Fair Housing Highlights: Yearly Update

A. Cases

Several cases from this past quarter involved claims for racial discrimination based on a lender’s denial of a loan modification. In all three of these cases, the court dismissed the claims because the borrowers failed to allege that they qualified for the loan modification. Two other cases reviewed this year both addressed whether a lender’s request for information regarding Social Security income constituted discrimination, with differing results.

1. Mulato v. Wells Fargo Bank, No. 14-CV-00884, 2015 WL 6552704 (N.D. Cal. Oct. 28, 2015); Colquitt v. Mfrs. and Traders Trust Co., No. 3:15-CV-00807-BR, 2015 WL 7221046 (D. Or. Oct. 9, 2015); Molina v. Aurora Loan Services, LLC, No. 15-10456, 2015 WL 7753215 (11th Cir. Dec. 2, 2015)

In all three of these cases, the borrowers’ claims for housing discrimination based on race were dismissed because the borrowers did not allege that they met the qualifications for loan modification.

In each of these cases, the borrowers alleged that the lenders refused their requests for a loan modification because of the borrowers’ race, and asserted a claim for violation of the Fair Housing Act. However, the borrowers did not state that they met the qualifications of the loan modification, nor did they allege that loans were approved for similarly situated white borrowers or otherwise show that the modification was denied because of race. As such, the court granted the lenders’ motions to dismiss the housing discrimination claims.

2. Germain v. M & T Bank Corp., No. 13-CV-7273, 2015 WL 3825198 (S.D.N.Y. June 19, 2015)

Alleged discrimination directed toward the owner of commercial property, but not at the residents of the property, does not fall within the ambit of the Fair Housing Act.

The borrower, a U.S. citizen of Muslim and Albanian descent, sought financing for a real estate transaction. He alleged that the lender would not consider the loan application because it believed he had ties to the Albanian mob, and claimed the lender discriminated against him because he was Muslim. The court examined whether a party may bring a claim for discrimination when the party seeks to purchase a residential property for commercial purposes. In this case, there was no allegation that discrimination was directed at any prospective residents of the property. As such, the transaction did not qualify as a “residential real-estate-related transaction” under the Fair Housing Act and the claim was dismissed.

3. City of Miami v. Bank of America, No. 14-14543, 2015 WL 5102581 (11th Cir. Sept. 1, 2015)

The City of Miami may allege a Fair Housing Act claim for injuries to the City resulting from a lender’s alleged predatory lending practices.

The City claimed that the lender targeted black and Latino borrowers for predatory loans with more risk and higher fees, including subprime and interest-only loans, and that such practices resulted in economic harm in the city. On appeal, the appellate court reversed the trial court’s dismissal of the claims. According to the appellate court, the City adequately stated a claim under the FHA based on allegations that the discriminatory practices led to more foreclosures, which in turn decreased property tax revenue and caused the City to spend additional money. This alleged injury to the City fell within the “zone of interests” protected by the FHA.

4. City of Los Angeles v. Bank of Am., No. CV13-9046 PA(AGRx), 2015 WL 4880511 (C.D. Cal. May 11, 2015)

The City of Los Angeles did not state a viable legal claim under the Fair Housing Act based on the lender’s alleged predatory lending practices.

The City alleged that the lender engaged in a pattern and practice of predatory lending, which constituted reverse redlining. The City claimed that this pattern and practice of discrimination violated the FHA and resulted in a disproportionately high number of foreclosures in minority neighborhoods within the City. The City claimed the practices and foreclosures resulted in harm to the City because the City received less property tax revenues and had increased costs to address the unsafe conditions at the vacant properties. The court found that the City did not have sufficient evidence of damages incurred as a result of the discriminatory loans and did not state a viable legal claim. Summary judgment was granted for the lenders.

5. Bowman v. RJM Ctr., LLC, No. 4:15CV272-LG-CMC, 2015 WL 4722110 (E.D. Tex. Aug. 7, 2015)

A disabled veteran properly stated a claim for disability discrimination under the FHA against the parties who designed and constructed a property with a lack of accessible features.

Plaintiff Bowman, a disabled veteran, viewed a property for possible rental. He encountered barriers and lack of accessible features at the property. Bowman alleged discrimination on the basis of disability in violation of the FHA against the entities who designed and constructed the building. Bowman claimed the property lacked accessible parking spaces, contained mailboxes that were too high and blocked by a curb, and that light switches, electrical outlets, and thermostats were placed too high. The court denied the defendants’ motion to dismiss the claim.

6. Stewart v. McDonald, 779 S.E. 2d 695 (Ga. Ct. App. 2015)

A purchaser’s claim for discrimination was denied because he could not show that the seller’s licensee’s attempt to derail a real estate transaction was motivated by racial discrimination.

A purchaser alleged that after he entered into a transaction to purchase property, he encountered discriminatory behavior by the seller’s representative in violation of Georgia’s fair housing statute. The purchaser claimed that the seller’s rep made a discriminatory comment and repeatedly stated she would cancel the transaction if the purchaser did not agree to the seller’s actions and demands, including the requirement that the purchaser use the seller’s preferred closing attorney. The purchaser claimed that the seller’s licensee engaged in this conduct because the purchaser is African-American and the rep wanted to prevent the purchaser from moving into the neighborhood, where she was also a resident. Because the purchaser did not show that the conduct was motivated by racial discrimination rather than a legitimate, nondiscriminatory reason, the court affirmed summary judgment for the seller’s representative.

7. Gomez v. Quicken Loans, Inc., No. 13-56084, 2015 WL 6655476 (9th Cir. Nov. 2, 2015)

The borrower stated a claim for intentional discrimination based on the lender’s request for medical proof of the borrower’s disability.

The borrower received Social Security Disability Insurance. As a condition of approving his mortgage, the lender required the borrower to submit medical proof of his disability. The complaint alleged that no other loan applicants were required to submit this type of information, but the trial court rejected the claim. The appellate court reversed the trial court’s decision, finding that the borrower sufficiently stated a claim for intentional discrimination under the Fair Housing Act.

8. Wigginton v. Bank of Am. Corp., 770 F.3d 521 (7th Cir. 2014)

A lender’s request for information showing that the borrower’s Social Security benefits would continue for three years did not constitute discrimination because the lender requested income information from all applicants.

Borrowers who received Social Security Disability Insurance applied for a mortgage. The lender requested information from their physicians or the Social Security Administration showing that the benefits would continue for three years. When the borrowers did not provide this information, the lender denied the loan. The borrowers claimed that the lender’s request for information violated the FHA and other statutes. The court found that the borrowers did not state a claim for discrimination because the lender required all loan applicants to provide information regarding continuation of income. There was no allegation that the lender treated the borrowers differently from other applicants. Dismissal of the borrowers’ claims was affirmed.

B. Statutes and Regulations

Illinois

The Illinois Human Rights Act was amended to prohibit any advertisement or the making of any record of inquiry in connection with a real estate transaction which indicates discrimination based on familial status.[1]

C. Volume of Materials Retrieved

Fair Housing issues were encountered in 31 cases in 2015, a significant increase over 2014 (see Tables 1, 4). The cases principally addressed Lending and Design-and-Build issues (see Table 2). One statute and two regulations were located, similar to the 2014 results (see Tables 1, 6.)