FAIR LENDING and MORTGAGE SERVICING

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1 FAIR LENDING and MORTGAGE SERVICING. What Is Housing Discrimination? Different treatment of a person by a housing provider or supplier of housing-related services because of that person s personal characteristics or membership in a protected group. OR Implementation of a neutral policy or rule that has a discriminatory effect on members of a protected group. CONSTITUTE LEGAL ADVICE 1

2 Relevant Provisions of the Fair Housing Amendments Act Section 3604(a)of the Fair Housing Amendments Act makes it unlawful to: refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin. Relevant Provisions of the Fair Housing Amendments Act Section 3605(a) of the Fair Housing Amendments Act makes it unlawful for: any person or entity whose business includes engaging in residential real estate related transactions to discriminate against any person in making available such a transaction or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin. CONSTITUTE LEGAL ADVICE 2

3 What Types of Real Estate Related Transactions Do Fair Housing Laws Apply to? The FHAA defines Residential Real Estate Related Transactions as: The making or purchasing of loans or providing other financial assistance for purchasing, constructing, improving, repairing or maintaining a dwelling or secured by residential real estate. 42 U.S.C. 3605(b) Examples of Different Terms and Conditions in Mortgage Servicing Using different policies, practices, or procedures in evaluating or determining a homeowner s qualification for a loan modification; Steering homeowners into a type of [loan modification, foreclosure prevention alternative, insurance product, etc.] because of membership in protected class; Using different qualification requirements, processing procedures for accepting applications or approving [loan modifications, foreclosure alternatives, insurance, etc.] 24 C.F.R (b)(1) CONSTITUTE LEGAL ADVICE 3

4 Equal Credit Opportunity Act It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract) or (2) because all or part of the applicant's income derives from any public assistance program. 15 U.S.C. 1691(a) Public Assistance Defined A protected public assistance program is any federal, state, or local governmental assistance program that provides a continuing, periodic income supplement, whether premised on entitlement or need. Official Staff Commentary to Reg. B., 12 C.F.R (z)-3. CONSTITUTE LEGAL ADVICE 4

5 Who does ECOA Apply to? Applicant means any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit. 15 USC 1691a(b). Who does ECOA Apply to? Creditor means any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit. 15 USC 1691a(e). CONSTITUTE LEGAL ADVICE 5

6 What does ECOA Apply To? Credit means the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment. 15 USC 1691a(d) What does ECOA Apply To? Loan modifications are extensions of credit. HAMP Supplemental Directive at 1 (Nov. 3, 2009) (a loan modification by a loan servicer constitutes an extension of credit under the Act because under a loan modification the servicer extends the right to defer payment of a debt by capitalizing accrued interest and certain escrow advances, reducing the interest rate, extending the loan term, or providing for principal forbearance). CONSTITUTE LEGAL ADVICE 6

7 Prima Facie Case for Discrimination Claim under ECOA To state a discrimination claim under ECOA, Plaintiffs must show that: 1) they were members of a protected class; 2) they applied for and were qualified for the loan at issue; 3) the loan was rejected despite Plaintiffs' qualifications; and 4) the creditor continued to approve loans for similarly situated applicants or treated members not in the protected class more favorably. Errico v. Pac. Capital Bank, N.A., 753 F. Supp. 2d 1034, 1045 (N.D. Cal. 2010). Does a Servicer Have a Duty to Make Reasonable Accommodation? The short answer is maybe. Some courts have found that section 3604 does not apply to mortgage servicing while other courts have found that a denying financing or other mortgage related services can make housing unavailable. Examples of reasonable accommodations: Sign language interpreters Documents in larger font Postponement of foreclosure Payment arrangements CONSTITUTE LEGAL ADVICE 7

8 Cases Finding Section 3604 Does Not Apply to Mortgage Loans Webster Bank v. Oakley, 265 Conn. 539, 830 A.2d 139, , 155 (Conn. 2003) Gaona v. Town & Country Credit, 324 F.3d 1050, 1056 n.7, 1057 (8th Cir. 2003) (noting that 42 U.S.C "bars discrimination in sales and rentals, rather than loans" and stating that "[b]ecause 42 U.S.C does not define discrimination to include a lender's refusal to make reasonable accommodations, [the lender] was under no obligation under Section to provide [a reasonable accommodation]" Cases Finding that Section 3604 Does Apply to Mortgage Servicing and Financing Caveat: Neither of these cases addresses reasonable accommodations. Nat'l Cmty. Reinvestment Coalition v. Novastar Fin., 2008 U.S. Dist. LEXIS (D.D.C. Mar. 31, 2008). Laufman v. Oakley Bldg. & Loan Co., 408 F. Supp. 489 (S.D. Ohio 1976) CONSTITUTE LEGAL ADVICE 8

9 Damages Victims of discrimination are entitled to compensatory damages, emotional distress damages, punitive damages, attorneys fees, costs of suit, and injunctive relief. 42 U.S.C Cal. Govt. Code U.S.C. 1691e. Emotional Distress Damages The largest component of compensatory damages in most discrimination cases is for intangible losses such as emotional distress, humiliation and damage to credit rating. See, e.g., Broome v. Biondi, 17 F. Supp. 2d 211, 225 n.9 (S.D. N.Y. 1997) (courts have recognized that even a single instance of discrimination can warrant significant emotional distress damage awards). CONSTITUTE LEGAL ADVICE 9

10 Emotional Distress Damages: Proof Plaintiff s own testimony is sufficient. Passantino v. Johnson & Johnson Consumer Products, Inc., 212 F.3d 493, 513 and cases cited therein (9th Cir. 2000) (Title VII case in which jury awarded plaintiff $1 million for emotional distress based on her own testimony and that of her family members who witnessed her distress) Turic v. Holland Hospitality, Inc., 85 F.3d 1211, 1215 (6th Cir. 1996) ( It is well settled that Title VII plaintiffs can prove emotional injury by testimony without medical support ). Comparables Assess emotional distress damages by looking at comparable cases. Local fair housing councils typically keep up to date settlement logs. Use emotional distress damages work sheet to help tell your client s story. CONSTITUTE LEGAL ADVICE 10

11 Lost Housing Opportunity If the homeowner was denied a modification or other foreclosure alternative and lost home to foreclosure as a result of discriminatory practices, the homeowner may be entitled to lost housing opportunity damages. These damages include the difference between the quality of housing a plaintiff was denied due to discrimination and the housing a plaintiff obtained after the discrimination occurred. Lost Housing Opportunity Damages Damages for lost housing opportunity are appropriate where the housing denied to the plaintiff was safer, in a quieter neighborhood, nearer to shopping centers, or closer to better schools than the housing ultimately acquired by the plaintiff. HUD v. Kogut, FH-FL 25,100 (HUD ALJ 1995) HUD v. Ucci, FH-FL 25,097 (HUD ALJ 1995). CONSTITUTE LEGAL ADVICE 11

12 Working with a HUD Certified Housing Counselor Before we contact a lender or file suit on behalf of a homeowner, we refer the homeowner to a HUD Certified Counselor for evaluation and budget counseling. Key questions to answer: Is the homeowner qualified for a modification? Is the loan modification sustainable? If not, what might make a modification affordable for the homeowner? Case Study Mr. and Mrs. X contacted FHLP because they were getting the run around from their loan servicer. They had applied for HAMP loan modifications on three separate occasions and were given different reasons for each denial and the denial was often months after their application was complete. CONSTITUTE LEGAL ADVICE 12

13 Case Study Continued During one of the last conversations with their loan servicer s customer service representative with, Mr. X was told that the reason for the denial was his disabilityrelated income. FHLP referred Mr. and Mrs. X to a HUD counselor to determine whether they qualified for HAMP. Mr. and Mrs. X were qualified for a loan modification. Case Study Continued FHLP filed a federal court lawsuit alleging violations of California s Fair Employment and Housing Act for source of income discrimination; and Equal Credit Opportunity Act s adverse action notice requirements. Intentional discrimination case Statements and denial of modification because of membership in protected class. CONSTITUTE LEGAL ADVICE 13

14 What We Typically Ask for in Settlement Agreement to permanently modify loan pursuant to established HAMP guidelines as follows: 18% principal balance reduction; 2% fixed interest; and 40-year term. Payment of actual damages and emotional distress damages; Agreement to devise and implement a written policy to ensure compliance with the Equal Credit Opportunity Act and fair housing laws; and Payment of attorneys fees and costs. Loan Modification Scams Target seniors, people with limited English language capabilities, others in financial distress and who are, or rapidly facing, mortgage default Promise to prevent foreclosure and acquire loan modification with terms that are unattainable Cause homeowners to pay substantial upfront fees for services that are never performed or have no value CONSTITUTE LEGAL ADVICE 14

15 F H L P FAIR HOUSING LAW PROJECT Contact Information Fair Housing Law Project A Program of the Law Foundation of Silicon Valley Intake Line: (408) North Third Street, 3 rd Floor San Jose, CA F H L P FAIR HOUSING LAW PROJECT CONSTITUTE LEGAL ADVICE 15