After the bubble burst

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.

Tom Barrack:

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

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.

Al Letson:

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

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.

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.

Donald Trump:

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

Aaron Glantz:

Today, the yard is overgrown with crabgrass.

Marcus Butler:

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

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 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.

Tom Barrack:

This is my investment philosophy.

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:

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

Sean Pruitt:

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

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:

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.

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.

Interviewer:

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

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.

Al Letson:

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

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.

Al Letson:

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

Elevator:

Floor 48, doors open.

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.

Brian Grow:

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

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.

Makita Edwards:

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

Makita Edwards:

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

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.

Aaron Glantz:

I spent several days

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.

Speaker 3:

Yeah.

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.

Raina Lynn:

You want to pay the money and stay? Okay.

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.

Tom Barrack:

Hello?

Aaron Glantz:

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

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?

Al Lecton:

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

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.

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 3:

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

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.

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 2:

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

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.

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-

Denise Pope:

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

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.

Kevin Beecham:

Watch your step.

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.

Camorra Beecham:

We’re about to move.

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.

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.

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.

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.

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.

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.

Robert Labute:

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

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.

Sara Hewitt:

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

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.

Danay Butler:

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

Danay Butler:

Are you the property owner here?

Danay Butler:

They didn’t let you.

Eric Sabree:

How are you doing?

Sara Hewitt:

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

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.

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.

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.

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.

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.