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Fair Housing Act and the Sale of Real Estate - Module 3 of 5

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 Fair Housing Act and the Sale of Real Estate

FHA Effects on Real Estate

The Fair Housing Act makes it illegal to “refuse to sell… after the making of a bona fide offer, or to refuse to negotiate for the sale… or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status or national origin.”[1] This prohibition is broad, applicable to various persons or businesses involved in the sale of residential property, including property owners, real estate agents, brokers, lending institutions, insurance companies and real estate appraisers. The FHA was passed in the midst of the civil rights movement in response to widespread discriminatory housing practices.

For example, the 1948 case of Shelley v. Kraemer preceded the FHA passage. There, the Supreme Court considered a request by white property owners in Illinois to enforce a restrictive covenant that would block African American families from owning homes in their neighborhood.[2] The Court refused to enforce the covenant, relying on the 14th Amendment even though the covenant was created by private citizens, while the Fourteenth Amendment, by its terms, applies only to states. The Court held that the plaintiffs’ efforts to use state courts to enforce the covenant “is to be regarded as action of the State within the meaning of the Fourteenth Amendment.”

In 1968, the Supreme Court issued a landmark housing discrimination opinion in Jones v. Mayer.[3] The petitioners alleged that the owner refused to sell them property solely based on their race. The claim was based on federal law that states that all citizens “shall have the same right… as is enjoyed by white citizens thereof to inherit, purchase, lease, sell, hold, and convey real and personal property."[4] While the Court of Appeals had held that the statute did not apply to private citizens, the Supreme Court disagreed, holding that Congress could regulate the sale of private property to prevent racial discrimination. The decision upheld the federal government’s ability to bar all acts of racial discrimination in the sale of property, whether undertaken by a public or private party.  

When examining FHA violations in the area of property sales, it is important to look at the entire sales process. Courts have found examples of housing discrimination from the advertising stage through the final sale. For example, if a property listing includes language that seeks to exclude a protected class from purchasing that property, there may be evidence of an FHA violation. However, the most common type of real estate sales discrimination involves some form of refusal to sell a property. United States vs. Goss is an example of this type of discrimination.[5] It started from an FHA testing program where testers found that mobile park owners were refusing to sell available mobile homes on the basis of race. The HUD complaint also alleged that the owners were routinely quoting higher sales prices and more restrictive purchase terms to potential African American buyers. The case ended in a consent agreement, whereby the defendant was fined $35,000 in penalties, ordered to attended FHA training, and required to adopt a non-discrimination policy.[6]


Steering is carried out by real estate agents and brokers when they “steer” one race of home buyers to a particular neighborhood, while channeling buyers of another race to a different neighborhood. While it is commonly thought of in terms of entire communities, steering can also occur within a single community, where certain races are discouraged from purchasing some units within a complex. Steering violates the FHA because it denies potential homebuyers choices in their location of dwelling. It also works to establish and maintain segregated housing.

It can prove challenging to identify steering practices. In some cases, the agent or broker may simply be attempting to meet the buyer’s stated preferences. For instance, if a buyer communicates a preference for a predominantly Hispanic neighborhood, the agent’s efforts to meet that request cannot be classified as steering. However, when a real estate agent asserts that a buyer would “be more comfortable in a Hispanic neighborhood” or that the school system in a different neighborhood would “be more appropriate,” without any indication of a preference from the buyer, this may be an indication of steering. 

United States vs. Saroff illustrates the challenge in identifying steering practices.[7] HUD brought an action against three Tennessee real estate agencies, alleging that they were participating in steering. The court disagreed, instead pointing to various other justifications for the agencies’ actions. One reason, as pointed out by the court, was the desire for the potential homeowners to stay within their segregated communities. The court also looked at the geographic location of the agencies, finding that they principally operated within the area of the city where they were accused of steering African American buyers.  

In an effort to prove steering practices, HUD or private housing organizations may initiate testing programs, where testers of various races contact real estate agents and brokers to determine whether buyers of different races and ethnicities are being steered to specific communities. If steering is confirmed, an administrative or legal action may be instituted for the recovery of damages.

Due to the widespread effects of steering, courts have repeatedly had to deal with the question of standing when it comes to legal actions. While it is clear that aggrieved homebuyers have standing to sue, there is some disagreement about the appropriateness of actions brought by area residents and local governments. In Trafficante v. Metropolitan Life Insurance, the Supreme Court looked at the issue of standing as it pertains to other residents living in a community that has been impacted by steering practices.[8] Though it was a case brought under a rental agreement, its implications extended to real estate sales.

Two apartment complex tenants brought suit against the landlord for steering nonwhite tenants away from their section of the complex. They alleged that this practice deprived them of the benefits of an integrated community. While the court of appeals ruled that the plaintiffs did not have standing, the Supreme Court disagreed, stating that “the definition of "person aggrieved," was "any person who claims to have been injured by a discriminatory housing practice." This showed intent to define standing as broadly as is permitted by Article III of the Constitution, which included the tenants of the apartment complex.

With its unanimous decision in the Trafficante case, the Supreme Court significantly expanded the classification of people who have standing to sue under the FHA. However, there are limitations.[9] Topic vs. Circle Realty involved a group of about 100 residents from various sections of a county. The plaintiffs claimed that steering practices wrongfully deprived them of the professional and social benefits of living within an integrated community. They additionally asserted that the steering practices would continuously subject them to embarrassment and economic damage. The court ruled that the plaintiffs did not have standing to bring the suit, stating that their claims were not strong enough to establish an actual injury in fact and specifically noting the differences between their situation and that of the plaintiffs in Trafficante. In the latter case, the plaintiffs were members of a single apartment complex. Residents of a single complex are more closely affected by practices in the complex than are residents spread across a county.


Another discriminatory real estate sales practice is blockbusting, also referred to as “panic selling.”[10] This practice occurs when real estate brokers persuade property owners to sell and leave the neighborhood solely due to the purchase of property by persons of another race or ethnicity. While the practice was more common during the 1950s and 1960s, blockbusting still occurs. White homeowners may be convinced by real estate agents to leave neighborhoods “infiltrated” by minorities and sell their homes to developers or prospectors at a reduced price. These developers then turn around and sell the properties to minority buyers for profit. Blockbusting has also been used to induce elderly homeowners to sell their properties as younger buyers and families move into the communities.  

The District Court for the Eastern District of Michigan examined the elements of blockbusting in Zuch v. Hussey,[11] a class action lawsuit brought against members of the Detroit real estate market. The plaintiffs alleged that the defendants made uninvited solicitations of residential real estate listings in violation of the Fair Housing Act. They further stated that the “solicitations of listings were made in racially transitional areas of Metropolitan Detroit where the solicitation itself implies race, even though no racial statements are being used, and provides a racial inducement for the sale of homes in violation of… the Fair Housing Act.” In denying the defendants’ motions to dismiss, the court concluded that “uninvited solicitations of real estate listings in racially transitional neighborhoods are prohibited representations under the standard if it can be established (1) that the solicitations are made for profit, (2) that the solicitations are intended to induce the sale of a dwelling, and (3) that the solicitations would convey to a reasonable man, under the circumstances, the idea that members of a particular race are or may be entering the neighborhood.”

When violations, such as steering and blockbusting, are suspected, the FHA provides three potential options for enforcement and damages. The first is an administrative hearing, which begins when an aggrieved party files a written complaint with HUD within 180 days of the alleged act of discrimination. HUD will provide a copy of the complaint to the alleged discriminating party and investigate. The agency may also attempt to help the parties reach an agreement in an effort to conclude the matter. If a conclusion is not reached, the complainant may opt for the second method of enforcement, which is a civil action. The action will be heard in front of a HUD administrative judge, who has the authority to order injunctive relief, as well as monetary damages. The third method of enforcement involves the US Attorney General bringing suit in federal court. This is allowed whenever the Attorney General has a reasonable belief that a party or parties are engaging in a "pattern or practice" of discrimination.[12]

FHA Violations in Mortgage Lending

There is a long history of racial discrimination in the mortgage industry. After the passage of the FHA, courts began to see significant numbers of cases involving allegations of lending discrimination. The decisions handed down in these cases have created standards that financial institutions are charged with following when considering mortgage loans. Over the years, the courts have determined that it is illegal for financial institutions to take any of the following actions based on race, color, religion, sex, disability, familial status, or national origin:

·         Refusing a mortgage loan for a dwelling

·         Refusing to provide potential homebuyers with information regarding loan options

·         Imposing unjustifiable terms or conditions on a mortgage loan

·         Discriminating in dwelling appraisals, and

·         Unjustifiably refusing to purchase a loan

Consumer Financial Protection Bureau & United States v. Hudson City Savings Bank[13]  stemmed from a government investigation into the defendant’s lending practices, where it was determined that the mortgage company systematically refused to provide mortgage loans to majority African American and Hispanic communities. The case ultimately concluded in a consent agreement, with the defendant agreeing to:

(1) physical expansion of offices into minority communities,

(2) funding of a loan subsidy program to extend mortgages in minority communities,

(3) increased outreach and advertising in minority communities,

(4) creation of a community development program, and

(5) civil monetary damages of $5.5 million.  

An issue in the Consumer Financial Protection case was whether the defendant had engaged in the practice of “redlining.” The term stems from a program that emerged under the New Deal in the 1930s, where the federal government drew red lines on maps around majority African American communities, which were considered unsafe to insure mortgages.[14] Though the federal government has since stopped the use of redlining, the practice remained in use among some mortgage lenders and insurance companies. It now presents itself as brokers, lenders, and insurance companies refusing to do business in a neighborhood or area of a city. Considered illegal under the FHA, redlining may come in various forms. Lenders may charge higher interest rates in minority communities or target these neighborhoods for predatory loans. They may also unjustifiably refuse loan modifications or solely advertise to particular communities.  

Like other FHA violations, redlining can be difficult to prove. When faced with accusations, lenders may argue that certain neighborhoods are just riskier in general, which justifies charging higher rates and fees. When denying a mortgage loan, the lending company may assert that the denial is based on poor credit or lack of adequate income. Therefore, a finding of discrimination under the FHA rarely rests solely on the mortgage application. Instead, it is typically done by agencies that work to establish a pattern of discrimination against applicants who are similarly situated to approved applicants.

The Justice Department instituted its first “pattern and practice” lawsuit for mortgage lending racial discrimination in the 1992 case United States v. Decatur Federal Savings and Loan Association.[15] The government alleged that the defendants engaged in discrimination against actual mortgage loan applicants, which centered on disparate treatment of black and white applicants; and discrimination against potential mortgage loan applicants, which involved marketing policies that excluded black neighborhoods.  The case was ultimately concluded through a consent decree, with the mortgage company agreeing to pay $1 million in damages to aggrieved loan applicants and to implement a comprehensive marketing plan within the affected communities.  

When redlining practices are discovered, courts have allowed aggrieved applicants or city governments to pursue legal action. In Bank of America vs. City of Miami, Miami sued a banking institution for redlining.[16] The City alleged that “the banks intentionally targeted predatory practices at African-American and Latino neighborhoods and residents… resulting in a disproportionate number of foreclosures and vacancies, impairing municipal effort to assure racial integration, diminishing property-tax revenue, and increasing demand for police, fire, and other municipal services.”  

Along with banking institutions, insurance companies can also practice redlining when they refuse to provide insurance coverage for properties located in minority neighborhoods. This may also extend to refusals in older neighborhoods, which may result in a discriminatory impact on these groups, also protected under the FHA.

State and Local Governments and Housing Discriminations

In addition to federal fair housing laws, insurance companies are also regulated by state compliance laws, which may be broader than the FHA. For example, Illinois characterizes the refusal to provide insurance in certain locations as a prohibited trade practice.[17] Similar to cases of suspected redlining or steering, HUD maintains testing programs for the purpose of identifying housing insurance discrimination.[18] One HUD-based study used telephone testers to call insurance companies and obtain quotes for similarly situated homes in neighborhoods of various racial make-ups. When insurance discrimination is identified, HUD may pursue a remedy through an administrative process or through the courts.

Real estate professionals and lending companies are not the only perpetrators of housing discrimination. Local governments may also institute taxing regulations and zoning decisions that create systematic housing segregation. When this occurs, community residents or private housing organizations may file complaints with the state housing office or HUD. Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project[19] was initially brought by a community organization which alleged that state tax credits were disproportionately awarded to minority neighborhoods. The district and appeals courts ruled in favor of the Inclusive Communities Project, prompting the Texas Dept. of Housing and Community Affairs to seek a Supreme Court review. The Court affirmed the lower court rulings, determining that the distribution of tax credits by the Texas Department of Housing and Community Affairs contributed to "segregated housing patterns by allocating too many tax credits to housing in predominantly black inner-city areas and too few in predominantly white suburban neighborhoods."

In our next module, we’ll focus on FHA race and gender discrimination rules and how they apply in cases of private restrictive covenants, sexual harassment in housing, domestic violence and housing discrimination based on sexual orientation.

[11] Zuch v. Hussey, 366 F. Supp. 553 (E.D. Mich. 1973)

[13] Consumer Financial Protection Bureau & United States v. Hudson City Savings Bank, F.S.B. (D. N.J.); https://files.consumerfinance.gov/f/201511_cfpb_hudson-city-consent-order.pdf

[16] Bank of Am. Corp. v. City of Miami, 137 S. Ct. 1296 (2017)