African-American Households In Chicago Lost Billions Of Dollars Due To Predatory Lending Contracts
African-American families in Chicago lost between $3 billion and $4 billion in wealth because of predatory lending contracts during the 1950s and 1960s.
African Americans used lending contracts or Land Contracts during the Jim Crow Era because white-owned banks would not lend them money.
Lending Contracts and Land Contracts are purchase agreements with payment plans. The seller transfers the deed to the property when the final payment is made.
The Samuel DuBois Cook Center on Social Equity at Duke University and the Nathalie P. Voorhees Center at the University of Illinois-Chicago published, “The Plunder of Black Wealth in Chicago: New Findings on the Lasting Toll of Predatory Housing Contracts.”
The paper calculated how much money black Chicago homeowners lost using predatory lending contracts during the 1950s and 1960s
Contract buying involved buyers plunking huge down payments for homes. They would make monthly payments with steep interest rates. The contract seller held the deed and could evict the buyer for any reason. Contract buyers would also never accumulate equity in their homes. Sellers could do whatever they wanted. Black homeowners didn’t have any laws or regulations to protect them.
The average price markup for homes sold through contract was around 84%. A speculator would purchase the property for $12,000. The speculator would then resell the property on a contract to a black buyer for $22,000.
Black contract buyers ended up paying an average of $71,000 more for their home when adjusted for inflation.
From 1950 to 1970, nearly 75% to 95% of homes sold to black families were sold on contract. The price markup on homes sold on a contract was a gouging 84%.