For years, Fartun Weli has been concerned about how low-income Somali Muslims in Minnesota have been targeted by dishonest home sellers. These sellers exploit a principle of Islam meant to protect the poor.
Weli explains that many Somali immigrants are refugees who know little about the formal homebuying process and often have poor credit. Even if they qualify for traditional mortgages, they’re uncomfortable with typical financing because Islamic law forbids interest on loans.
Private sellers then step in, offering homes at seemingly low prices without interest. In these deals, the buyer makes a large down payment and pays monthly installments, with no bank involved. However, without banks, there are no appraisals, allowing sellers to inflate prices and overlook the home’s condition.
In these agreements, the seller keeps legal ownership until the full amount is paid, while the buyer takes on responsibilities like paying property taxes and maintaining the home.
This community has been scammed, said Weli, who leads Isuroon, a nonprofit supporting Somali refugee women in Minnesota. Many families are suffering in silence.
The Consumer Financial Protection Bureau CFPB is now promising to crack down on these deceptive contracts, known as contracts for deed. They are urging people to report these predatory deals.
Contracts for deed allow private sellers to offer financing without the usual banking regulations. However, the CFPB recently announced that these sellers must now follow the same rules as banks and lenders.
At a hearing in St. Paul, Minnesota, CFPB Director Rohit Chopra discussed how these predatory practices have particularly harmed the Somali Muslim community, who have resettled in Minnesota after fleeing the Somali Civil War. Chopra described how hidden costs and poor housing conditions have trapped families in bad deals, allowing sellers to resell the home under their terms.
We need to ensure that people struggling financially know where to get help and feel safe speaking up, Chopra said.
The Pew Charitable Trusts reports that about 1.4 million Americans used contracts for deed to buy homes in 2022. Tara Roche from Pew’s housing policy initiative pointed out that regulating these contracts is difficult because some states treat them as private agreements without government oversight.
The seller has all the power in these contracts, Roche said. It’s not balanced by legal protections.
The National Association of Realtors supports the CFPB’s crackdown but wants to ensure that buyers who have traditionally used contracts for deed—particularly in rural areas—still have safe alternatives.
For a small group of homebuyers, especially in rural communities, land contracts have worked. The CFPB should make sure safe alternatives are available if these contracts become more restricted, the real estate group said in a statement.
Others are calling for more state regulations to protect vulnerable low-income and immigrant communities.
We’ve known for a long time that communities of color and immigrants were being targeted, but targeting based on religious beliefs is especially troubling, said Sarah Bolling Mancini from the National Consumer Law Center. The center advocates for policy changes, including requiring such sales to be recorded in deed records. We need to ensure these contracts aren’t in a legal gray area without buyer protections.
For Somali Muslims in Minnesota, contracts for deed are appealing because Islamic law forbids paying or receiving interest on loans. Yasir Qadhi, an Islamic scholar, explains that in Islam, interest is seen as a way for the wealthy to take advantage of the poor.
Interest is considered unfair and greedy in our faith. Giving a loan is an act of charity, not a business, Qadhi said.
Weli hopes the CFPB’s action will raise awareness in the Somali community and lead to more resources to help immigrants achieve financial literacy and avoid exploitation.
Being an immigrant and a refugee, you plan carefully and strive for stability, Weli said. Owning a home is the ultimate goal. It’s part of feeling truly safe.