In the recession-battered neighborhoods of north Minneapolis, where property values plummeted further than almost anywhere in the Twin Cities, one real estate investor's deals appear to defy gravity.
Starting in 2008, a retired Minneapolis police officer and longtime landlord named Robert M. Anderson went on a buying spree, snapping up 30 troubled houses on the North Side for just $775,000. Though each of the properties had been through foreclosure, Anderson was able to quickly resell those houses for $2.3 million. From 2006 to 2010, the median sales price of a house in that area fell 56 percent.
The transactions were hardly typical. Anderson financed the deals himself, with buyers usually agreeing to pay interest rates of 10 percent, twice the rate for conventional home loans. Instead of a 30-year mortgage, most buyers were given just five years to pay off their loans. Deals required no appraisals and no title searches. If buyers fail to make a payment, they can be out on the street in 60 days, not six months to a year.
Such terms are legal through a little-known financial instrument known as a contract for deed, an increasingly popular way of selling property to people who can't get a bank loan. In 2011, a total of 649 properties in Hennepin County sold through a contract for deed, the highest figure in a decade.
The terms of Anderson's deals are troubling to some North Side leaders, as well as those who advocate on behalf of low-income residents. Critics say loose regulations surrounding contracts for deed mean that many buyers are woefully uninformed.
The May 22 tornado scrambled the housing market in north Minneapolis when it damaged more than 3,700 properties, but most expect it will only intensify the existing need for affordable housing, and the potential for speculation.
Barb Johnson, president of the Minneapolis City Council, said Anderson is one of many investors who have exploited vulnerable residents on the city's North Side. "You've got people in circumstances who need housing, and they will be taken advantage of by these predatory actors in this real estate marketplace," Johnson said.
Anderson, 70, declined to comment. But Minneapolis real estate agent Larry Lees, who helped orchestrate the deals, said Anderson helped people buy homes when banks refused to lend. "I don't think they're predatory at all," Lees said.
Lees said he is not a "big fan" of contracts for deed, but he said Anderson can't be blamed if his customers failed to understand what they were getting into. "It's all right there on the contract," said Lees, owner of Camden Homes Realty.
Each month, records show, Anderson is entitled to collect at least $22,000 in payments on his 30 properties. While he holds the titles, Anderson is not subject to any of the rules governing landlords, who can be forced to repair properties that don't meet city standards. So far, property records show, at least eight buyers have given their homes back to Anderson, losing whatever equity they had accumulated. Many of the buyers were immigrants with limited English.
A feisty landlord
Anderson's real estate dealings have rankled local leaders for two decades.
In 1990, the police chief and City Council members publicly criticized Anderson, then a crime prevention officer, for his management of an apartment building where rampant drug dealing, assaults and other mayhem made it one of the top locations in the city for police visits. One neighbor called it a "godsend" when the place burned down in 1996. Tenants and neighbors also complained about some of Anderson's other rental properties.
Anderson fought back. He worked with a feisty group of low-rent landlords to form the Minneapolis Property Rights Action Committee, which in 1995 sued the city to overturn its requirement that all landlords obtain a city license. That suit was dismissed.
Anderson left the Minneapolis police in the mid-1990s, records show. He now lives in Cape Coral, Fla., but he still has an apartment in downtown Minneapolis. He has just one rental property in Minneapolis, according to city records.
Today, his real estate holdings are concentrated on the embattled North Side, where banks have repossessed block after block of Victorians, bungalows and ramblers. On average, Anderson paid just $25,800 per house. An 871-square-foot house on Aldrich Avenue North cost him just $9,500.
Lees said the houses were no bargains, claiming each required at least $50,000 to $60,000 in work.
"The furnace is gone, the copper's all stolen out of it, the roof is shot, the windows need to be replaced," Lees said.
According to city records, Anderson received approval to start five-figure renovations on at least one of the properties. No city building permits were issued to eight of his properties. That means that apart from electrical work, any legal renovation had to be limited to minor repairs, such as painting or installing new cabinets.
Despite what some occupants described as minimal renovations, Anderson was able to quickly flip his properties for big profits through contracts for deed, records show. Eight of the homes resold in 30 days or less.
To cover loan costs, property taxes and insurance, buyers agreed to pay Anderson $729 to $1,062 a month, records show.
Most buyers also agreed to give Anderson the money if they received an $8,000 federal tax credit, which Congress created in 2008 to help revive the housing market. Lees, however, said 90 percent of the buyers never applied for the credits. "That was a flop," he said.
Eight of the North Side properties that Anderson flipped in recent years sustained minor damage from the May 22 tornado, city records show.
'Not going to cry about $6,000'
Last May, Anderson paid a bank $34,000 for a house on N. 6th Street. He sold it on a contract for deed to Dawn Ratka in March for $125,000. Ratka, 25, said she's happy with the place, which has a remodeled porch, new carpet and a built-in china cabinet.
"I'm trying to settle down in a home and I don't have enough credit" to get a bank loan, Ratka said. She said she's resigned to forfeiting her down payment if she loses the house. "I guess I'm not going to cry about $6,000," she said.
Also using contracts for deed to sell homes on the North Side is the Greater Metropolitan Housing Corporation (GMHC), a nonprofit affordable housing developer. Its interest rates are about 7.5 percent, but buyers have to pay off their loan within three years. Of 31 contracts signed in the last three years, just one buyer has given back the house, said GMHC's Gary Beatty.
Minneapolis attorney Larry Wertheim, who specializes in contracts for deed, said most people who enter into the contracts don't understand the risks.
To protect buyers, Wertheim supported state legislation that would have required a 10-day waiting period for transactions and better disclosure. If buyers missed a payment, the disclosure read, "you could lose all the money you have already paid, lose your ownership rights; and immediately be evicted." The bills died in committee.
Church helped find buyers
At least a dozen of the people who bought homes from Anderson have ties to Alfa Y Omega, a north Minneapolis church with a predominantly Hispanic congregation.
The deals were touted by members as an opportunity for home ownership. Church secretary Nanci Hernandez said Pastor Manuel Carranza talked to some members about the deals but didn't promote them. After seeing how some transactions turned out, Carranza would now discourage such investments, Hernandez said.
Ana Lopez and her husband were looking for an apartment when they heard about an alternative from Carranza. Lopez said she was shown one of Anderson's houses after she told Lees and Anderson how much she could afford to pay each month.
Anderson bought the property from GMAC Mortgage for $19,750 in 2008. He got permits to install a new range and $750 worth of plumbing. The next month, Lopez and her husband agreed to pay Anderson $65,000 for the house through a contract for deed. Lopez said the church helped cover her $2,000 down payment.
Less than a year later, Lopez and her husband realized they couldn't afford the monthly payments of $1,000. Lopez said she called Anderson in May 2009 to say she wanted out of the deal.
Lopez said she was given two days to move out. "I told him, can you just give me the whole month because I've already made the payment?" Lopez recalled.
Like six other families who bought one of Anderson's properties, Lopez immediately gave up possession of her property after signing a quit-claim deed, even though buyers were entitled to remain in the homes for two months after the transactions were canceled.
Lees said buyers were fully informed of their rights, explaining that any non-English speakers used interpreters at their closings.
"They've been explained fully what default means," Lees said. "If they're telling you that they didn't know that, then that's their fault, because they either weren't listening, or did not indicate that they did not understand that."
Hernandez, who passed on buying one of Anderson's houses, said some church members thought they truly owned the houses they were living in.
"I don't know if half of these people understood what they're doing," Hernandez said.
Staff writer Jim Buchta and database editor Glenn Howatt contributed to this report.
From April 2008 through May 2010, Robert M. Anderson acquired 30 previously foreclosed houses in north Minneapolis and resold them on contracts for deed. He paid about $775,000 for them, and resold them for $2.3 million. At least eight of the houses have come back to Anderson after buyers failed to make payments, and he has resold at least six of those.
1 3350 Aldrich Av. N.
Purchased: 2/5/09 for $9,500 Sold: 6/1/09 for $85,000
2 3027 Upton Av. N.
Purchased: 1/26/09 for $30,000 Sold: 2/13/09 for $75,000
Quit-claimed back: 2/5/10 Resold: 4/30/10 for $94,900
3 4315 Fremont Av. N.
Purchased: 10/27/2008 for $19,750
Sold: 11/26/2008 for $65,000
Quit-claimed back: 5/21/09
Resold: 8/5/09 for $99,000
4 4006 Emerson Av. N.
Purchased: 10/16/09 for $27,900
Sold: 10/29/09 for $68,000
5 2707 Sheridan Av. N.
Purchased: 9/17/09 for $23,000
Sold: 11/16/09 for $92,000
6 3722 Aldrich Av. N.
Purchased: 3/25/09 for $33,250
Sold: 3/31/09 for $78,000
Quit-claimed back: 12/16/09
Resold: 2/19/10 for $99,900