By David A. Kline, Esq.
A recent Fair Housing Act case might give community associations another tool to use in addressing bad actors who commit unlawful discrimination within the community.
The City of Miami sued Bank of America and Wells Fargo for predatory mortgage lending practices that caused a reduction in the City’s tax revenue. The City alleged the banks violated the Fair Housing Act by lending money to minority home buyers on less favorable terms (higher interest subprime loans) than similarly qualified non-minority applicants and homeowners with higher interest subprime loans were more likely to default on their mortgages. The banks were allegedly unwilling to renegotiate the terms of their predatory loans and foreclosed on many properties in minority neighborhoods. This reduced the value of the foreclosed homes and other homes in the neighborhoods, which caused a reduction in the City’s tax revenue. The complaint also alleged the City had to spend more money on services in these neighborhoods to reduce blight and address the dangerous conditions found in communities with high vacancy rates.
In response, the banks argued that the City was not a “proper party” to this lawsuit, because it was not the direct victim of the banks’ alleged discriminatory conduct. Essentially, the banks asserted that the City did not have standing to sue because the City was not within the Fair Housing Act’s “zone of influence.” The banks also argued that the alleged damages suffered by the City were too far removed from the banks’ alleged discriminatory conduct for its wrongdoing to be considered the proximate cause of the City’s lost tax revenue.
In a 5-3 decision, the United States Supreme Court ruled that the City was an “aggrieved party” under the Fair Housing Act and that it has standing to sue, because Congress intended to confer standing broadly under the Fair Housing Act. The Court remanded the case to the lower court to determine whether there was a direct relation between the injury asserted and alleged discriminatory conduct. [1]
What does this mean and how far could such an expansive reading of standing extend to an association?
For example, if a community association learns of discriminatory conduct within its community, would the association be able to bring a Fair Housing Act complaint against the perpetrator?Suppose a homeowner harasses his neighbor because of the neighbor’s race, and the association’s board and management divert resources to investigate and remedy violations of its governing documents. Could the association sue the harassing homeowner under the Fair Housing Act?What if a board member sexually harasses a resident during a board meeting? Certainly, the association could be exposed to liability for that director’s conduct. But, could the association distance itself from that director’s conduct by suing him for violating the Fair Housing Act?Suppose the board of directors grants a request for a reasonable accommodation under the Fair Housing Act to provide a tenant with a disability exclusive use of a desirable parking space. If an angry homeowner thereafter harasses that tenant, because of the accommodation, could the association sue the homeowner for violating the Fair Housing Act?
The answers to these questions are not yet known. However, in 2016, the Department of Housing and Urban Development (HUD) changed its regulations governing enforcement of the Fair Housing Act to clarify that housing providers, including associations, may (and perhaps in the view of HUD, should) be liable for failing to take appropriate action in response to alleged discrimination or harassment within their communities, and where such bad behavior is not necessarily a violation of the CC&R’s.
This indicates that the Fair Housing Act may be used as a sword (not a shield) by associations confronted with unlawful discrimination. In other words, the way seems clear for associations to commit resources and use the Fair Housing Act to combat discrimination, at least where the bad actors are members or residents of the association.
[1] In contrast, consider Dodaro v. Std. Pac. Corp., 212 U.S. Dist. LEXIS 47099 wherein plaintiff homeowners filed suit against developers who targeted poor borrowers, and facilitated subprime loans with accleration clauses, the failure of which loans allegedly led to the devaluation of all other homes in the community. The developers sought and were granted dismissal of all claims.