Fair housing advocates warn of ‘bond for deed’ scams in metro-east
Fair housing advocates and legal groups are warning metro-east residents to be on the lookout for “bond for deed” scams that contain predatory terms that could leave homebuyers destined for eviction.
As of late last year, the Hope Fair Housing Center, a Chicago-area nonprofit, has identified more than 400 properties in the metro-east owned by out-of-state companies that use such tactics when they sell. Many of the properties are clustered in East St. Louis, Cahokia Heights and Granite City.
While there is nothing illegal about buying a home using a bond for deed instead of a mortgage, the devil is in the details with each contract, said Blake Mitchell, the associate director of enforcement at Hope.
“People are being promised an opportunity of home ownership, being told that even if you have bad credit, even if you have low income, you can buy this home and live there for the rest of your life,” Mitchell said. “But what they find after moving in is that they were lied to.”
The contracts can go by a few other names: land sale contracts, installment sales contracts, seller financing or rent-to-own, Mitchell said. All are designed as providing an alternative to purchasing a home with cash or a conventional mortgage and are common for lower-income buyers.
Instead of using a bank, the buyer will purchase the home directly from the seller with monthly payments. The housing advocates have seen problematic contracts that have interest rates of 11% to 17% and require the buyer to cover the fees, taxes, occupancy permit and needed maintenance.
What would be an $89,000 home ends up costing $350,000 over the course of a 30-year contract, Mitchell said.
In some cases, sellers have demanded buyers double their monthly payment. If at any point the sellers are annoyed, they will convert the contract to a rental and can evict the buyers, Mitchell said.
Hope Fair Housing contends that some of these practices — specifically rental conversions — may run afoul of the federal Truth in Lending Act and an Illinois law called the Installment Sales Contract Act.
“People are being evicted from the homes they own,” Mitchell said. “They’re being lied to about their contracts. It’s most likely fraud.”
The problem isn’t unique to the Metro East. Legal aid attorneys have noticed similar contracts in north St. Louis and north St. Louis County, the St. Louis Post-Dispatch reported last year.
Hope Fair Housing, the Urban League of Metropolitan St. Louis and legal nonprofits recently hosted three workshops in East St. Louis, Fairview Heights and Florissant to educate the public about the risks of such contracts.
“Everyone has the right to safe housing,” Mitchell said. “Everyone needs a place to live, and they should get one without being threatened by some out-of-state landlord who just wants your money.”