By Paul Monies, Oklahoma Watch
Michelle Houston was in a bind. After six months of living in cramped quarters with her parents, she needed to quickly find a home for her five children, husband and three dogs, but didn’t qualify for a mortgage and had trouble renting after previous eviction notices.
Then she heard about Berry-Rock Homes. They would let her pick out a home in Midwest City, buy it on her behalf and let her pay them back under a contract-for-deed sale. She had her mother put down a nonrefundable option fee of $11,550, money she described as a pre-inheritance from her parents. Along the way, Houston thought she could build up enough in monthly payments to buy the home herself after two years.
More than a year later, Houston and her husband, Cornelius, spend almost all their monthly income on housing. They’ve spent hundreds on repairs, had their gas service shut off for nonpayment and been taken to eviction court because they got behind on the monthly payments.
“We love our house,” Houston said. “We want to be able to keep our house. But I think we’re still on a path of failure here.”
Berry-Rock Homes is one of several contract-for-deed companies filling a gap between landlords and regular mortgage lenders. But there’s a twist: One of its biggest investors is the state of Oklahoma, which put in $8 million in 2022. As lawmakers push affordable housing programs to the forefront, the state also benefits from what critics call predatory lending.
Property records show an LLC formed by Nick Berry, one of the founders of Berry-Rock, bought the Houstons’ Midwest City home in May 2023 for $165,000. Houston and her husband signed rental and contract-for-deed documents in June 2023. She shared copies of the documents with Oklahoma Watch.
Houston said she never met Berry in person and the documents were electronically signed over a series of emails. The option to purchase said the Houstons put down an $11,550 nonrefundable option fee and had the right to buy the home for $163,350 by June 2025. The Houstons receive a monthly option credit fee of $165 for each month they pay the rent on time. Rent was $1,900 per month for the four-bedroom, two-bath house near Midwest City High School.
The Houstons’ Midwest City home is owned by a limited liability company that has the same name as the address. It’s one of more than 600 similarly named LLCs named after single-family homes in Oklahoma registered by either Berry or Cameron Rock, the founders of Berry-Rock Homes.
Investment Came Through Land Office
The state made its investment in Berry-Rock through the Commissioners of the Land Office, which manages a $2.7 billion fund in state land, oil and gas leases and commercial properties for the benefit of public education. The five-person commission comprises some of the state’s top elected officials, including the governor, lieutenant governor, auditor and superintendent of public instruction. It distributed $145.1 million to schools, colleges and universities in fiscal year 2024.
The Land Office invested $8 million in Berry-Rock OK LP in 2022. It gets a steady 11% return each year on the investment. But some lawmakers have questioned whether the investment was structured more like a loan. In a legislative hearing in June 2023, they peppered Land Office officials with questions about the investment.
“Have we invested in a capital real estate company?” asked Sen. Michael Brooks, D-Oklahoma City. “That 11% has got to be guaranteed and have we now just made a loan, not an investment?”
Land Office officials said their legal analysis showed Berry-Rock qualified as an investment in securities and the agency has an ownership stake in the partnership.
“So Berry-Rock was an existing entity,” Bennett Abbott, the agency’s general counsel, told lawmakers. “But the vehicle we invested in was a new entity.”
The Legislative Office of Fiscal Transparency, which issued a broader report on the Land Office last year, said it could not obtain financial statements about the agency’s Berry-Rock investment.
An investment manager who examined the partnership agreement for Oklahoma Watch said it looked like a blind pool. As such, it would be hard to verify much about the investment, including how much money was invested in total, how it was invested or what fees were incurred. The state’s contract with Berry-Rock makes the Land Office a limited partner in the investment.
“The partners desire to form the limited partnership for the purpose of investing in real estate operations,” the partnership agreement states. It does not list any details about what type of real estate would qualify.
Berry-Rock Portfolio
The Land Office pays Oklahoma City-based Buchanan Capital Management LLC $28,000 per year to manage the Berry-Rock investment. Separately, the agency pays $12,600 for an annual net asset valuation of its Berry-Rock investment. The latest valuation, for fiscal year 2023, estimates the fair value of the investment between $7.4 million and $7.8 million. It said Berry-Rock’s portfolio consisted of 696 single-family homes in Oklahoma and Missouri.
Berry-Rock spent $11.8 million to add 53 new properties in the second quarter of 2024, according to an investment update provided to the Land Office at the end of July. It sold 30 properties valued at $6.2 million during the same time period. Berry-Rock operates a single-family home portfolio valued at $145.5 million.
In an interview, Berry said Berry-Rock doesn’t do any direct consumer marketing, preferring to get clients via referrals from real estate brokers or loan officers. The company buys houses valued at between $100,000 and $1 million on behalf of customers. Many of its customers are salespeople or real estate agents who don’t have predictable incomes that would satisfy the requirements for a traditional mortgage, he said.
“It’s not like we’re going out and advertising, trying to find suckers with yard signs or something goofy,” Berry said. “We are literally working through a referral network of licensed Realtors and agents that they themselves could get in trouble if they’re referring folks to something that’s not proper.”
Berry-Rock recently qualified for a local incentive from Oklahoma City to build a $23 million office building at NE 5 and Walnut. The company teamed up with Prism Bank for a 60,000-square-foot building. The project qualified for a tax-increment financing district incentive worth $3.14 million.
Berry said the money for the new office building is separate from the investment pool partnership for Berry-Rock Homes.
Federal Agency Studies Contract-for-Deed Sales
Contract-for-deed sales have been around for generations. Before federal fair housing laws were enacted in the 1960s, they were frequent options for Black families who had been turned away from banks because of restrictive mortgage lending and redlining, the discriminatory practice of denying loans to minority groups.
The Consumer Financial Protection Bureau issued a report in August on contract-for-deed sales and their effects on the housing market. It said they can perpetuate substandard housing stock, inflate home prices and translate into less access to mainstream mortgage credit.
“Because forfeiture provisions allow lenders to reclaim the home and retain the borrower’s payments and the value of any repairs, sellers or investors can profit from borrowers’ inability to sustain homeownership under contracts for deed,” the report said.
Berry said there are bad actors in the contract-for-deed sector, but Berry-Rock isn’t one of them. He said the last thing the company wants is to take back a house from a tenant with an option to buy. More than 80% of Berry-Rock’s customers are able to buy their homes during an option period, he said.
“We very rarely come out ahead or break even when we get a property back,” Berry said. “We didn’t pick them out, and we are buying them at market rates. We absolutely work with folks on payment plans if they get behind. We want them to be successful.”
In recent years, Oklahoma lawmakers have focused on incentives for homebuilders to build affordable homes in cities and rural areas. The $215 million Oklahoma Housing Stability Program included $100 million for no-interest loans to homebuilders investing in affordable housing. The program provided $63 million to build affordable apartments and home rentals, as well as down payment and closing-cost assistance. But legislation to enhance protections for renters stalled in the 2024 session.
‘Set Up For Failure’
Houston said she assumed Berry Rock would offer her credit counseling or personal financial classes to be able to work toward buying the home. But none of that was forthcoming.
“I feel like from the get-go, we were set up for failure,” Houston said.
By October 2023, Berry-Rock had filed an eviction notice in small claims court in Oklahoma County that showed the Houstons owed $4,005 in back rent. Houston said she lost her job, and her husband’s salary alone wasn’t enough to cover the rent or other expenses.
“Before we went to the eviction court, we were trying to, in good faith, get back onto a good pattern with them, pay late fees off, and to hopefully get to a point to where we were a payment ahead so that we weren’t falling behind every month,” Houston said. “So financially, that’s what we were trying to be smart about.”
The Houstons also had to deal with high water bills stemming from leaky toilets. Under the contract, they were on the hook for repairs. That pushed them further behind, Houston said.
“In their agreement, it says that can’t come out of the rental payments either,” Houston said. “We are responsible for all damages and repairs, even if it’s just maintenance issues. So we ended up having to get the money together to buy new toilets and have somebody come out here and install these toilets for us because me and my husband, we’re not plumbers. We don’t know how to do that.”
Houston said she feels guilty for putting her family in what now looks like a no-win situation.
“I feel like something’s really off here, and I don’t know what, I can’t put my thumb on it,” Houston said. “I just know that I feel like the victim over here that was dumb enough to fall for this. They have targeted poor families that have the dream of owning a home and don’t want to continue to have to pay these high rent prices.”
Oklahoma Watch, at oklahomawatch.org, is a nonprofit, nonpartisan news organization that covers public-policy issues facing the state.
