the Contract Buyers League: January 2013

Wednesday, January 16, 2013

Lawndale Conversations Series: The Contract Buyers League

Thursday, January 31, 2013, 6pm

A panel discussion with Beryl Satter, author of "Family Properties" and History professor at Rutgers University, Clyde Ross, North Lawndale resident and former CBL co-chairman, and Jack Macnamara, community actvist and CBL organizer, discussing the efforts and legacy of the Contract Buyers League, a collective of black Chicago homeowners which originated in North Lawndale in the 1960s to protest exploitative contract selling.

Jane Addams Hull House Museum
800 S Halsted Street
Chicago, IL 60607

Partners in this event include the North Lawndale Historical & Cultural Society, Neighborhood Housing Services of Chicago, the Jane Addams Hull House Museum, and the Jewish Council on Urban Affairs.

Tuesday, January 15, 2013

Emergence of Exploitative Contract Selling, Part 3: The Federal Housing Administration

The FHA was created in 1934 with the main objective of stabilizing the home mortgage industry after the Great Depression. Subsequently, homeownership in America was encouraged by the availability of homes with low down payments and low interest rates through federally insured mortgages. However, the framework for the “American Dream”, set forth by the newly created FHA, did not work in favor of all potential homeowners. Part of the FHA’s evaluation process when considering the insurance of mortgages was based on “residential security maps” created by the federal entity the Home Owner’s Loan Corporation (HOLC) (though there were other private institutions that created their own maps). These maps of specific metropolitan areas, produced at the request of the FHA, were coded to define the level of risk for insuring mortgages in certain areas of a city.

HOLC Map of Chicago 1939 (Source)

View of North Lawndale (Source)

Areas on the map would be coded as "A - First Grade" defined by green, "B - Second Grade" defined by blue, "C - Third Grade" defined by yellow, and "D - Fourth Grade" defined by red. These “D - Fourth Grade” neighborhoods were most often inner city neighborhoods going through racial transition from white to black, and as such, an entire area or community could be "redlined" with the arrival of an African American family. There were instances in which FHA would insure mortgages for African Americans moving into all-black communities. In contrast, even if a bank or private lender was open to providing a mortgage to an African American family in a transitioning neighborhood, FHA would not insure that mortgage.1

A particular idiosyncrasy of the effects of redlining, and one that conspired to unnerve white’s acceptance of the arrival of blacks into their neighborhoods, was that white homeowners also experienced great difficulty in obtaining credit in neighborhoods that had been redlined. Whether whites were seeking a mortgage for purchasing a home or financing costly home repairs in a redlined neighborhood, if FHA would not insure mortgages in that geographical area banks would likely not provide them. 2

The situation was certainly not monolithic though. When white real estate speculators started their dealings in transitioning neighborhoods, they had easier access to various sources of financing that eluded blacks. That access to financing provided speculators with the cash flow to go in and buy from white homeowners before turning and re-selling those same properties on contract to blacks at a greatly increased price.3

Emergence of Exploitative Contract Selling, Part 1: An Introduction

Emergence of Exploitative Contract Selling, Part 2: Restrictive Covenants and Real Estate Boards

Emergence of Exploitative Contract Selling, Part 4: The Fair Housing Act of 1968 and the Community Reinvestment Act of 1977

1 McPherson, “‘In My Father’s House There Are Many Mansions—and I’m Going to Get Me Some of Them Too’: The Story of the Contract Buyers League.” The Atlantic Monthly Apr. 1972: 54.
2 Satter, “Family Properties” 45.
3 McKnight. (Nov 7, 2012). personal interview.

Wednesday, January 2, 2013

Emergence of Exploitative Contract Selling, Part 2: Restrictive Covenants and Real Estate Boards

(image source)

Restrictive covenants for neighborhoods have been around for a long time in this country, and in fact, still exist today. They are essentially rules put in place that are tied to the deed or title of a property so that a level of coherency within a neighborhood, subdivision, or street can be maintained. The premise being that this approach preserves or increases property values for the individual homeowners. Examples of covenants might be limits on the acceptable range of colors someone can paint their house, or whether a basketball hoop can be placed on a driveway. However, restrictive covenants have not always been associated with such benign neighborhood preferences. There was a time when restrictive covenants were commonly used to expressly deny certain racial or ethnic groups from living in certain neighborhoods. The pervasiveness of this in Chicago was evident in the fact that by the 1940’s about half of the city’s neighborhoods had racial deed restrictions in place. 1

The restrictive covenants adopted by various neighborhoods to keep blacks from moving in were also buttressed by local real estate boards. The onset of World War I ushered in the Great Migration. It was during this time that thousands of African Americans were moving to Chicago, as well as other northern industrial-based cities, from the rural south in search of labor opportunities. In response to the housing pressures created by the huge influx of new residents to the city, the Chicago Real Estate Board (CREB) in 1917, appointed a Special Committee on Negro Housing to make recommendations. What they came up with was “a policy of block-by-block racial segregation, carefully controlled so that ‘each block shall be filled solidly and. . . further expansion shall be confined to contiguous block.’” 2

Additionally, the National Association of Real Estate Board’s (NAREB) Code of Ethics, contained the following, “A realtor should never be instrumental in introducing into a neighborhood. . . members of any race or nationality or any individual whose presence would be clearly detrimental to property values in that neighborhood.” 3

In 1948 the Supreme Court ruled on a case specific to racially-based restrictive covenants. The court ruled in Shelley vs Kraemer that courts could not uphold those covenants because they violated the Fourteenth Amendment’s Equal Protection Clause. In response to the court ruling, the NAREB subsequently revised its Code of Ethics in 1950 to remove the reference to race or nationality, “A realtor should not be instrumental in introducing into a neighborhood a character of property or use which will clearly be detrimental to property values in that neighborhood.” This would seem to have set the stage for an opening up of the housing market to blacks, however, this token revision really only veiled the real estate industry’s inclination to continue business as usual.

Emergence of Exploitative Contract Selling, Part 1: An Introduction

Emergence of Exploitative Contract Selling, Part 3: The Federal Housing Administration

Emergence of Exploitative Contract Selling, Part 4: The Fair Housing Act of 1968 and the Community Reinvestment Act of 1977

1 Plotkin, “Deeds of Mistrust” 266-67. Also see Satter, “Family Properties” 40-41.
2 http://www.wikitree.com/articles/Daley/racism.htm
3 McPherson, “‘In My Father’s House There Are Many Mansions—and I’m Going to Get Me Some of Them Too’: The Story of the Contract Buyers League.” The Atlantic Monthly Apr. 1972: 52.

Background Information

Historic Lawndale

North Lawndale, having transitioned from a largely Italian and Irish based population at its inception in the mid 1800s, emerged as a community largely dominated by a Bohemian and, nominally, Catholic population, particularly in the south end of the neighborhood. In the early 1900s, Lawndale transitioned again, rapidly becoming the third largest Jewish community in the world after Warsaw, Poland and New York City.

The strong Jewish presence began to animate much of the personality and architectural character of the neighborhood, with residents as notable as Golda Meir and Benny Goodman, and an architectural landscape with the largest concentrations of synagogues in the country and some of the first large theaters in the country. The industrial infrastructure was second-to-none and included Sears Roebuck and Co. and Western Electric. Following World War II, the neighborhood began a slow, then rapid transition to become the first African-American community on Chicago's west side. Notable residents included Dinah Washington and Dr. Martin Luther King, Jr.

Homebuyers

The Contract Buyers League consisted of working class African Americans who had arrived to Lawndale from the overpopulated black-belt on Chicago's south side in search of available housing. These same families had previously arrived to the south side from the segregated American South after World War I in search of industrial labor opportunities.

Exploitative Contract Selling

In racially changing neighborhoods across America, federally insured mortgages were unavailable, which left no other option than contract buying as a home purchasing method. The speculative sellers preyed on white homeowner's fears of plummeting real estate values associated with racially changing neighborhoods. The sellers bought homes from those white residents for well below-market value, and in turn sold those homes on contract to black homebuyers at highly inflated values. The terms of these contracts included maximum interest rates, all maintenance responsibilities, and the eviction of homeowners with total loss of investment for failure to pay at any time. Essentially, these contracts denied buyers the benefits traditionally associated with home ownership.

Collective Protest

When the contract buyers realized the unfairness of their home purchase, they attempted to renegotiate with their seller. This was essentially a case-by-case scenario. However, when only a few of these attempts resulted in re-negotiation, the CBL formed and began to picket the offices and homes of sellers, handed out pamphlets and flyers to the neighbors of sellers, filed a series of class-action lawsuits, collectively withheld payments, and resisted and dismissed eviction efforts.

CBL Legacy

The effects of the CBL had and continues to have both local and national implications. Nationally, these efforts gained an audience beyond North Lawndale and were a major contributing factor to national structural changes. This activity was one of several factors in Congress passing the Community Reinvestment Act, the FHA changing its underwriting policy, and the formation of the Gamaliel Foundation as well as the Jewish Council on Urban Affairs. Locally, one of three lawsuits filed on behalf of the CBL led to changes in the Illinois Forcible Entry and Detainer Law to allow for a broader defense in eviction cases. The two additional lawsuits filed by the CBL against the sellers lost in court, but led to contract sellers agreeing to renegotiate all of their contracts according to the CBL formula. While achieving renegotiation at a fair price was the main goal, quite possibly the greatest result of the CBL was the unification and empowerment of the community, and the lifelong impact that had on individuals involved in the CBL.