Urging the Department of Housing and Urban Development to Enact Safeguards Against Abuses in Contracts for Deeds
WHEREAS, the National Association for the Advancement of Colored People ("NAACP") strives for equality of social and economic rights of all persons through pursuing enactment of federal, state, and local laws securing civil rights; and
WHEREAS, since the subprime housing crisis (2007 to 2009) African-American household wealth has continued to decrease, producing a loss of forty percent of non-home-equity wealth. Additionally, home-equity wealth, which dropped nineteen percent during the crisis, has declined an additional thirteen percent; and
WHEREAS, because most families desire to become homeowners, over three million families have entered into a Contract for Deed in pursuit of their ambitions of homeownership. A Contract for Deed is a seller finance method to purchase a home where the seller retains the legal title to the property until the homebuyer finishes paying all principal payments and interest owed under the contract. Contracts for Deeds are used by low-income homebuyers who are unable to obtain a traditional mortgage or financing because of poor credit ratings, inadequate income or other issues; and
WHEREAS, Contracts for Deeds allow the seller to avoid health and safety regulations, and crucial repairs to the property, while transferring the burden of property taxes, property insurance, and repairs to the homebuyer; and
WHEREAS, in comparison to renting, the homebuyer must pay more per month for the property under Contracts for Deeds, make a larger upfront payment, and take better care of the premises, because the homebuyer believes he or she will eventually become the homeowner. However, sellers rarely end up transferring the title to the prospective homebuyer; and
WHEREAS, Contracts for Deeds are often consummated between the homebuyer and the seller without the benefit of a title searches and title insurance, government regulatory protections and standardized legal documents in many states including Texas, Illinois, Michigan, Minnesota, West Virginia, South Dakota, Ohio, South Carolina, and Florida; and
WHEREAS, investment firms ("Investors") that acquired land during the recent recession use Contracts for Deeds to target vulnerable people — largely low income minorities — who either: (1) are unable to fully comprehend the risk associated with a Contract for Deed; or (2) lack the financial means to satisfy the contract; and
WHEREAS, Investors use Contracts for Deeds to "sell" homes requiring major repairs to low-income homebuyers; these repairs are made necessary due to: (1) physical damage (drywall damage, broken windows, wood rot, and damaged roofing); (2) biological contaminants (black mold); (3) structural problems (foundational issues); and (4) missing or improperly functioning building systems (electrical wiring, water pipes and furnaces); and
WHEREAS, the Investors typically include in a 30-year Contract for Deeds provisions that require the homebuyer to: (1) pay an interest rate in excess of nine percent; and (2) bring the property to a habitable condition within four months of the contract. These terms force low-income homebuyers to devote large amounts of money into properties to satisfy the contracted provisions, on top of large monthly payments with exceptionally high interest rates; and
WHEREAS, investors promptly seek to evict the homebuyer for violating the contract once the homebuyers fail to bring the house up to a habitable standard in the brief time frame or afford payments pursuant to the contract. Moreover, investors include in the Contract for Deed a one-sided clause for compulsory binding arbitration to avoid homebuyers' consumer protections from being adjudicated in a court of law; and
WHEREAS, the eviction causes the low-income homebuyer to lose rights to the home and all capital spent on the property prior to the eviction. The seller retains the title to the property, income paid pursuant to the contract, and improvements the homebuyer was able to afford. The seller is then able to enter into a new contract for deed with a new prospective homebuyer and continue the cycle of contracting and evicting; and
WHEREAS, the proliferation and abuse of Contracts for Deeds presents the risk of creating yet another large drain on African-American wealth comparable in impact to the housing finance abuses that brought about the 2007-2009 subprime crisis.
THEREFORE, BE IT RESOLVED, that the NAACP condemns the use of Contracts for Deeds to exploit low-income homebuyers; and
BE IT FINALLY RESOLVED, that the NAACP requests the Department of Housing and Urban Development, the Department of Veterans Affairs, and the Rural Housing Service of the Department of Agriculture to enact regulations and safeguards against predatory uses of Contracts for Deeds, and to prohibit the practice of using Contracts for Deeds to unjustly evict low-income families from their homes.