File this under the high cost of being poor.

Just when you think low-income families have dealt with enough predators, there’s always more.

It wasn’t enough that they were exploited by sub-prime loans, lost homes in the foreclosure epidemic, forced to buy a car because of inadequate public transit, see companies given tax breaks to create jobs that don’t pay them a living wage, getting payday loans with astronomical interest rates at the same place they pay their MLGW bills, pay $400 a month in insurance on a $38,000 house, and pay a greater percentage of their earnings in taxes than people making five times more.

And yet, it seems there is always one more vulture circling low-income people.

A Mushrooming Scam

The latest is the scam connected to the mushrooming of “rent to own” signs.  It preys on families’ dreams of home ownership.  They may not have the credit rating to get a bank loan and the con is that they can make monthly home payments, build equity, and ultimately own a home.

But, in truth, it’s just the latest way to steal money from low-income Memphians.  The interest rate is high, they house is “as is,” late payments can lead to growing fees and penalties, and it’s possible for the home’s owner to kick out the family and keep all on improvements to the house.

As Steve Lockwood, executive director of the Frayser Community Development Corporation, has proven, if Memphians can pay $500 a month in rent and have good credit, he can get them into a house, and the $500 includes mortgage, taxes, insurance, and utilities.

To spread the word about the homeownership opportunity, Hyde Family Foundation gave the Frayser CDC $70,000 to spread the word that people can buy a house for about the same price as apartment rent.  As a result, Mr. Lockwood said Frayser home sales are selling at a higher rate than most areas of Memphis.


Dr. Elena Delavega, associate professor of social work at University of Memphis, said: “People need to realize that there is no limit to others who will try to profit off poverty.  If we don’t make sure everyone is participating in the economy, Memphis will die.  Why would we want Memphis to be the warehouse of the country? Do we want Memphis to be looked down on?”

For decades, getting into the economy and accumulating wealth for white Americans hinged on home ownership and increases in real estate values.  Meanwhile, African Americans have historically been denied the same opportunity because of state and federal government redlining and subsequently taking no action to address predatory programs aimed at them.

“Frayser’s question is: why rent when you can buy?” said Eric Robertson, president of Community LIFT.  “People in town halls say they want more homeownership.  There are barriers like when someone makes repairs themselves and goes to a traditional lender to borrow for a house appraised at $30,000.  They can’t go online because the companies won’t do a loan below $50,000.  It’s been said that the time spent by a loan officer is the same for a $55,000 as it is for $150,000, so they don’t want to do the smaller amount.”

He and Lockwood attest to the motivating desire of low-income Memphians to own a home, which puts a target on their backs for predators. It’s what the Hooks Policy Papers at University of Memphis Benjamin Hooks Institute for Social Change calls “a Memphis mirage.”

Housing Desperation

In a report in the October, 2019, Hooks Policy Papers, Wade Rathke and Dine Butler of ACORN International wrote: “Attainable homeownership in Memphis is on the decline thanks to corporate investment in post-housing crisis housing stock.  As if the Great Recession’s foreclosure crisis of 2007-2008 was not bad enough, more than a decade later, instead of a phoenix rising from the wake of the burst housing bubble, the vultures have descended upon the housing in Memphis.  The result is a policy crisis and the exacerbation of the wealth and racial divisions in the city.

“…Facing a declining number of affordable units, a general increase in rent, and stagnant income, families are driven to the mirage of homeownership through land installment contracts (rent-to-own, contract-for-deed, etc.) once again.  Land installments are agreements to pay monthly payments (installments) for extended periods of time (often up to 30 years) without acquiring a deed to the property. Failure to make regular payments triggers loss of property.”

To cap it off, many of these lease-to-own agreements are for houses “as is” and as a result, families have to make repairs themselves or live in delapidated conditions.  If the owners of the house takes the property away from the families, the families are not reimbursed for the improvements.

The research between ACORN and the U of M School of Social Work showed that national and local land installment companies are in the local market and are on the rise, such as Memphis Wring family’s “Affordable Housing Property Management Company” that owns hundreds of houses in Shelby County.

The research determined that the primary motivators for people entering into installment contacts was the “desperate need of stable housing” and wanting to own their own home.

Five Policy Changes

The policy recommendations from this review – reasonable and overdue – are:

1)  State law requiring rent-to-own contracts to have a disclosure statement about the condition and material defects of the property.

2)  Increase buyer protections, requiring them to be recorded, to have truth-in-lending policies, and treated similarly to mortgages.

3)  Private equity firms should be included under the federal Community Reinvestment Act and Home Mortgage Disclosure Act.

4)  Local governments should work with local banks to help subsidize down payments and more affordable homeownership programs.

5) Legislation should charge fines and penalties for bad actors.

Reversing History

“There is little appetite in most state governments and in the federal government now in seeking to do the hard work of regulating companies in order to drive the more predatory practices and companies out of the marketplace, but it needs to be done,” the report said.

“The housing crisis in the United States is a fusion of mortgage alternative predation, misguided policies, government inaction, and the legacy of government action has resulted in the wealth gap and home ownership-rental gap in Memphis, where the African American community represents more than double the number of white renters.

“The history of redlining is the history of Memphis.  There must be changes to policies and funding for low-income homeownership programs, pressure on the banks to make loans in communities of color, as well as policies and programs that create safe and affordable housing for low-and-moderate income communities.”


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