Banks and Redlining
Redlining was the practice of discrimination against inhabitants of certain neighborhoods, labeling them high risk, then denying or limiting financial services to people in those areas. Banks and insurers made decisions through color-coded maps in more than 200 American cities, including Chicago, primarily using racial criteria to categorize lending and insurance underwriting risks.
New, affluent, racially homogeneous housing areas received preferential green lines while Black and poor white neighborhoods were often colored red and labeled undesirable. It was nearly impossible for people of color to secure federal financial backing from a bank, in the hopes of purchasing a home.
Racially Restrictive Covenants
If an area was not part of the redlining maps, some white residential blocks formed racially restrictive covenants with developer support to prevent minority groups from buying a home and living in their neighborhood. Such a covenant was a legally binding and officially enforceable contract agreed to by property owners and residents. These covenants were attached to parcels of land (and all properties therein) with varying sizes, from city blocks to whole subdivisions. Covenants were enshrined in the deed of properties in the designated area and imposed on all property buyers, prohibiting the use of such properties for purposes other than those detailed in the covenant.
For example, in Elmhurst, the Fredrick H. Bartlett’s Butterfield Homes established their covenant in September 1940. It stated, “No conveyance, contract or lease to be made to or with any person not of the Caucasian race.” In 1948, the Supreme Court ruled that all racially restrictive covenants were unenforceable in the courts. This ended racial restrictions put in place in white neighborhoods before their contract expiration dates, for instance, terms of Fredrick H. Bartlett’s Butterfield Homes were originally written to end on January 1, 1980. The Supreme Court ruling also allowed property owners to sell their property to non-whites without fear of legal action--even if they signed the neighborhood and developer’s restrictive contract.
Blockbusting & Unfair Contracts
Blockbusting is defined as “real estate practices in which brokers encourage owners to list their homes for sale by exploiting fears of racial change within their neighborhood”. A speculator would select a neighborhood they felt would be the most profitable and desirable by minority families. The speculators would visit white residents to warn them of a new wave of non-white families that may soon move into their neighborhood. The owners would decide to move, selling the home to the speculator for cash, who would then “sell” the home to a non-white family at nearly an 84% markup.
Predatory and exploitive practices then followed as the same speculator would not actually “sell” the home to the non-white family. Playing on their desperation for a home, and no clear path to a bank mortgage, the speculators required the new tenants to sign a contract that did not offer the same protections or potential equity building as a mortgage. The contracts allowed the seller to hold the deed until the buyer paid off the home in full, but the monthly payment included a high interest rate, insurance, and taxes that went directly into the pocket of the speculator. These contract homes left no room for error, any short or missed payments meant immediate eviction from the house and no return of equity. If successful in evicting their tenant, the speculator would then put the house back on the market and sign a new contract tenant to the residence.