Minnesota AG Ellison sues lender over predatory home loans

(FOX 9) - A lender is accused of issuing predatory home loans through a network of companies in a lawsuit filed by the Minnesota Attorney General.

AG Keith Ellison's office accused Chadwick Banken of breaking state and federal law by selling homes with "predatory and illegal contracts for deed, using deceptive trade practices to market their contracts for deed, and discriminating by offering unfair terms to Muslim purchasers."

The AG says Banken targeted Minnesotans with low credit scores who couldn't get a standard loan or people, like Muslims, who have religious beliefs that prevent them from paying interest rates. Islamic law forbids "riba" – which includes profiting off interest payments. In the Middle East, they offer a variety of alternatives to avoid interest payments.

Ellison says Banken, through his companies, would offer what's known as "contracts for deeds."

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"Contracts for deed 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," the lawsuit explains.

Ellison's office says contracts for deeds aren't an illegal practice in itself – and can be useful in some limited situations. However, the AG accuses Banken of using the practice "in illegal and exploitative ways that violate numerous laws."

"[Banken and his companies] mislead purchasers about the true cost of the homes by hiding important terms, like the full cost of the loan, the size of the balloon payment due at the end of the loan, and, sometimes, even the interest rates," the lawsuit explains.

Ellison says it was more profitable for Banken when his clients would fail to pay back their loans.

The lawsuit explains:

"The Banken Defendants’ business is to require very large down payments for homes with dramatically inflated prices; 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). The next step in their illegal practice is to require very large balloon payments at the end of the (very short) term to ensure that purchasers are unlikely to pay off the contract. They also include a provision in their contracts that allows Defendants to cancel the contract if the purchaser misses a single payment at any time during the loan, including the large balloon payment, which forces the purchaser to walk away from the home and lose every dollar that they previously paid Defendants towards the home. This allows the Banken Defendants to profitably churn the properties and flip them again and again, a 'Slow Flip.'"

Banken even named one of his companies "Slow Flip LLC."

For Muslim clients, attorneys accuse Banken of claiming the contracts were Sharia-compliant and free of interest. In reality, they were not.

Ellison's office is asking a judge to stop Banken from continuing "unlawful practices", cancel or reform any existing contracts, and impose civil penalties against Banken.