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Jun 10, 2017

After the bubble burst

Co-produced with PRX Logo

America’s housing bust created both winners and losers – and homeowners have been the biggest losers. Last year, the rate of homeownership in the U.S. hit its lowest point since the 1960s.

So who are the winners? This episode of Reveal takes you into the world of people who are still profiting, from rent-to-own investors in Detroit to President Donald Trump’s best friend, a real estate mogul.

Reveal’s Aaron Glantz looks at the national home rental empire that Trump’s friend Tom Barrack created from the ashes of the foreclosure crisis. Barrack is good at profiting from others’ misery – his business model is based on a fast-churning cycle of penalty fees and eviction notices. Having made millions from single-family rentals, Barrack began leveraging his profit by bundling the homes into giant mortgage-backed securities – an inventive financial product similar to what many remember as a catalyst of the housing crash.

Another lucrative business model that’s gained new momentum from the housing crisis is offering “land contracts” to would-be homebuyers. These often predatory contracts promise a pathway to ownership for people who can’t get traditional mortgages. It turns out that land contracts are nothing new; they’re a big part of the story of housing segregation in America. Host Al Letson talks to a brother and sister who grew up in a Chicago house that their parents bought on contract.

Michigan Radio’s Sarah Hulett brings listeners to ground zero for the land contract business, Detroit. After the housing bubble burst, tens of thousands of homes in the city went into foreclosure. Investors snapped up the vacant, deteriorating properties, and now offer contracts on them with low down payments. But there can be devastating surprises waiting for the buyers, who are responsible for all repairs and maintenance, and can lose their investment overnight.

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Credits

Support for Reveal is provided by The Reva and David Logan Foundation, the Ford Foundation, the John D. and Catherine T. MacArthur Foundation and Mary and Steven Swig.

  • Original Music by Ramtin Arablouei.

Transcript

Reveal transcripts are produced by a third-party transcription service and may contain errors. Please be aware that the official record for Reveal's radio stories is the audio.

 

  Section 1 of 5          [00:00:00 - 00:10:04]
(NOTE: speaker names may be different in each section)

 

Al Letson: From The Center for Investigative Reporting and PRX, this is Reveal. I'm Al Letson.

 

Tom Barrack: Here we are at Piocho Ranch, which is the intersection of a couple of our family's passions. Polo on the one hand and wine on the other.

 

Al Letson: This is Tom Barrack in a promotional video for his winery outside of Santa Barbara, California.

 

Tom Barrack: Often times people say, "What is the connection between polo and wine?" There are several but the most important one is stewardship.

 

[00:00:30]

Al Letson:

 

The winery is Barrack's side business. His real money comes from real estate. We're going to spend a lot of time talking about him this hour, in part because he's one of Donald Trump's oldest and closest friends. In all the ways that Trump is the quintessential New York billionaire, Barrack is all that for L.A. he pals around with Hollywood stars and champion surfers. Where Trump drinks Diet Coke, Barrack takes pride in his family's fine wine. Barrack's bordeaux was served at Trump's inauguration. In fact, Barrack planned the whole inauguration. He raised more than 100 million for it. Here he is at the Lincoln Memorial the night before Trump took the oath of office.

 

[00:01:00]

Tom Barrack:

 

Welcome, the 45th president of the United States, Donald Trump.

 

Al Letson: In the video, you can see Trump putting his hand on Barrack's shoulder. They're really close.

 

Donald Trump: Thank you. Thank you very much everybody and thank you Tom.

 

Al Letson: Reveal's Aaron Glantz has been looking into Barrack. He joins me now. Aaron, how did these two guys actually meet?

 

[00:01:30]

Aaron Glantz:

 

They met back in the 1980s. Tom Barrack was working for this Texas developer and he helped Donald Trump buy the Plaza Hotel in New York. Remember, back when Donald Trump being president seemed totally absurd to most people and nobody in the Republican party would give him the time of day, and nobody would endorse him? Tom Barrack endorsed him and he started raising money for him and he raised 22 million dollars for one of Trump's super PACs. Now that Donald Trump is president, they have lunch together at the White House. Barrack told CNN they talk ever day. The New York Times says he's one of the few people that Donald Trump trusts.

 

[00:02:00]

Al Letson:

 

It sounds like they're pretty tight, but how did Barrack get rich in the first place?

 

Aaron Glantz: Barrack is one of these investors who makes a lot of money, profiting off of other people's pain. He made his first big pile of money off of the savings and loan crisis. He profited off the dot com bust and when the great recession happened, he was there to make on of his biggest plays yet.

 

[00:02:30]

Al Letson:

 

This time, he's making money off of the housing bust. We're going to spend the hour on housing, really on home ownership. Last year it hit its lowest level in 50 years, while regular people have been struggling to keep their homes, or save enough to buy one, Barrack has just been winning and winning.

 

[00:03:00]

Aaron Glantz:

 

Let me take you back to 2005. That year, Fortune Magazine called Tom Barrack the world's greatest real estate investor. On the cover he's smiling, an image of a gold house reflected in his aviator sunglasses. It was the height of the housing boom. Tom Barrack told Fortune there was a bubble. He saw the crash coming, and he started cashing out on many of his real estate investments. His close friend Donald Trump said he'd welcome the crash.

 

[00:03:30]

Donald Trump:

 

First of all, I sort of hope that happens because then people like me would go in and buy.

 

Aaron Glantz: That was recorded at a Trump University seminar in 2006.

 

Donald Trump: If there is a bubble burst, as they call it, you can make a lot of money. If you're in a good cash position, which I'm in a good cash position today. Then people like me would go in and buy like crazy.

 

Aaron Glantz: That's exactly what Barrack did. After the bubble burst, he founded a company that began buying thousands of foreclosed homes all over the country. Like this one on West 69th Street, in south Los Angeles. It's a small, southern California bungalow, with white aluminum siding, behind a short metal gate. Marcus Butler grew up in this house.

 

Marcus Butler: Back in [inaudible 00:04:17] it had a little garden area where he grew like tomatoes and stuff like that, tomatoes, greens, stuff like that. He would pick it from back there and eat it.

 

[00:04:00]

Aaron Glantz:

 

Today, the yard is overgrown with crabgrass.

 

[00:04:30]

Marcus Butler:

 

It's not been kept up too good, but basically it's still the same.

 

Aaron Glantz: Marcus' parents bought the house in 1963 after they, like millions of other African Americans left the Jim Crow south. By the 1990s, the house was all paid off. Marcus' father died. His mom developed dysmnesia, and she gambled. In 2007, she took out a giant $544,000 reverse mortgage. That's when the bank pays you for the equity in your house. A lot of retired people do it to supplement their income. It's really a loan.

 

[00:05:00]

Marcus Butler:

 

I mean they put all this money in your face, the only thing you see is the money but you're not really listening to what they're explaining to you.

 

Aaron Glantz: The loan Marcus' mother got came with an interest rate that topped out at 17%, and when she died in 2012, the family lost the home to foreclosure.

 

Marcus Butler: Personally, I would have wanted to pass the house on. I mean, it's not like if I passed on I would have passed it on to my son or my daughter. I mean, that's what we're taught when we're younger. Try to keep the house in the family.

 

[00:05:30]

Aaron Glantz:

 

The bank that foreclosed, it was run by Steve Mnuchin. You may recognize the name. He's now Donald Trump's treasure secretary. Documents from HUD, show Mnuchin's bank was responsible for nearly 40% of all reverse mortgage foreclosures that came after the housing bust. After Mnuchin's bank too the hose, it sat empty for almost a year before it sold at auction for $180,000. Tom Barrack's company was the buyer. The firm would end up owning more than 30,000 single family homes across 10 states.

 

[00:06:00]

Tom Barrack:

 

This is my investment philosophy.

 

Aaron Glantz: Barrack laid out his vision, in a speech to real estate investors at a University of Chicago conference, during the depths of the great recession.

 

[00:06:30]

Tom Barrack:

 

You man up or woman up and you walk into a jungle where no one else wants to be, and you swing and you fight and you bite and eventually if you're successful, they're all swinging with you. Then you've got to move to another jungle.

 

Aaron Glantz: Barrack became king of the jungle of American foreclosures. His company became a big time landlord by turning all those homes into rentals. Barrack even bragged about how cheap it was.

 

Tom Barrack: We retrofit may of these houses for $1,500 total.

 

[00:07:00]

Aaron Glantz:

 

Managing them was easy he said. Even with the homes spread out all over the country.

 

Tom Barrack: How can you manage them when they're everywhere? Well, how do you manage Wendy's? How do you manage McDonald's? How do you manage FedEx? How do you manage Kinko's?

 

Aaron Glantz: Until the crash, this kind of company simply didn't exist. Of course, there have always been landlords on single family homes. They were mostly mom and pop landlords and this kind of thing, well, one company owned and rented out thousands of single family homes in cities all over the country from Los Angeles to Miami. It had never been done before.

 

[00:07:30] Four months after Barrack's company bought Marcus' family home at auction, a guy named Sean Pruitt signed a lease for the bungalow and moved in.

 

Sean Pruitt: Hey there.

 

Aaron Glantz: Hey Sean, how's it going?

 

Sean Pruitt: I'll be right out okay?

 

Aaron Glantz: Okay. Sean comes to the door, a wisp of a man with limbs barely thicker than sticks. It's the middle of the day. He's wearing a T-shirt and boxer shorts. Sean lives here with his partner and five dogs. He tells me he used to own his own house too, a small farm in Texas.

 

[00:08:00]

Sean Pruitt:

 

I had two donkeys, four hens, three goats, five dogs, and we were going to get into beekeeping but that never happened.

 

[00:08:30]

Aaron Glantz:

 

Because Sean got sick. He has AIDS and lymphoma. He sold his farm and moved to LA, to be closer to the UCLA medical center. That's how he ended up as a tenant with Barrack's company as his landlord.

 

Sean Pruitt: Then they call this a bedroom, this tiny little hole of a room.

 

Aaron Glantz: Looking around the house, it doesn't seem like Barrack's company has done any work. The carpet is frayed. The kitchen linoleum is peeling. Outside, frawns from a neighboring palm tree are tangled in the electrical wire. Sean's lease makes fixing that his responsibility. He says he can't afford it. Sean pays about $1,800 a month in rent. It's gone up every year since he moved in.

 

[00:09:00]

Sean Pruitt:

 

You would think you would be praised and rewarded for paying your rent on time and not having any problems and all of that. Instead, they raise your rent and punish you basically, for being a good tenant.

 

[00:09:30]

Aaron Glantz:

 

He'd like to move, but doesn't have the money. Meantime, his pantry is stocked with Campbell's soup and Jiffy peanut butter, donated from the local food bank. After four rounds of chemo, Sean's doctors have told him he probably only has a few months left.

 

Sean Pruitt: I'm beyond helping at this point. They sent me on my way to-

 

  Section 1 of 5          [00:00:00 - 00:10:04]
  Section 2 of 5          [00:10:00 - 00:20:04]
(NOTE: speaker names may be different in each section)

 

Sean: At this point, I'm just kind of- they sent me on my way to basically die. So that's what I'm doing now. We're sitting here and we're watching me die. I know that sounds so macabre, but it's true.

 

Interviewer: And Sean is expecting another rent increase when his lease runs out in August. He might not live that long.

 

Al Letson: Sean is just one of tens of thousands of people across the country renting homes from the company Barrack founded. And while Barrack says it's no big deal to manage properties across state lines, not everyone agrees.

 

[00:10:30]

Interviewer:

 

They're kind of the ultimate absentee, far removed, out-of-state landlord.

 

Al Letson: When we come back, we head to Georgia, where the company owns 6,000 homes, and is raising billions of dollars off of them on Wall Street. You're listening to Reveal, from the Center for Investigative Reporting in PRX.

 

[00:11:00]

Will Carlos:

 

Hi. I'm Will Carlos, a correspondent covering extremism in America for Reveal. Every week, I choose a topic that has caught my attention and put together the Hate Report, a short bulletin we send out on Friday mornings. I might take an in-depth look at a breaking news story, like a racist hate crime, such as the recent stabbings in Portland. Or I'll put together an analysis of a topic of interest in the world of hate in today's America. You can sign up on our website to have the Hate Report sent to your inbox each week. Just go to revealnews.org/hate.

 

[00:12:00]

Al Letson:

 

From the Center for Investigative Reporting in PRX, This is Reveal. I'm Al Letson.

 

Reporter: Please welcome the founder and Executive Chairman of Colony Capital, Tom Barrack.

 

Al Letson: Real estate mogul, Tom Barrack, is one of Donald Trump's oldest and closest friends. He introduced Ivanka at the Republican National Convention.

 

Tom Barrack: Wow. This is a, wow. But, I have to tell you, I feel like the anchovy on Ivanka's Caesar salad. I know you're salivating for that and you're going to get it.

 

[00:12:30]

Al Letson:

 

Okay, whatever that means. Clearly, he is much better at real estate than he is at introducing people. So, after the housing crash, Barrack scooped up tens of thousands of single family homes and turned them into rentals. More than 30,000 of them are controlled by a single company. Reveal's Aaron Glantz has been investigating. Hey, Aaron.

 

Aaron Glantz: Hi, Al.

 

Al Letson: So, what can you tell me about how Barrack operates?

 

Aaron Glantz: He founded a company that's now called Colony Starwood Homes. Tenants know it as a waypoint. That's where they send their rent checks. But collecting rent is only one of the ways Barrack makes money. I have three words for you: mortgage-backed securities.

 

[00:13:00]

Al Letson:

 

Ah yes, I remember that term. Mortgage-backed securities, a complicated financial product that helped tank the economy in 2008, right?

 

Aaron Glantz: Yeah, that's when banks were bundling all these home mortgages together and they were creating these financial products that were filled with crap. And then, after the crash, Tom Barrack, he was one of the people who got in on the ground floor in creating a whole new type of mortgage-backed security. One that was based on all the rental homes his company owned. You remember that bungalow in Los Angeles that we were talking about earlier? Less than a year after Barrack's company bought it, it was bundled along with more than 3,000 other homes into this giant mortgage-backed security. 514 million dollars, funded by JPMorgan Chase. To understand how that works, you have to go 3,000 miles away from that Los Angeles bungalow to Wall Street.

 

[00:14:00]

Elevator:

 

Floor 48, doors open.

 

Aaron Glantz: Up on the 48th floor of the World Trade Center in New York, Brian Alan is examining Barrack's financial creation. As a Vice President at Morningstar Credit Ratings, Brian's job is to make sure the homes are worth what Colony says they are, and that the rents tenants pay will be enough to make money for investors.

 

[00:14:30]

Brian Alan:

 

One of the indicators is if there's a tenant in the property. If the property is rentable, we can make some assumption that it is in a habitable form and in good working condition.

 

Aaron Glantz: Brian's only seen pictures of the homes in Colony's mortgage-backed securities. That's because he uses what critics call "drive-by appraisals". To estimate the values of each of the homes in the bundle, Brian relies on an outside company that hires real estate brokers instead of appraisers. Another Brian, Brian Grow, is a Managing Director at Morningstar. He feels good about the process.

 

[00:15:00]

Brian Grow:

 

There were pictures for every property and so we felt the process was diligent.

 

Aaron Glantz: But if this sounds fishy to you, you're not alone. Earlier this year, the SCC began investigating the company Colony hired to value the homes. It's part of a wider look into these new mortgage-backed securities. It's a sensitive topic because artificially inflated home prices helped cause the housing bust and the Great Recession. But Brian Grow says, "Don't worry. There's a whole system of checks that will prevent that from happening again."

 

[00:15:30]

Brian Grow:

 

If it turns out that a broker is getting the value wrong, then they'll ding that broker on the scorecard. We felt there's an incentive for the brokers to provide accurate evaluations.

 

Aaron Glantz: And it's not just how much the houses are worth. Morningstar also looks at how fast the rent is going up in each of these homes. The more the rent goes up, the better for investors. And the investors are happy. Today, Barrack's company has created six of these mortgage-backed securities. Colony essentially took out a huge loan against the value of tens of thousands of its homes worth 3.2 billion dollars, all with JPMorgan Chase. Barrack and his investors get that 3.2 billion dollars right now, and all those Colony tenants, they're the ones paying back that debt. Little by little, every month, to JPMorgan Chase.

 

[00:16:30] So how are all those tenants faring? Colony owns thousands of homes in Tampa, Miami, and Southern California. Houston, Dallas, Denver, Orlando, Las Vegas, and Phoenix. I went to their biggest market, Atlanta, Georgia, where the company owns 6,000 homes. I went door-to-door, visiting dozens of Colony properties. Most of the homes were in the suburbs, on treeline streets and neighborhoods with good schools. But inside, many of them are falling apart.

 

[00:17:00] Hi there.

 

Makita Edwards: Hi.

 

Aaron Glantz: Tenants told me about peeling tile, collapsing counters, and even a snake infestation. At one house, a young mother named Makita Edwards came to the door. She told me about what happened when her baby was just 3 months old, right after her family moved in.

 

[00:17:30]

Makita Edwards:

 

Me and my baby was on our bed, and our ceiling fan just fell through. And we-

 

Aaron Glantz: Like from the ceiling of your, the big unit? Like the light fixture?

 

Makita Edwards: Mm-hmm (affirmative) just fell. And it fell on the bed where we were.

 

Aaron Glantz: Nobody got hurt, but the house has been a disaster ever since they moved in 6 months ago.

 

[00:18:00] So you had no heat, your ceiling collapsed, your sink leaked, your refrigerator leaked?

 

Makita Edwards: Mm-hmm (affirmative) yeah.

 

Aaron Glantz: And at the same time, you're going through all of this, you're getting a stream of eviction notices?

 

Makita Edwards: My mama, yeah.

 

Aaron Glantz: Makita's mom lives here too. When they first moved in, things were hectic. They were late paying rent. Within weeks, they got an eviction notice. Colony demanded the past due rent, $1580, and on top of that: late fees, court filing costs, a fee for Colony's lawyer, and another fee to pay the person who served them the eviction notice. With all those fees, they couldn't catch up. And it became a cycle of late fees, court costs, and more eviction notices. One each of the first six months they lived here. They ended up paying about $200 extra each month, on top of their rent. I told Makita that Colony, her landlord, was founded by Tom Barrack, one of Donald Trump's oldest and closest friends.

 

[00:18:30]

Makita Edwards:

 

He's tough, he's big guy. We're just little people in his world. So ... what can you say?

 

[00:19:00]

Aaron Glantz:

 

Colony's corporate filings with the SCC showed that last year, it made 26 million dollars on fees and tenant clawbacks. That's when they take money away from tenants, like keeping their security deposits. Last year, researchers at the Federal Reserve found that in Fulton County, in the heart of Atlanta, corporate landlords were much more likely than mom-and-pop landlords to file eviction notices. Colony was the most aggressive. In a single year, the company moved to evict a third of its tenants, but they won't rent to tenants who have ever been evicted. So Colony essentially takes good tenants and, in a lot of cases, turns them into bad ones.

 

Bailiff: All rise, all rise. That's Corfu County's [inaudible 00:20:02]

 

[00:20:00]

Aaron Glantz:

 

I spent several days

 

  Section 2 of 5          [00:10:00 - 00:20:04]
  Section 3 of 5          [00:20:00 - 00:30:04]
(NOTE: speaker names may be different in each section)

 

Aaron Glantz: I spent several days going to eviction court in Atlanta. It's called dispossessory court here. The gallery is full of worried faces, almost all of them black. People who have taken time off work to try to save their home. Michael Lucas is deputy director of the Atlanta Volunteer Lawyers Foundation. He helped write that report by the federal reserve. Lucas says you just have to look at the courtroom to see that, in Atlanta, tenants don't have many legal rights.

 

[00:20:30]

Michael Lucas:

 

In a usual courtroom, or if you watch law shows on TV, one side is for the plaintiff and one side is for the defendants and you have some measure of balance there. And in the Fulton Country Dispossessory Court all three desks are taken up by the landlord's attorneys and it's very clear who they are and they have such a presence that you get a sense they're running the show.

 

Aaron Glantz: Tenants almost always lose because the law in Georgia give almost all the rights to the landlord. The judges usually begin court by making a short speech urging tenants to go out into the hallway to try to negotiate an agreement with the landlord's attorney. It's their last chance to avoid being thrown out on the street. One day, out in the hallway, I meet up with Yvette Frazier. She's clutching an eviction notice and trying desperate to reach her son Ronnie, who's out of town.

 

Speaker 3: [inaudible 00:21:35]

 

Yvette Frazier: [inaudible 00:21:36] Is there any kind of way you can text me [inaudible 00:21:38] new number or something because I still don't have it.

 

[00:21:30]

Speaker 3:

 

Yeah.

 

Yvette Frazier: Thank you.

 

Speaker 3: I'm going to try to send it to you.

 

Yvette Frazier: Alright. Nervous cough.

 

Aaron Glantz: Ronnie's a staff sergeant in the Air Force. He'd been deployed out of state and it's his name that's on the lease.

 

Yvette Frazier: I'm doing all I can to get in touch with him so I can get this taken care of. He has a nice home and he's only 25. This his first rental property he ever rented anything in his life. That's him right there.

 

[00:22:00]

Aaron Glantz:

 

The judge says that because Yvette's name isn't on the lease he would be legally obligated to order them out right away unless she works something out with Colony's lawyer, Raina Lynn Holmes. The two of them sit on a bench outside the courtroom door.

 

Yvette Frazier: I need to talk to him.

 

Raina Lynn: What is it that y'all want to do?

 

Yvette Frazier: We want to stay.

 

[00:22:30]

Raina Lynn:

 

You want to pay the money and stay? Okay.

 

Yvette Frazier: Yeah.

 

Raina Lynn: So here's the thing, I can't make an arrangement with you because you're not the tenant but what I can do, since the landlord is willing to let you pay and stay ... When we go in front of the judge he's going ... It'll be draft as a motion, meaning that it's a motion to strike saying that the defendant did not appear. But we'll give you the seven days to work out a pay-and-stay, since he's in the military.

 

Yvette Frazier: Yeah.

 

Raina Lynn: Okay?

 

Yvette Frazier: Alright. He's not-

 

Aaron Glantz: When the lawyer says Yvette can pay and stay it sounds like she's trying to help, but Yvette could get a much better deal. Under federal law, Colony had to tell the judge her son is in the military and the judge has the power to stay the eviction for up to three months. But since Yvette doesn't know this and doesn't have a lawyer, she doesn't ask for it.

 

[00:23:30] She agrees to take the first deal Colony's lawyer offers and promises to pay back rent within seven days, along with more than $400 in fees. If she doesn't come up with the money, Colony can get the Marshals to throw Yvette and her son out.

 

Michael Lucas: They're kind of the ultimate absentee, far removed, out-of-state landlord that, generally speaking, we see is quicker to evict. We see that on the ground level.

 

Aaron Glantz: Again, lawyer Michael Lucas, who helped write that federal reserve study on evictions in Atlanta.

 

Michael Lucas: It would actually be in the landlord's interest to wait until the middle of the month or the end of the month and they'll get that rent and they won't have to go do the costs on a landlord of displacement. Instead, they are a massive bureaucracy, not unlike the servicers of all the mortgages, when that went bad, and they're just making a decision ... On the 5th we evict or whatever it is.

 

[00:24:00]

Aaron Glantz:

 

Colony disputes the report about its high eviction rate. They say the federal reserve looked at only a small portion of the homes they own and even there, Colony says they actually ended up kicking out just 10% of their tenants. The company wouldn't agree to an interview but gave us a statement.

 

[00:24:30] It said they pride themselves on being, "A responsible landlord that provides its residents with an exceptional living experience." They said, "The company plays a critical role in the US economy by combining the benefits of home ownership with the mobility and convenience of renting."

 

We gave Colony a list of the homes in this story, along with questions about their fees, but they didn't respond. They also didn't respond to our questions about mortgage backed securities. And what about Tom Barrack? I spent two months trying to schedule an interview with him. I told his publicist I was willing to fly anywhere in the country to ask him questions about his real estate business and his relationship with Donald Trump. But Barrack's publicist said he wouldn't be interviewed, so I called his cell phone.

 

[00:25:00]

Tom Barrack:

 

Hello?

 

Aaron Glantz: Hi, Tom Barrack?

 

Tom Barrack: Yes.

 

[00:25:30]

Aaron Glantz:

 

This is Aaron Glantz from Reveal, we're a national radio program. I'm recording this conversation.

 

Tom Barrack: I'll have you call my associate. I'll give him your number. I'm in Mexico in the middle of lunch.

 

Aaron Glantz: I understand that-

 

I started to ask him about Colony's eviction rate but he hung up on me.

 

While Barrack was having lunch in Mexico, a crew was hard at work on a mansion he's building in Los Angeles. I drove up into the hills of Bel Air, just a few miles from that rundown bungalow on West 69th Street.

 

Up here a cement mixer is churning and behind a chain link fence I got a glimpse of Tom Barrack's half-built mansion. When it's done it'll be 77,000 square feet, across nine acres. It'll have three fountains, two swimming pools, a tennis court and 10 bedrooms for the help ... A gatehouse bigger than the bungalow. There are rumors that he's building it for [inaudible 00:26:39] but Barrack's name is the only one on the plans.

 

[00:26:30] Barrack's already cashing out of the rental housing business early, just like he did before the housing crash in 2008. He's taken his company public and has started selling off his stock. In March, he made $127 million dollars in a single day.

 

[00:27:00]

Al Lecton:

 

That's Reveal's Aaron Glantz. Aaron, just a few questions for you. We talked about the fact that Barrack and Trump are such good friends. Who else should we be keeping an eye on?

 

Aaron Glantz: Well, Barrack isn't the only guy. Trump has surrounded himself with people who made a ton of money during the housing bust. There's Trump's treasury secretary, Steve Mnuchin, whose bank foreclosed on so many people that he became known as the foreclosure king. There's Steve Schwarzman, the chairman of Blackstone, whose company owns even more homes than Barrack's. He's head of a special economic advisory group that meets regularly with Trump at The White House and the vice chairman of that group is Jamie Diamond, the president and CEO of JP Morgan Chase. They created all of Colony's mortgage backed securities.

 

[00:27:30]

Al Lecton:

 

So it sounds like all of these people have the President's ear. What kind of things are they pushing for?

 

Aaron Glantz: It's pretty early to tell, especially because Donald Trump hasn't laid out a comprehensive plan but within an hour of taking the oath of office his administration took a step that made homeownership more expensive for a million Americans and pushed it out of reach entirely for others. It reversed an Obama rule that would have made mortgages less expensive for a lot of working class people.

 

[00:28:00] And another thing we do know is this ... If the homeownership rate stays where it is now, at this really low level, all of these bankers and private equity guys surrounding Donald Trump stand to benefit. And all the better for them if the housing market takes a really long time to recover from the hit it took during the great recession.

 

[00:28:30]

Al Lecton:

 

That's Reveal's Aaron Glantz. And it turns out that just a week after we reached him in Mexico, Barrack walked away from the rental company he founded. He sold off all the rest of his stock in Colony Starwood Homes and resigned from its board of trustees. Colony built its business on a new real estate scheme. Next, we look at an old scheme that kept black families from buying homes 50 years ago. It's called a land contract and now they're making a comeback. That's ahead on Reveal.

 

[00:29:30] From the center for investigative reporting and PRX, this is Reveal. I'm Al Lecton. Chicago, 1959. Ruby and Robert Lee York were looking to buy a house for themselves and their eight children. The Yorks did buy a house, sort of. They got something called a land contract for a 2-story gray stone house in a neighborhood called Lawndale. Ruby and Robert Lee have both passed on. I talked to their children Sandra and Donald York who both grew up in the house.

 

Donald York: We were just like the Walton's, just about.

 

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Speaker 1: The Waltons. Just about.

 

Speaker 2: Thanksgiving. You know with the whole family. We just gathered around. We sat on boxes, we sat on crates, you know just so that everybody can get around this Thanksgiving table.

 

Speaker 3: It was home, but they actually didn't own the house. Back then in Chicago and cities across America, the vast majority of banks wouldn't give mortgages to black people.

 

Speaker 4: Back then you had to work with what you had. The deal was that you weren't allowed to have a mortgage but you were allowed to have a contract.

 

[00:30:30]

Speaker 3:

 

The contract said that they had to put some money down and then pay monthly installments. The Yorks wouldn't get the deed until the contract was paid in full.

 

Speaker 2: There was no grace period. It was like you missed that payment and that was it and then you were out and then they sold your home again to another family.

 

[00:31:00]

Speaker 3:

 

And houses sold on contract, almost always cost more than a similar house that a white family could get with a mortgage.

 

Speaker 2: It was much more than that, it was almost like double the amount.

 

Speaker 3: Or triple, or quadruple.

 

Speaker 2: And that's why it was so many people who were missing the payments because they just kept taking the payments up.

 

Speaker 3: The York children watched as other families in the neighborhood who had lain contracts too, were evicted from their houses.

 

Speaker 4: I would see people [inaudible 00:31:27] literally out on the street with the sheriff standing right there next to them telling them that you can't take this back in the house. They got put out because they missed one single payment.

 

[00:31:30]

Speaker 3:

 

Now by the late sixties, some of the families had started to fight back. The Yorks joined an activist group called The Contract Buyers League. When a neighbor was evicted, they would rush over and carry all of their furniture right back inside while armed sheriffs deputies were still there. They demanded fair contracts, outright ownership of their homes that some had already paid off, two or three times over.

 

[00:32:00]

Speaker 2:

 

Even as kids we used to go with them to picket the federal building. They just kind of picketed a lot of the different buildings, city hall. So wherever they went the mom took us and so little did we know the importance of what they were doing.

 

Speaker 3: After years of fighting with the banks, the government, and the slum lords, more than a hundred families in The Contract Buyers League were able to get mortgages and become legal homeowners. The Yorks got their deed in the early 1970s but thousands of other families who weren't in The Contract Buyers League were evicted or never got a mortgage.

 

[00:32:30] After Sandra grew up, her mom told her a story that she had protected her from as a kid. When they first got the contract in 1959, there was a white family already living in the house. The contract seller hadn't bothered to ask them to move and the York family had to live in the basement.

 

[00:33:00]

Speaker 2:

 

It was an entire year that they lived there rent free.

 

Speaker 3: So your mother and father were basically paying for these white people to live -

 

Speaker 2: I'm sorry!

 

Speaker 3: Above you.

 

Speaker 2: Give me a minute.

 

Speaker 3: Yes ma'am.

 

Speaker 2: The story does this to me every time.

 

Speaker 3: What does it bring up for you when you think about that?

 

Speaker 2: Well we had so much love in the house, that for someone to do something to my mom and my dad like that, when they were just hard working people who were trying to give their children opportunities and it saddens me.

 

[00:33:30]

Speaker 3:

 

After the fight in Chicago, land contracts never went away entirely. And now in post housing bust America they are back in full force.

 

[00:34:00]

Speaker 5:

 

Stop renting and start buying! 500 dollars down, 500 dollars a month! Good credit, bad credit, no credit, we have something for everyone. Call the joint property-

 

Speaker 3: Ground zero, Detroit, where companies are offering thousands of vacant foreclosed on homes to people who can't get traditional mortgages. Sarah Hewlett of Michigan radio, has our story.

 

Camorra Beecham: I like living in here because our stuff is here.

 

Sarah Hewlett: Camorra Beecham is fiver years old. This white vinyl sided bungalow is the third place she's called home. The last two were rentals but Camorra's mom and dad, Denise Pope and Kevin Beecham, they didn't want to rent anymore.

 

[00:34:30]

Denise Pope:

 

That's all I wanted to do is become a homeowner and better myself for my children.

 

Sarah Hewlett: But Denise says there were problems.

 

Denise Pope: I didn't have the right type of credit or a lot of money to get a home.

 

Sarah Hewlett: So they found this house with a big evergreen tree out front. It's on the fringes of a desirable neighborhood. The kind of stable neighborhood lots of Detroiters aspire to and it was available for 18,000 dollars on a land contract.

 

[00:35:00]

Denise Pope:

 

And all you have to do is put a substantial amount down and then pay 500 a month, which sounds pretty decent for us. At the time we just had our taxes and we were ready.

 

Sarah Hewlett: They put 3,500 dollars down. Besides the 500 dollar installment payments, they agreed to pay the seller 83 dollars each month for property taxes and they figured they'd be homeowners in just a few years. They moved in, painted the walls, put new pipes in.

 

[00:35:30]

Kevin Beecham:

 

Watch your step.

 

Sarah Hewlett: Kevin is in the process of putting in a furnace. The old one got stripped by vandals.

 

Kevin Beecham: I just took it out and put another one in. Bought a used one at the resale shop, Habitat for Humanity.

 

Sarah Hewlett: Now he is waiting for an electrician friend of his to come by and finish hooking it up. In spite of the work it needs, he says he's thankful for this house.

 

Kevin Beecham: We got a home, we got a roof and just [inaudible 00:36:03]. And I knew you just got to keep your head up, pray. The Lord saying, it's all you can do.

 

[00:36:00]

Sarah Hewlett:

 

Everything was going along fine until last fall. That's when Denise came home to find a yellow notice on the front door. In Detroit, everybody knows what those yellow cards mean. They're a warning from the county that a house is headed to auction for unpaid property taxes.

 

[00:36:30] Denise and Kevin went down to the county to try to figure out what was going on. They found out the house had a back tax bill from before they ever signed a contract to buy it. Kevin says they were told the person who owned their house had already been there.

 

Kevin Beecham: They would deny a payment plan. So that's what really made us scared.

 

Sarah Hewlett: Scared because the county could seize the house for back taxes. Kevin and Denise say they kept paying the 500 dollars a month toward their contract, but they started withholding their tax payments while they worked out an agreement with the seller. Then the seller served them with eviction papers.

 

[00:37:00]

Camorra Beecham:

 

We're about to move.

 

Sarah Hewlett: That's five year old Camorra again. She and her family might not actually have to move out, not yet anyway. A judge dismissed their eviction case because it wasn't filed with the right paperwork. Though Denise says the whole thing has shaken up her family.

 

Denise Pope: It had my kids thinking, we gotta move again. Aw, we're about to lose our house. My little baby she walk right up to me saying, when we gonna move again? It's you know, it's all she know right now. You know and I'm hating it because she's only five.

 

[00:37:30]

Sarah Hewlett:

 

Denise says a year ago she thought a land contract was her way into the American Dream. A way to pass something of real value onto her kids that they could build on.

 

Denise Pope: I just never know with this land contract stuff here. I just see sharks.

 

Sarah Hewlett: So let's talk about this land contract stuff here for a minute. Farah Mancini is with the National Consumer Law Center. She's interviewed people across the country who've gotten into predatory land contract deals.

 

[00:38:00]

Farah Mancini:

 

Most people that we've spoken to had no idea that the papers they signed were any different from mortgage loan. But what they knew was, they found a house and they found someone who said we can make you the owner of this house.

 

Sarah Hewlett: The biggest problem Mancini sees is that people who get into land contracts have all the obligations of home ownership, with none of the rights and protections of home ownership. They don't have a deed, they often don't get the tax breaks of a homeowner, even though they have to pay taxes and home insurance. And Mancini says, if they fall behind on their payments there's no foreclosure process.

 

[00:38:30]

Farah Mancini:

 

So you could be living in a house making these payments for years and if you had a normal mortgage you would be building up equity in the home. But in a land contract they have this thing called a forfeiture clause that says, that if you miss a single payment the seller has the right to forfeit the contract and keep all the money you've paid and evict you like a tenant.

 

Speaker 11: Welcome to the [inaudible 00:39:16] Court in the state of Michigan, soon to be [inaudible 00:39:18] beyond the judge

 

[00:39:00]

Sarah Hewlett:

 

In Detroit, this is where those forfeiture cases wind up. Thirty-sixth district court is one of the nation's busiest housing courts. In 2016, 34,000 cases were filed. 34,000 cases for four judges. Cylenthia LaToye Miller is one of them.

 

[00:39:30]

Cylenthia L.:

 

And I will tell you in the 11 years I've been a judge, there's been a market increase in these land contract cases.

 

Sarah Hewlett: SO how many land contracts are there in Detroit? We analyzed 13 years of records from Wayne County where Detroit is, in every year but one since the crash, there were more land contracts than mortgages. And some-

 

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Sara Hewitt: The crash, there were more land contracts than mortgages, in some years double the number. There are likely many more land contracts than the records show. That's because there is no law that requires them to be recorded anywhere, at all. That's true in almost every state. Across the country, in Georgia, Pennsylvania, Minnesota, just to name a few, there's this whole segment of the housing market that's unregulated. No one knows exactly how big it is. In Detroit, judge Miller says, as land contracts have come under scrutiny, she's starting to see a new kind of contract. They're leases with an option to purchase.

 

[00:40:30]

Judge Miller:

 

There isn't a law that says they cannot do these things, that I'm aware of, and that's the problem. Ethically, they're questionable and they do set up people for failure.

 

Sara Hewitt: The guy who sold Denise and Kevin their house declined to be interviewed. So did two other property management companies that do a lot of business in Detroit. Both of them said there was just no up side to talking to a reporter about land contracts.

 

[00:41:00] There is a real estate broker in the Detroit neighborhood where I live who was more than willing to talk to me.

 

Robert Labute: Okay. We have maybe three, six, eight different boards starting with our rentals and commercials, rentals and residential, land contract commercials.

 

Sara Hewitt: Robert Labute is a tall guy with a tall guy personality. Three piece suite, monogrammed shirt, french cuffs. He's been selling real estate since the 70s. Along one whole wall inside Robert's office is white board after white board with the agency's different types of listings. He says his land contract listings are way up.

 

[00:41:30]

Robert Labute:

 

20, 40, 50, 60 properties and I have another 50 to put up.

 

Sara Hewitt: There are just a few listings on the board for traditional mortgage sales.

 

Robert Labute: Most of these boards used to be all traditional.

 

Sara Hewitt: Then came the housing crash. Tens of thousands of homes in Detroit were seized by the banks. Many of them wound up vacant. Labute says suddenly his inventory changed.

 

[00:42:00]

Robert Labute:

 

In the 70s I had to pry the little old lady living in the house that had nicotine all over the place because she smoked like a train. Everything was perfect because we had city inspections. Now these houses are trashed. They're beat up. Over the past two years we've had to take furnaces and water heaters out of any house that becomes vacant, otherwise it's gone. There's not a house that has copper in it any more. That's gone.

 

[00:42:30]

Sara Hewitt:

 

Labute says no bank is going to give you a mortgage to buy a house like this.

 

Robert Labute: The land contract I think is a great medium for people to buy homes. There's some that are not as good as others.

 

Sara Hewitt: Labute says all his deals disclose things like back taxes. His buyers get statements so they know what they're paying toward principal and interest. Not everybody operates this way.

 

Robert Labute: Buyers need to be aware if they're getting into a land contract that they don't sign documents on the back of someone's trunk.

 

[00:43:00]

Sara Hewitt:

 

The huge inventory of houses in Detroit has attracted all kinds of investors, from retirees living abroad to big firms with private equity backing. They can't sell the homes on the traditional mortgage market so they're either looking to unload them for cash, or with land contract type deals.

 

[00:43:30]

Danay Butler:

 

Hello, I'm with the home savers campaign and we're talking to people who bought their homes through Vision Property.

 

Sara Hewitt: Danay Butler had been canvasing the streets of Detroit for the past couple of days, knocking on the doors of homes owned by Harbor Portfolio advisors and Vision Property Management. Both those companies scooped up thousands of properties cheap from Fannie Mae, the government backed mortgage giant. Those firms then sold the homes on land contracts all over the country, including here in Detroit. The home savers campaign is trying to educate these would be home owners about what their contracts say and then organize them to hopefully leverage better deals for themselves.

 

[00:44:00]

Danay Butler:

 

Are you the property owner here?

 

Stevina Dobson: Yes.

 

Danay Butler: Hi. I'm Danay. I'm with the home saver's campaign.

 

Sara Hewitt: In the front yard of Stevina Dobson's house, four boys are playing football and doing back flips. She got this house four years ago from Vision Property Management for $20,000 on a land contract. Property records say Vision got it for just $850. Stevina put in all new plumbing and electrical. She tells Danay Butler she recently called the company to see if she could pay off the contract early.

 

[00:44:30]

Danay Butler:

 

They didn't let you.

 

Stevina Dobson: Yeah, for 15 more thousand dollars. Only 5,000 of it went to principle and I've been paying 376 for the last five years.

 

Sara Hewitt: Stevina says she didn't get statements from Vision, so she didn't realize that most of her land contract installment payments were going to interest and not the principle, so she owed a lot more than she thought. In April, the city of Cincinnati sued both Vision and Harbor Portfolio Management for selling run down homes to buyers who couldn't keep up with repairs and payments, and often defaulted on the high interest deals. Just a few days after the home savers campaign visited Detroit, Fannie Mae announced it would stop selling properties to Vision Property Management. Fannie Mae isn't the only place where investors can score big bundles of cheap properties. Since 2009, more than 100,000 properties have gone into tax foreclosure in Wayne County. Every September, the county auctions off the properties it seizes. This is the guy who runs that auction.

 

[00:45:30]

Eric Sabree:

 

How are you doing?

 

Speaker 7: You're the guy I be seeing on television?

 

Eric Sabree: Oh you saw me on TV too?

 

Speaker 7: Yes.

 

Eric Sabree: Okay. Alright.

 

Sara Hewitt: Eric Sabree is the Wayne County treasurer. He says no one used to know who the treasurer was or what he did.

 

Eric Sabree: This is Wayne County treasurer, Eric Sabree.

 

[00:46:00]

Sara Hewitt:

 

Now, he gets stopped by strangers who recognize his face from billboards or TV.

 

Eric Sabree: Our office is here to help you. Come see us and find out your options. Don't risk losing your home to foreclosure.

 

The scale of tax foreclosure here in Wayne County is probably 10 times what it is in the next highest county, which I think is Cuyahoga County in Ohio, where Cleveland is, probably 10 times more.

 

Sara Hewitt: Sabree says there are three kinds of buyers at the auction. There are the ones he calls matures. They might buy one or two houses, but they don't really know what they're doing. There are responsible investors, who buy up properties, fix them up and sell them. He figures maybe half the buyers fit into those two categories.

 

[00:46:30]

Eric Sabree:

 

The other half are people who kind of do the land contracts, or just sit on the properties. They treat them as commodities, treat the houses like commodities, like they're buying a bushel of wheat or something.

 

Sara Hewitt: There is no question the tax auction has helped contribute to a spiral of staggering displacement and vacant homes in Detroit. Peter Hammer is a law professor at Wayne State University, and directs the Damon Keith Center for Civil Rights there. He says, "Just look around Detroit. It's hard to describe what happened here as anything less than devastation."

 

[00:47:00]

Peter Hammer:

 

That devastation creates forms of exploitation that are historic in nature but are now coming up at levels that we've never seen before.

 

Sara Hewitt: Hammer says it's important to put Detroit in context here. This is a city that's 80% African American. The median household income is $26,000. Home ownership is considered one of the sure fire ways to get ahead but communities like Detroit, communities of color, have been shut out of that opportunity again and again.

 

[00:47:30]

Peter Hammer:

 

You now have had centuries of disproportionate access to the housing market, disproportionate access to the ability to acquire and transfer wealth, and so this notion of who can get credit, who cannot get credit to buy a house has profound long term consequences on who ultimately has a basic wealth.

 

[00:48:00]

Sara Hewitt:

 

Detroit once had one of the highest rates of home ownership in the country. It's now just over 50%, well below the rest of Michigan and the rest of the country. There are some programs working to reverse the decline in home ownership, credit counseling, home buyer workshops, mortgage assistance. There are some who say land contracts or lease to purchase deals could actually be a good way to help people become home owners. They say those contracts don't have to be predatory instruments. If they're written right, they can actually deliver on the promise of home ownership without a mortgage.

 

[00:48:30]

Al Letson:

 

Thanks to Sara Hewitt and our partner, Michigan Radio, for that story. The Urban Institute recently found the foreclosure crisis erased all the gains black people had made in home ownership since the passage of the Fair Housing Act in the 60s. President Trump has proclaimed June 2017 to be National Home Ownership Month. He says, he knows buying a home is out of reach for many young, American families. He blamed this on a stagnant economy in the last decade. He pledged to work with congress on cutting what he called, excessive rules and regulations, which he said make it harder for people to buy homes. Trump acknowledged that buying a home is especially hard for people of color. He didn't mention how his financial advisors and rich friends have scooped up tons of housing stock across the country, homes that traditionally young families might have bought. We're going to keep investigating the people and private companies like Colony, who found a way to profit off the housing bust. We'll be reporting more stories about why people of color have been disproportionately locked out of home ownership, and we could use your help.

 

[00:50:00] If you rent from a big corporate landlord or if your family has run into trouble buying a home, we want to hear from you. Go to revealnews.org/homeowner to send us your story. We promise to read every response and won't use your information without your permission. Again, that's revealnews.org/homeowner.

 

Lois Archesky was our lead producer on today's show. Deb George was our senior editor. Reveal's Jennifer Lafloor, Michael Corey, and Rachel Deleon worked on the Detroit land contract story. We also want to thank researcher Burell Satter, Chicago Reader reporter Maya [inaudible 00:50:42] and fair housing expert Stella Adams for research help on this hour. WHYY provided production support for today's show.

 

[00:50:30] Now, as a Reveal listener, I know you. You know me. I know that you love to binge on stories that go deep. Yes, you. I know, I live in your phone. I'm with your podcast all the time. I see it. You want to hear truly important stories, told in innovative and compelling ways. Well, my friends, I have got the podcast for you. Northern California public radio station, KQED, hey KQED, just launched a new show that tells those stories. By taking listeners on a fascinating and unpredictable journey each week, it's called Cued Up. Whether it's a convict's decade long journey through the California parole system, or how a man attempts to memorize his favorite songs before he goes entirely deaf. Cued Up features some of the finest long form storytelling in podcast form. Find Cued Up where ever you get your podcasts. That's QUDEP. Alright. When you do, tell them Al Letson sent you.

 

Our sound design team is the wonder twins. My man J Breezy, Mr. Jim Briggs and Clair C-Note Mullett. They had help from Katherine Ray Mondo. Original music and mixing this week by Round Team Air Bluey. Our head of studio is Christa Sharpenburg. Andy Paul is our editor in chief. Suzanne Reed is our executive editor and our executive producer is Kevin Sullivan. Our theme music is by Comorado Lightning. Support for Reveal is provided by the Reeve and David Logan Foundation, the Ford Foundation, the John D and Katherine T McArther Foundation, the John S and James L Knight Foundation, the [inaudible 00:52:21] Foundation, and the Ethics and Excellence in Journalism Foundation. Reveal is a co-production of the Center for Investigative Reporting, and PRX. I'm Al Letson, and remember, there is always more to the story.

 

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