Attorney General Keith Ellison filed a lawsuit Tuesday accusing a Twin Cities real estate broker of preying on Muslims and buyers with poor credit ratings with illegal and deceptive contracts for deed that concealed the cost and risks of the loan and balloon payments.
In a written release, Ellison said that buying a home is complex and buyers need clear, accurate information. "But Chadwick Banken and the companies he owns took advantage of home buyers' trust and rigged the game from the start," Ellison said.
The lawsuit accused Banken and multiple businesses he owns of violating state and federal laws by offering contracts for deed with "egregiously unfair terms to the point that the contracts are designed to fail," Ellison said.
The unfair terms compel would-be buyers to walk away from their homes without assets, allowing Banken to collect the proceeds and re-market the same home to new prospective buyers on similar terms, according to the lawsuit.
Banken concealed the real terms of the contracts to deceive consumers into thinking the loans were reasonable, the complaint said. It also said he targeted the Muslim community, offering worse terms.
On his LinkedIn page, Banken, who lives in Minnetonka, describes himself as a licensed broker and a self-employed manager since 2008 at A-Good-Deed LLC, a contract for deed program.
Banken didn't respond to multiple messages seeking comment.
The lawsuit said Banken has been involved in alternative-financing real estate sales for decades. He has formed and closed numerous holding companies for the purpose of profiting off consumers' difficulties, the lawsuit said, adding that he often does business under the "hypocritical assumed name A Good Deed."
The attorney general noted that contracts for deed are not unlawful.
While contracts for deed are an option of last resort for many buyers, they've attracted considerable scrutiny because there's no national regulatory standard, and the contracts are often between seasoned sellers and novice buyers who are financially uneducated about such an agreement.
Some in the Muslim community adhere to tenets of Islam that prohibit interest-based transactions.
The lawsuit claims Banken designed the contracts to fail and provide him a profit and opportunity to churn properties. He did so by requiring very large down payments for homes at "dramatically inflated" values, putting the buyers immediately underwater and unable to refinance out of the loans, the lawsuit said.
Banken required very large balloon payments at the end of short loans, ensuring that purchasers are unlikely to pay off the contract, the lawsuit said. Under the contracts for deed, if the buyer misses a single payment, including the balloon payment, Banken cancels the contract, forcing the buyer to walk away with nothing, according to the lawsuit.
To Muslims, he offered contracts with higher sales prices, higher down payments, and higher monthly payments than what he offered non-Muslim buyers, the lawsuit said.
Named in the lawsuit are companies that Banken owns: Slow Flip, Banken Holdings, BCC Holdings, Flip Funding, Slow Jewels, and Front Flip Funding. Banken "personally participated in, directed, controlled, acquiesced, and knew about these businesses' unlawful, deceptive, and misleading practices."
Traditional mortgages typically run 15 or 30 years with monthly payments of a certain amount so the loan is paid off at the end of the term. Contracts for deed can still be amortized over 30 years, but at the end of the term, five years under Banken contracts, the remaining 25 years are due at once in a final balloon payment.
"The only realistic way to afford a balloon payment is to refinance the loan with a traditional lender or ask the seller to give an extension of the contract, which the seller has sole discretion to grant or deny," the lawsuit said.
While under contract, the buyer is required to pay taxes and insurance and keep the property in good condition — just like a regular mortgage. The consequences of falling behind on a contract for deed are different. Under traditional mortgages, homeowners have a long time to catch up on payments and remain in the home. If they cannot, they get to keep their equity by selling before a foreclosure or pocketing the surplus from a sheriff's sale.
"Being a dollar short or a day late on a payment under contracts for deed risks the buyer forfeiting everything, including the home itself, any improvements made on the home, the down payment, and the value of all past installment payments, which all revert to the seller," the lawsuit said.
In March, the Pew Charitable Trusts issued a report that said that while buyers who enter into a land contract, as they're often known, rate their experiences positively, they can be inherently riskier than a traditional mortgage. Sometimes, the report said, buyers who aren't able to satisfy the terms of the contract are worse off financially than before they entered into their arrangement.
Pew said that Minnesota is one of 21 states that have already passed laws to protect contract for deed buyers, and an analysis of county sales data from 2005 to 2022 found 47,524 land contracts in the state — the fourth-highest in the nation. In 2022, a little more than 2,000 new contracts for deed were recorded.
Hennepin County had the most contracts for deed, which were most often used to buy the least-expensive houses. Minnesota is the only state that requires buyers rather than sellers to record those contracts.
Star Tribune staff writer Jim Buchta contributed to this story.
