Rent to Own Schemes and Predatory Lending Practices

WHEREAS, the National Association for the Advancement of Colored People (NAACP) strives for equality of social and economic rights of all persons by pursuing enactment of federal, state, and local regulations that secure civil rights; and

WHEREAS, while ownership is the primary means by which Americans are able to build generational wealth, opportunities for ownership have been severely restricted since the broken promise of a "40 acres and a mule" to newly freed slaves. Since then, Black Americans have been generations behind their White counterparts in obtaining homeownership, which, more than any other factor, impacts the wealth gap between African Americans and Whites; and

WHEREAS, in 2013, the typical Black household had just one dollar in net worth for every 12 dollars of a typical White household. This is primarily because families slowly accumulate wealth over their lifetime and across generations; and

WHEREAS, in regard to total wealth, homeownership is heavily skewed towards White families. In 2016, 72% of White families owned their home, compared to just 44% of Black families; and

WHEREAS, events like the housing market crisis and the Great Recession increased racial wealth inequality because mortgage brokers and lenders marketed subprime mortgages specifically to Black households. In 2007, nearly 54% of upper-income Black households had high-cost mortgages while only 28% of low-income White households had high-cost mortgages; and

WHEREAS, in the "Rent-to-Own" agreement, which is an old but still modern loan type, an item is leased in exchange for weekly or monthly payments, with the option to purchase during or at the end of the allotted time. Real and tangible property are often offered with this type of loan; and

WHEREAS, consumer rental stores are allowed to legally price goods more than triple the fair market price — knowing that customers will be seduced by a low-sounding rental price — because many state consumer laws governing rent-to-own transactions haven't been updated for decades; and

WHEREAS, contract for deeds is a rent-to-own model where the buyer pays for real estate, such as a home, by making monthly payments for a period of years. The buyer does not receive a deed to the property until all payments are made according to the contract. Investment firms exploit this model by acquiring land from government agencies, such as Fannie Mae, then they create contracts for deeds that solely benefit the seller; and

WHEREAS, a contract for deed transaction provides investors with an easy way to circumvent repair obligations that ordinarily extend to landlords, an investor can place a contract-for-deed buyer in a substandard home without any obligations to repair the home; and

WHEREAS, for example, seller-financed housing contracts have aggravated a persistent problem of lead poisoning among young children in this country. In Baltimore, Maryland a woman's two young children were found to have dangerous levels of lead in their blood due to the lead-filled home they were purchasing through Vision Property Management, a company that was fined over $11,000 for failing to register 43 homes in the city of Baltimore; and

WHEREAS, rental companies prey upon the financially illiterate in certain communities with predatorial loans that come with life-threatening risks that are either unknown or undisclosed to the buyer. The investors who use contract for deeds position themselves in markets that lack adequate oversight and consumer protection; and

WHEREAS, these borrowers, who are disproportionally low-income and members of ethnic and racial minorities, cannot employ the financial and legal services of the formal homeownership and mortgage financing processes, and therefore look elsewhere to purchase a home, which leads them to the rent-to-own option; and

WHEREAS, unfair clauses, terms, and provisions are included in these contracts in order to places the buyer in an inequitable position. Compulsory arbitration clauses prevent the buyer from suing the seller in court, and forfeiture clauses allow the seller to terminate the buyer's contract for being as little as a day late in payment; and

WHEREAS, these investors commit numerous housing violations, including violating the warrant of habitability — which requires landlords to ensure that a home is fit for human habitation; and

WHEREAS, contract for deeds should be deemed to violate the Fair Housing Act because they involve marketing of a predatory loan product specifically to Black Americans; and

WHEREAS, the effects of contracts for deeds negatively impact the economic growth and stabilization of African Americans. Contracts for deeds increase eviction rates in neighborhoods, thereby increasing school turnover rates and overall community instability.

THEREFORE, BE IT RESOLVED, that the NAACP condemns rent-to-own and contracts for deeds models that exploit low-income homebuyers and consumers.

BE IT FINALLY RESOLVED, that the NAACP request the Department of Housing and Urban Development and Rural Housing Service to adopt a three-step method to safeguard individuals against all predatory rent-to-own loans:  mandatory identification and disclosure of all properties and its conditions, regulation on government levels put in place to safeguard consumers, and consumer education.