Private Equity: The New Neighborhood Loan Sharks

Mike Gallagher double-checks the address on his smartphone and walks up the cement steps of the brick two-story house on Detroit’s west side. He rings the doorbell, and after waiting a minute knocks loudly on the door. A dog barks and a shirtless black man in his mid-thirties cracks open the door.

“Good afternoon. I’m Mike from the Home Savers group. We’re talking to people who have a land contract from Harbour Portfolio. Is that your situation?”

“Yes,” says the man, whom the visitor may have just woken up. He cautiously looks at Mike, who is white with unruly short white hair.

“A lot of people are finding these rent-to-buy loans may not be such a good deal. Sometimes they’re worse than being a tenant, since you have to pay for all repairs and maintenance. But you don’t build any wealth until you make the last payment. How long is your contract loan?”

“Thirty years.”

Gallagher learns the man’s name is Antoine and that he paid $30,000 for a house that Harbour Portfolio bought for about $6,000. Antoine has paid $410 a month for four years. He works a night-shift job and has struggled to make the payments.

“If you miss a payment, all this money you are putting into the house will be lost,” Gallagher cautions. “They can evict you, without the protections a homeowner often has.”

Gallagher invites Antoine to an organizing meeting on Monday night. “You could meet other neighbors who have these contract-for-deed situations and learn how to protect yourself.”

“Jeez,” says Antoine, shaking his head. He is fully awake and is smiling now. “Yeah, I could stop by on my way before heading to work.” He takes down the information about the meeting.

They say goodbye and Gallagher enters information into the app on his phone. He heads on to the next house, this one apparently abandoned.

He has seen this before. As a much younger man in the 1970s, Gallagher helped to organize Chicago residents around predatory “contracts for deed.”

“I was one of Jack’s Scouts,” Gallagher explains, referring to Jack Macnamara, a former Jesuit seminarian who helped co-found the Contract Buyers League in Chicago. The scouts were college students and seminarians who knocked on hundreds of doors to jumpstart the league. Between 1967 and 1977, the league worked to stamp out predatory contract practices through organizing and lawsuits.

“By 1977, we thought the plague was gone,” says Gallagher. Until last year. Like a virulent contagion that was thought eliminated, contracts for deed have resurfaced. This time, however, the perpetrators are not “mom and pop speculators,” as Gallagher calls them, but Wall Street private equity firms.

Gallagher is retired now and lives in Boston, after over two decades working for the Service Employees International Union. But one morning in February 2016, Gallagher got a call from Jack Macnamara in Chicago. “Did you see the story?” Macnamara asked, referring to a front-page article in The New York Times, “Market for Fixer-Uppers Traps Low-Income Buyers.”

In that article, investigative reporters Matthew Goldstein and Alexandra Stevenson described the return of contract-for-deed abuses. “Lured by the dream of homeownership, these seller-financed transactions can become a money trap that ends with a quick eviction by the seller, who can flip the home again.”

On that winter morning, 50 years after the founding of the Contract Buyers League, Macnamara told Gallagher it was time to get the band back together. Their work was not done.

Read the full article on the American Prospect. 

Chuck Collins is the coordinator of the Hidden Wealth Project at the Institute for Policy Studies. He is co-editor of Inequality.org and the author of Born on Third Base: A One Percenter Makes the Case for Tackling Inequality, Bringing Wealth Home, and Committing to the Common Good.