Larry Graham purchased the house at 9904 Anderson Avenue in 2015, according to public records.* But on a recent chilly fall afternoon, he wasn’t there. In fact, the house he’d tried to buy for $13,000 looked as if it had been abandoned months ago.
Frank Ford, a housing policy researcher at the Western Reserve Land Conservancy, stood on the sidewalk, looking up at the two-story, yellow-and-white house, studying the decay.
“The windows are broken, the siding is coming off, the gutters are falling,” he said. He stepped gingerly up the rotting wood stoop to the front porch. On the front door, Ford noticed a letter from the city building inspector stapled to the door, threatening to condemn the house for several code violations.
Ford was interested in the property because it was one of 654 listed on the Cuyahoga County Fiscal Officer’s website as having been sold on land contract in the past several years. It was, he said, like a lot of homes sold on land contract: the buyer put money into it, with the apparent hope of one day owning it, but never got to.
This situation is more common than you might think. In a recent analysis of the land contracts recorded with the County since 2010, Ford found that about 24% of them had failed in some way: either the properties were vacant, condemned, or had thousands of dollars in unpaid property taxes (a sign the property may have been abandoned). Numbers like that are why the National Consumer Law Center calls land contracts, which also go by “contracts for deed” or “rent-to-own” arrangements, a form of predatory lending.
Ford said the thing to notice here isn't just the condition of the house, but how quickly it went from contract-sale to the verge of condemnation. “This is a house purchased using a land contract and it didn't last even two years,” he said.
A Tool of Segregation
A land contract typically works like this: the buyer makes a down payment, moves in, then makes a set number of monthly payments. When it's all paid off, the house becomes the buyer’s. But until that day, the seller keeps the title. And here's the kicker: if the buyer misses just one payment, the seller can evict the buyer or foreclose on the property.
Land contracts were commonly used in the 1940s and 50s, an era when the government's practice of "redlining" black neighborhoods made it impossible for many African-Americans to get a mortgage.
“This wasn't an accident. It's policy,” said Ben Faller, who runs the Community Development Law Clinic at Case Western Reserve University School of Law. Without access to bank loans, the only option for many African-Americans hoping to own a home was a lopsided land contract, with really high interest rates and sellers evicting buyers at the first chance.
“It was one of those tools of segregation,” Faller said.
Fast-forward to today, and land contracts are once again common in Cleveland neighborhoods where blacks were, and still are, concentrated due to decades of race-based housing policy.
There's a pattern to where these deals usually go bad, Ford said. “When you map this out, it's the south-east, inner ring suburbs and the eastside of Cleveland where the population is predominantly African-American. That includes neighborhoods such as Glenville (95% Black/African-American, according to an analysis of Census data by The Center for Community Solutions), Union-Miles (95%), Hough (92%) and Saint Clair-Superior (80%).
“That's where I've seen the most red and white signs” advertising land contract homes for sale, Faller said. Maybe you've seen them, too. The lawn signs advertising X dollars down, X dollars a month? That, he said, is how you spot a seller looking to do a land contract deal.
Own the House Someday, Own the Problems Now
Ever since the housing bubble burst about a decade ago, this controversial way of buying and selling homes has been making a comeback in Greater Cleveland. There are two big reasons for that.
First, majority-minority neighborhoods were targeted by predatory lenders during the mortgage bubble, and as a result, those areas were hardest hit when the bubble finally burst. When those foreclosed properties flooded the market, investors scooped them up cheap. Second, around the same time, banks tightened their lending standards, making it tougher to get a mortgage.
Faller said the combination of those two forces, the glut of cheap homes and hard-to-get credit, created the ideal conditions for land contracts to make a comeback, especially in predominantly black neighborhoods like Glenville, Union-Miles, and Saint Clair-Superior.
He said people turn to a land contract because on the signs, they seem like a good deal. They're often priced as low as 20 or 30-thousand, with monthly payments in the low-hundreds.
“So not only do the numbers look good upfront,” said Faller, “but there's that sense of the American dream tied up in this. Right? You want to be a homeowner.”
But these deals often come with extra costs like property taxes and repairs. The homes are usually sold "AS IS," so if the furnace breaks or the roof leaks, it's on the buyer to fix it.
“You've entered into this deal and the house is yours and you might get title to it someday.” Faller said, “But in the meantime, you own all the problems now.”
And in many cases, problems are pretty much guaranteed, because remember, a lot of these properties are leftovers from the foreclosure crisis, and haven't been maintained for years. What it all adds up to, Faller said, is a situation that looks less like a home purchase and more like a rental, except here, most of the legal protections for renters don't apply.
But Faller is quick to add that land contracts aren't necessarily bad. Some community development nonprofits use similar agreements to sell rehabbed properties to needy families. For them, it can be an affordable path to homeownership.
“It's a tool. It can be used badly and it can be used well,” he said. “What's the goal in any given circumstance? Is it to make money or is it to stabilize the community?”
Still, advocates seem to agree that land contracts are a growing problem in Cleveland. But the exact scope of the problem is hard to measure. That's because although the law requires land contracts be recorded, there's no legal consequence for not doing so.
When Faller searches a County database for land contract
s sales in early September, he only gets five results. He suspects the actual number may be significantly higher, but he said, “I really I can't say with certainty whether five means ten, or fifteen, or twenty, or a hundred.”
To make land contracts more equitable and transparent for buyers, State Representative Michele Lepore-Hagan recently introduced a bill in the Ohio statehouse. The bill requires several provisions that aren’t usually included in a standard land contract: prior to a deal, the seller must pay for an independent inspection and appraisal; and after the sale, the seller is still responsible for property taxes and maintenance.
“It's really in all of our best interest,” said the Land Conservancy’s Frank Ford of the proposed legislation. He said too many land contracts end up like the yellow-and-white house on Anderson Ave: vacant and abandoned.
“The neighbors nearby that have to live with it. And then there's the outcome for the citizens of Cuyahoga County who pay property tax, and now they have to pick up the slack because we have a tax delinquent property here,” Ford said. “It’s a tragedy, not just for the homebuyer, but for all of us.”
*We attempted to contact Larry Graham but were unable to reach him.