Issues & Trends
The Color Tax and Its Lasting Repercussions on Black Communities
February 22, 2022
More than 70 years after predatory contract house sellers in Chicago took advantage of African American homebuyers, the financial repercussions for Black communities continue today. In a recent screening of part of the documentary series Shame of Chicago, the American Bar Association hosted a panel discussion on the origins of the modern racial wealth gap in the country.
The event featured Bruce Orenstein, co-creator of the five-part documentary, and Beryl Satter, author of the book Family Properties: Race, Real Estate, and the Exploitation of Black Urban America, on which episode three of the series, “The Color Tax,” is based. Satter’s father was civil rights attorney Mark J. Satter, who fought for victims of the exploitative scheme.
Orenstein and Satter were joined by Graham Grady, a Chicago-based partner at Taft Stettinius & Hollister LLP specializing in land use and zoning issues. The panel was moderated by Juan Thomas, founder and principal of the Thomas Law Group and chair-elect of the ABA’s Civil Rights and Social Justice Section.
Money stolen from Black Chicago families between 1950 and 1970 because of the predatory practice came to between $3.2 billion and $4 billion, Beryl Satter said after the screening. “That’s from two communities on the west side [and] south side in one city over 20 years,” according to Satter, a history professor at Rutgers University. The scam preyed on Black homebuyers in numerous other U.S. cities, she added.
With home contract sales, also known as contracts for deed, a buyer puts down a large down payment and makes monthly installments at a high interest rate. The seller holds the deed, so the buyer does not gain equity or any ownership rights until the contract is paid in full and all conditions are met. There are no protections against eviction.
Grady, a Chicago native whose family fell victim to the predatory home contract sales, said that the ramifications of the scam “continue to hold these communities back . . . to hollow out our communities in terms of economic development or lack thereof.”
Orenstein, a former community organizer, said many of the issues African Americans are facing today — from affordable housing and better schools to access to recreation and health facilities and job opportunities — are all rooted in racial segregation in major U.S. cities.
In the documentary, Orenstein and co-creator Chris L. Jenkins, an award-winning Washington Post journalist, shed light on one of the first injustices against African Americans seeking the American Dream of homeownership. Black people who had served in the military and were promised low-cost mortgages through the G.I. Bill of 1944 faced discrimination by many banks when securing a mortgage loan. Predatory contract sellers took advantage of this by selling homes to many Black families at inflated prices, so they could never accumulate equity. And if the buyer missed one payment, the contract seller could evict the family immediately.
The Boltons, one of the families featured in the documentary, thought they had obtained a mortgage to purchase a house in Chicago’s Hyde Park neighborhood in 1955. Facing eviction after missing one payment, the family sought legal help from Mark Satter, who was surprised to find that the family had paid three times what the seller had paid for the house. The contract revealed that instead of a mortgage, it was a rent-to-own installment contract drawn up by Jay Goran, the realtor and actual owner of the house. The Bolton family lost its home and swore to never buy a house again.
The film shows how other Chicago families fell victim to the scam, which was unknown to anyone except the cadre of people — bankers, lawyers, business owners, and contract sellers — who were perpetuating it. In 1962 Bill Berry, executive director of the Chicago Urban League, commented that Blacks were “earning one-third less money but are paying more for their rent and everything else. This is what we call a ‘color tax’ — the extra amount of money Negros pay to live in the city of Chicago for the privilege of being nonwhite.”
The money-fleecing contracts left few funds for Black families to save for education, pay for house repairs, or take care of any other emergencies. The scam also coincided with redlining initiatives in which Black neighborhoods experienced racially motivated underinvestment in schools and other community resources; even garbage pickup was significantly less frequent than in white neighborhoods. Historians and advocates say that the injustice essentially created ghettos.
Adam Green, associate professor of history at the University of Chicago, explained in the episode that “African Americans today on a medium basis across the country have $17,000 worth of family wealth. Whites, by contrast, have $171,000 of family wealth. So, there’s a direct line between this story about the deliberate, systematic, sustained exploitation of Black homeowners through contract selling in the 1960s and the wealth gap that exists today.”
