people with low incomes or young people who are getting started in their first home. Good news? Not necessarily.
Buying on contract means that one makes monthly payments just as though renting or having a mortgage with a bank. “However, in a contract sale, the seller keeps the deed until the contract is paid in full – and, unlike with a normal mortgage, the buyer acquires no equity in the meantime. If he misses a single payment, he would immediately forfeit his $1000 down payment, all his monthly payments, and the property itself.” (http://www.theatlantic.com/features/archive/2014/05/the-case-for-reparations/361631/)
If one buys on contract, there is no home owner to make repairs (providing heat and water, for instance) or to insure the home is safe as there would be if one were renting. “On contract is a predatory agreement that combined all the responsibilities of homeownership with all the disadvantages of renting—while offering the benefits of neither.” (http://www.theatlantic.com/features/archive/2014/05/the-case-for-reparations/361631/)
For instance, there is a gentleman named Clyde Ross in the North Lawndale section of Chicago who needed a new boiler three months after he moved into his new house purchased on contract. Since he was not the real homeowner, his payments had been made to the seller. A new boiler is very expensive and he’d earned no equity on which to base a loan for its repair or replacement.
If one buys on contract, there is no loan officer to help him through the maze “of the costs involved, the total cost of the house, the interest rate, who will pay the taxes, and whether there’s a “balloon payment.” (http://www.iowalegalaid.org/resource/lending-buying-a-house-on-contract?ref=EJwEB) In Clyde Ross’s case he had purchased a house for $27,500 which had been purchased by the on contract middleman for $12,000.
So, why do I call this a ghetto scam? This process of selling on contract is one of the reasons that there are African Americans living in ghettos today. Clyde Ross bought his house in 1961 on contract as did many African Americans in North Lawndale. Part of the Great Migration, Clyde Ross and six million other African Americans traveled north fleeing the Jim Crow South. Once here he made a decent wage, married and had children. He could vote. Then as now there were men who were willing to sell homes “at inflated prices and who were willing to evict families who could not pay.”
If someone like Clyde Ross wanted to move out of the house in North Lawndale and get a house in another section of town, he was told that there was no financing. “From the 1930s through the 1960s, black people across the country were largely cut out of the legitimate home–mortgage market through means both legal and extralegal. Chicago whites employed every measure, from ‘restrictive covenants’ to bombings, to keep their neighborhoods segregated.” (For those of you near Sacramento don’t think that these restrictions did not occur here. See Eva Rutland’s No Crystal Stair for the restrictions she and her husband faced – and for how they got around them.)
The moral of this story is not just about ghettos. It’s about people who use on contract sales today. If you or anyone you know is thinking of buying a house on contract, please check out this resource.
For 10 Tips for Buying a House on Contract go to https://www.trustedchoice.com/insurance-articles/home-family/buying-house-on-contract/
Come back for a second installment about how the federal government did its part to form the ghettos of today.