Fran, I also read Satter's book. I knew a little about contract selling before I read her book but afterwards I really got a good handle of what it was truly about. I had a couple of complaints about the book though. One was that she kept calling the neighborhood where her fathers buildings were 'Lawndale' but it was clearly West Garfield Park. One was on Congress and the other was on Jackson Blvd. off of Pulaski. The other complaint I have is she took a VERY liberal position on what had happened. There was very little if any mention of personal responsibility. Also, she did not mention that Hispanics in the 1960s also went through the same thing, but the difference was that most of them finished paying off their buildings and their neighborhoods stayed largely intact.
I knew I would eventually have to explain this so I will do my best to explain contract buying in simple terms, although it is VERY complicated. MANY people do not know what it was or have ever heard of it so don't feel bad 222psm.
The decline of North Lawndale was not a quick overnight thing. Even before African Americans moved into the area the neighborhood was becoming run down or 'blighted.' The housing stock was old and majority of the buildings were rentals that were owned by absentee landlords. That is where the 'weak spots' developed. At first a small trickle of African Americans moved into the fringe areas of the neighborhood in the early 1950s. Unscrupulous real estate men decided to take advantage of the situation by 'block busting' an area once a black person moved onto a street. They would knock at the door of a white home owner and tell them that they needed to sell their property as soon as possible before its value went into the toilet because of their new neighbors. Lets say for example that fair market value of this building was $10,000, the object was for the real estate man to buy it for $8,000.
Now, here is where it gets interesting. In the 1950s and 1960s African Americans could not walk into a traditional bank and borrow money to buy a property in a white neighborhood. There were restrictive covenants and such which made it impossible so blacks stayed in the area on the south side known as the 'black belt.' They were able to obtain financing for homes/buildings in the black belt by African American owned banks or lending institutions, or banks that specialized in loans to African Americans. Traditional banks viewed African Americans as a 'risk' and therefore would not lend money to them. With so many African Americans coming from the south during the great migration of the 1950s the black areas on the south side were bursting at the seams. With very few options available, black perspective home buyers sought out the 'contract seller.' So now you have this real estate man/contract seller that just bought a building worth $10,000 for $8,000. The black perspective homeowner would go to that contract seller and inquire about one of their properties for sale. The contract seller would show them a property and inform them it would cost $15,000. They were also told that they needled a $3,000 down payment to be able to purchase the building. So now you have an $8,000 investment that the real estate man now 'owns' for $5,000. They would draw up a contract for the balance of $12,000 in which the black homeowner would have to pay back with interest. Since the black home owner had just bought this building for way over market value they now had a lot higher then usual monthly payments. Many of these homeowners could barely afford to make the payments so they neglected maintinence that the buildings required. This is what caused the physical rapid decay of these properties and overall neighborhoods.
Now if I have not yet confused you enough, let me make this even more complicated. Let's say that the homeowner could no longer afford to make the monthly payments on the property. The contract usually had draconian measures to deal with non payment. You are a month or two late, you are out on the street. You just lost your down payment and place to live and the contract seller has reassumed ownership of the building. Now he has just made as a profit your original down payment and several months or years of the homeowners monthly payments. In many cases he has gotten all of his original investment of $8,000 back, or even more, and now gets to start all over again with the next person that buys that same exact property. Here is where it gets even more rough. The next buyer has just bought in most cases an extremely physically distressed property that the last person had neglected maintaining. That is what brought an end to many of these properties. A few times of selling the same building over and over and it becomes so blighted that the city tears it down. Now imagine this. Many of those contract sellers owned HUNDREDS of properties that they did this over and over with. This is why THOUSANDS of buildings no longer stand in these areas.
The web gets even more twisted. In most cases, the money that the contract sellers used to purchase these properties in the first place was obtained in an open line of credit with a bank the contract seller had an 'in' with. In many cases there was no collateral with these loans. So you have a contract seller using a banks money to make MILLIONS off of a pretty twisted situation. If the banks would have just loaned the money directly to the black home buyer much of this could have been avoided. The bank would have ended up making more money in the long run doing legitimate loans, and the home owner would have bought a property and financed it with a legit bank at a legit price. Add to this that this whole process was LEGAL and supported by many politicians, bankers, and other community leaders. In the long run this absolutely DEVASTATED entire communities. Legislation was passed in the 1970s which pretty much brought an end to this practice.
There is MUCH more to this and I just covered some of the highlights. I know I could be long winded, so I don't bore you any further, by the Family Properties book. It is an overall educational read and a must for any serious Chicago Historian.