A predatory – but lucrative -- lending practice with a “notorious” history has again been used in Atlanta and a number of other cities where the targets have been black neighborhoods, according to a study released Thursday by a Georgia State University expert.
Companies like Dallas-based Harbour Portfolio used the housing crisis a decade ago as a path to buying super-cheap homes that could be dangled as bait for people who wanted to own homes, but often would not qualify for a traditional mortgage, according to Dan Immergluck, a professor in the Urban Studies Institute at GSU’s Andrew Young School.
VIDEO: Previous coverage on predatory lending
A study of housing and other records for Atlanta showed that the business was almost exclusively aimed at minorities, he said.
“Fulton County neighborhoods that are 80 to 100 percent African-American have been the predominant prey for Harbour’s (contract for deed) 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.”
The Atlanta Journal-Constitution called Harbour and requested a response or comment. The call was not turned. On previous occasions as well, Harbour has not responded to calls.
The company offered what is known as a “contract for deed,” an arrangement that became a national issue in the 1950s and 1960s.
Investors like Harbour “sell” the property, requiring the “buyer” to maintain the home while making monthly payments. If the payments are made for the contract period – sometimes as long as 30 years – the company would turn over the deed.
But several months of missed or late payments would permit the company to evict the resident like any delinquent renter, Immergluck said. “Although the (contract for deed) 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.”
Unlike a homeowner who made a series of mortgage payments, no matter how long residents made payments, they would not build any equity in the property.
As reported by the AJC, the housing crisis that accelerated after 2007 led to a tidal wave of falling home values and foreclosures. Many investors picked up property at a fraction of its previous price -- some to renovate and flip, some to rent and some for other arrangements.
Experts say that those investors can often stabilize a neighborhood, putting a floor on values and setting the stage for recovery. But there are also critics who say that in some cases, investors are preying on area residents for profit.
Many housing advocates argue that contract-for-deed typically targets people who are not sophisticated and have unreliable income but who still dream of home ownership.
Starting in 2011, Harbour bought about 85 homes in Atlanta, and more than 6,500 homes nationally, usually making the purchase from Fannie Mae, a government-sponsored company, according to the study. The median price paid by Harbour in Fulton County was $10,482 – less than half the tax-appraised value of the property.
Immergluck calculated that the company made profits of more than 177 percent on selling the home, then made more money each month by charging the residents higher-than-market interest rates.
Harbour has been accused elsewhere of misleading or predatory practices. The company reportedly has settled a suit brought against it by the city of Cincinnati.