Attorney General Ellison sues home seller and lender for predatory lending, deceptive practices, and religious discrimination

Files lawsuit against Chadwick Banken and multiple businesses Banken owns for selling homes via contract for deed using deceptive and predatory practices, illegally discriminating against Muslim purchasers

May 14, 2024 (SAINT PAUL) — Minnesota Attorney General Keith Ellison has filed a lawsuit against Minnesota realtor Chadwick Banken and a variety of businesses he owns, alleging that collectively, they violated multiple state and federal laws by selling houses via predatory and illegal contracts for deed, used deceptive trade practices to market their contracts for deed, and discriminated by offering unfair terms to Muslim purchasers.

The lawsuit, filed in Hennepin County, accuses Banken and his companies of offering contracts for deed that have egregiously unfair terms — to the point that the contracts are designed to fail. This forces would-be purchasers to walk away from their homes with no assets and allows Banken both to line his pockets and market the same home to new prospective purchasers on the same unfair terms: the “slow flip.” The complaint also alleges that the defendants failed to provide disclosures of the contract terms as required by federal law, hid the terms of their loans to deceive consumers into thinking the loans were reasonable, specifically targeted the Muslim community in their marketing, and offered significantly worse terms for Muslim purchasers than for other purchasers.

See pp. 10-12 of the lawsuit for examples of how Banken allegedly deceived purchasers.

“A home is the biggest, most complex purchase most Minnesotans will make in their lifetimes, and people need to be provided clear and accurate information when they make it. But Chadwick Banken and the companies he owns took advantage of home buyers’ trust and rigged the game from the start,” Attorney General Ellison said. “My office launched this investigation and filed this lawsuit because we will not stand by when investor sellers deceive purchasers into accepting fundamentally unfair terms. My job is to help Minnesotans afford their lives and live with dignity, safety, and respect, and these illegal practices do exactly the opposite: they rob Minnesotans of their savings and their dignity.”

How Banken’s ‘slow flip’ works

Defendant Chadwick Banken, and the defendant companies he operates through, engage in predatory and deceptive home sales to Minnesotans who either have low credit ratings and cannot qualify for a traditional mortgage or who hold religious beliefs that prohibit them from participating in transactions that involve interest. Using a type of seller-financing called contracts for deed, Attorney General Ellison alleges Banken misleads purchasers about the true cost of the homes by hiding important terms, like the full cost of the loan and the size of the balloon payment due at the end of the loan. 

Contracts for deed, where the buyer pays the seller over a period of time rather than all at once, are known as a poor man’s mortgage that combine all the responsibilities of homeownership with all the disadvantages of renting, while offering the benefits of neither.  Contracts for deed are not unlawful in and of themselves and can be useful for some land purchases. Banken and his companies, however, use the transaction in illegal and exploitative ways that violate numerous Minnesota state laws, including consumer-protection laws designed to inform and educate consumers about the transaction, and anti-discrimination laws that prevent people being given worse contract terms on the basis of their religion.

Banken’s scheme begins by requiring very large down payments for homes with dramatically inflated prices, meaning that on day one, the purchasers are immediately underwater and unable to refinance out of these loans (even if their religious beliefs do not prohibit them from obtaining a mortgage). Banken’s next step is to require very large balloon payments at the end of the very short term of the loan to ensure that purchasers are unlikely to pay off the contract. If the purchaser misses a single payment for the duration of the loan, including the large balloon payment at the end, Banken and his companies can and do cancel the contract, which forces the purchaser to walk away from the home and lose every dollar they previously paid towards the home. This allows the Banken to churn the properties and flip them again and again — the “slow flip.”

Slow Flip, LLC is in fact the name of one of Banken’s companies that is a defendant in this lawsuit, and it and the other defendant companies operate their business as their company name suggests, generating high profits for Banken at the expense of consumers who get a home worth far less than they paid for it, making it impossible to refinance out of Banken’s predatory loans.

In addition to misrepresenting and hiding material contract terms when selling homes to all their customers, Attorney General Ellison alleges Banken and the defendant companies prey on Muslim purchasers by selling them homes on grossly unfair terms, using contract terms that are designed to default. Some in the Muslim community adhere to tenets of Islamic law that forbid them from engaging in interest-based transactions. Banken specifically markets to this community and offer them worse terms in their contracts: Defendants’ Islamic law-specific contracts have higher sales prices, higher down payments, and higher monthly payments than contracts marketed to non-Muslim purchasers.

In the lawsuit, Attorney General Ellison asks the court to stop Banken and his companies from continuing their unlawful practices, impose civil penalties on the defendants, and to cancel or reform existing contracts when necessary to remedy injuries consumers have suffered.

The Civil Rights Division of the Minnesota Attorney General’s Office launched this investigation into Banken’s deceptive and predatory business practices after receiving consumer complaints from the Muslim community. The Office’s independent investigation revealed that Banken has, for decades, sold houses using these predatory practices, often reaping hundreds of thousands of dollars more than the houses’ fair market value. Banken failed to be upfront with purchasers regarding the terms of the contracts, knowing that any default in payment would result in a forfeiture of the property back to him.

Attorney General Ellison encourages Minnesotans to submit complaints about predatory practices in the real estate industry by using a form on the Attorney General’s website. Minnesotans can also call the Office at (651) 296-3353 (Metro area), (800) 657-3787 (Greater Minnesota), or (800) 627-3529 (Minnesota Relay).

More information about contracts for deed and the pitfalls of them can be found here.

Attorney General Elison supports bipartisan legislation (SF3489) that seeks to protect consumers from predatory contract-for-deed schemes.