The Fair Housing Act and Appraisals | Whitman Legal Solutions, LLC

Prima ballerina Misty Copeland announced earlier this month she is launching a foundation to support greater diversity, equity, and inclusion in dance, particularly ballet.” Her foundation’s first initiative is an afterschool ballet program at Boys and Girls Clubs in the Bronx.

Twenty-five years ago, the Sphinx Organization (Sphinx) was formed to promote diversity in the arts but focused on classical music. Started as a competition in Detroit, since its formation, Sphinx has made significant strides in promoting diversity and inclusion in classical music. Like Copeland’s foundation, Sphinx has long provided free access to beginning group violin classes in Detroit and Flint, Michigan. Sphinx now also offers high-quality training for emerging Black and Latinx middle- and high-school classical musicians nationwide.

Sphinx also supports Sphinx Symphony Orchestra, chamber orchestra Sphinx Virtuosi, and the Harlem Quartet, all comprised of professional Black and Latinx classical musicians. The organization’s reach extends to all aspects of classical music, including supporting diverse music executives, financial support to develop programs relating to diversity, equality, and inclusion in classical music, and job and audition support.

Given Sphinx’s accomplishments in just 25 years, by its 50th year, there’s the possibility diversity, equality, and inclusion will be endemic in classical music. And Copeland’s foundation could similarly remove barriers in dance.

In law, the Fair Housing Act (FHA) is focused on equality and inclusion in the housing market and reached its 50th year in 2018. Although the FHA and fair housing advocates have done much to overcome the damage done by redlining and housing segregation, there is still much to do as the FHA approaches its 55th year.

Recent articles and lawsuits have highlighted one area where FHA compliance still is lacking – real estate appraisals. For instance, in August, a professor at Johns Hopkins University and his wife, who are Black, sued an appraiser and mortgage lender, alleging they violated the FHA by considering race as a factor in determining the home’s value. This article discusses the FHA, how it applies to real estate appraisals, and recent cases alleging discrimination in the appraisal industry.

Allegations of Fair Housing Violations in the Appraisal Industry

In 2021, Freddie Mac released an analysis of the US home appraisal industry, finding that homes in primarily Black and Latinx neighborhoods were valued below what the buyer had offered more frequently than in predominantly white neighborhoods. A 2018 study by the Brookins Industry issued a report with similar findings.

Specifically, the Brookings report found that homes in majority-Black neighborhoods were valued at roughly half the price as homes in neighborhoods with no Black residents – a difference that could not be explained by neighborhood quality. Brookings’ analysis found a statistically significant correlation between the devaluation of homes in Black neighborhoods, segregation, and limited upward mobility for Black children in those neighborhoods.

In 2021, a Johns Hopkins University professor, Dr. Nathan Connolly (who is an expert on redlining and conducts research on the role of race in the housing market), claims he and his wife, Dr. Shani Mott, (who also teaches at Johns Hopkins) experienced race discrimination when his home was appraised for a refinance of the mortgage on their Baltimore home. After receiving an appraisal they believed was below market, the couple applied for a different loan but, this time, removed their family photos and had a white Johns Hopkins professor meet with the appraiser. The second appraisal, prepared by an appraiser who did not know the home’s owners were Black, was over 50% higher than the first one.

Unlike the Freddie Mac and Brookings reports, the Baltimore home wasn’t in a majority Black neighborhood. Instead, the lawsuit claims that the appraiser issued a lower value for the house because a Black family owned it.

Connolly’s and Mott’s case echoes a California federal court case (Tate-Austin Case) filed by Tenisha Tate-Austin and Paul Austin, who are Black, alleging similar facts. The California couple also obtained two appraisals, the second of which came in over 50% higher than the first after the couple removed items showing that a Black family lived there. Although the US Department of Housing and Urban Development (HUD) is not a party to the Tate-Austin case, earlier this year, the US Department of Justice issued a Statement of Interest supporting the plaintiffs and stating that appraisal bias violates the FHA.

What’s Covered by the Fair Housing Act?

The FHA was passed in 1968 to prohibit housing discrimination based on race, color, religion, and national origin. Since then, the FHA has been amended to prohibit discrimination based on sex, disability, and familial status. And last year, HUD clarified that discrimination against LGBTQ individuals is sex discrimination and, therefore, violates the FHA. State and local laws also may prohibit appraisal and other housing discrimination.

The FHA applies to all housing, with only a handful of exceptions, including:

  • Owner-occupied multifamily housing of up to four units. The FHA doesn’t apply if the owner owns a duplex or fourplex and lives in one unit.

  • Private clubs. Private clubs which provide housing only to their members are excepted from the FHA.

  • Single-family home sales by owner. If no real estate broker is involved, an owner may rent or lease a single-family home without complying with the FHA. This exception is subject to additional restrictions on the number of homes owned, frequency of sales, and advertising limitations,

  • Religious organizations. Religious organizations may limit housing to adherents of their religion. This exception doesn’t allow religious organizations to discriminate against individuals on race, sex, or other classes protected by the FHA.

  • Occupancy limitations imposed by local law. Most local laws limit how many individuals can live in apartments of a specific size. Landlords who refuse to exceed those limits are not discriminating based on familial status if family composition (rather than the number of people residing in the rental) is not a factor.

  • Age-restricted communities. Housing for age 55 or older is exempt from the familial discrimination provisions, provided the housing meets certain specific requirements.

In addition to prohibiting discrimination in the sale or lease of housing, the FHA also prohibits discrimination in other activities related to housing, including:

  • Sale of Housing —refusing to sell a home to someone due to their protected attribute

  • Lease of Housing –refusing to lease or providing different lease terms to someone based on their being in a protected group

  • Steering and Blockbusting – trying to convince an individual to live (or not to live) somewhere because of race, religion, national origin, or another covered class or trying to persuade people to sell or move based upon claims that individuals of protected demographic have moved into the neighborhood;

  • Advertisements – advertising the rental or sale of real estate that shows a preference for or against buyers or tenants of a particular protected characteristic or selective placement of advertisements in publications geared toward a specific audience based on a protected attribute.

  • Housing Conditions or Maintenance—placing individuals in dated or less well-maintained units based on their being in a covered class or delaying or refusing maintenance to their rental units based on their protected characteristic;

  • Lending — Refusing to provide information about loans or discrimination on lending terms;

  • Insurance –Refusing to provide homeowner’s or renter’s insurance or discrimination on the terms of that insurance;

  • Appraisals—Biased home appraisals or basing a home’s appraised value on a protected attribute of the owner.

The Fair Housing Act Applies to Residential Real Estate Appraisals

The FHA prohibits discrimination in “residential real estate-related transactions,” which include the “selling, brokering, or appraising of residential real property.” HUD’s regulations define appraisal “as

an estimate or opinion of the value of a specified residential real property made in a business context in connection with the sale, rental, financing or refinancing of a dwelling or in connection with any activity that otherwise affects the availability of a residential real estate-related transaction, whether the appraisal is oral or written, or transmitted formally or informally.” The appraisal includes all written comments and other documents submitted to support the estimate or opinion of value.

“Conditioning the terms of an appraisal. . . on a person’s response to harassment because of race, color, religion, sex, handicap, familial status, or national origin” also is illegal.

Appraisal discrimination need not be intentional. Appraisal practices that have an adverse impact on people in a protected class can violate the FHA.

The FHA definition of appraisal may cover estimates or opinions of value issued by real estate professionals, even though they are not formal appraisals. Even websites that provide value estimates based on an algorithm could violate the FHA if they somehow incorporate the owner’s or user’s protected attribute as a factor when determining home value.

Licensed appraisers were involved in the discrimination claims discussed in this article. But someone doesn’t have to be a licensed appraiser to engage in appraisal discrimination. Using a discriminatory appraisal violates the FHA “where the person knows or reasonably should know that the appraisal improperly takes into consideration race, color, religion, sex, handicap, familial status, or national origin.” The Connolly case also lists the mortgage lender as a defendant.

The extent to which someone using an appraisal must examine the appraiser’s underlying facts is unclear. However, recent cases demonstrate that it’s important that anyone relying on a below-market appraisal should attempt to determine whether it might be based on unlawful discrimination.

This series draws from Elizabeth Whitman’s background in and passion for classical music to illustrate creative solutions for legal challenges experienced by businesses and real estate investors.

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