Federal Court Rejects Discrimination Claims Based on Bank’s Alleged Failure to Maintain Foreclosed Properties in Minority Neighborhoods
A federal court in Maryland dismissed claims against a bank alleging discrimination against residents of minority neighborhoods due to allegedly failing to properly maintain and market residential properties owned by the bank in those neighborhoods.
The lawsuit alleged that the bank became the owner of numerous properties across the country through foreclosure—which are often referred to as the bank’s “real estate owned” properties (REOs). The bank allegedly failed to maintain and market for resale its REOs in minority neighborhoods to the same extent it did in predominantly White neighborhoods. In turn, this lack of upkeep and resale for REOs in minority neighborhoods allegedly deterred homebuyers from purchasing other properties in these areas, lowered overall property values, and stigmatized these areas as less desirable places to live. The plaintiffs brought claims under the Fair Housing Act, as well as private nuisance claims. Eventually, the parties filed cross-motions for summary judgment on several key issues.
The plaintiffs in the case included a number of fair housing advocacy organizations, as well as several individual residents of minority neighborhoods who were allegedly affected by the bank’s actions. As a preliminary matter, the court found—based on recent Supreme Court precedent—that the fair housing advocacy organizations lacked standing to pursue their claims. The organizations claimed that the bank’s actions required them to expend their scarce funds and resources to investigate the matter and take action, and that the alleged discriminatory activity undermined the organizations’ missions to promote fair housing. The court held that the expenditure of resources was part of the organizations’ regular activities and resulted from an overarching investigation into banks generally with respect to treatment of foreclosed properties, as opposed to something directly and specifically triggered by the actions of the defendant bank in this case. Likewise, the alleged frustration of the organizations’ missions was a type of attenuated, speculative, and non-economic future harm, as opposed to a concrete and particularized injury traceable to the defendant bank. While the court dismissed the organizational plaintiffs from the case, the individual plaintiffs could still proceed with their claims.
The plaintiffs’ motion for summary judgement claimed that the bank could not offer any legitimate non-discriminatory reasons to justify its policies responsible for the alleged disparate outcomes for REOs in minority neighborhoods. In particular, the challenged policies involved the bank’s delegation of REO property management to a third-party vendor and the bank’s alleged insufficient supervision of the vendor. The court denied the plaintiffs’ motion, finding that the bank put forward evidence showing that delegating REO property management to a single nationwide vendor was an efficient, cost-effective, and reasonable business decision for the bank and was consistent with the bank’s legal and contractual obligations. Likewise, the bank’s oversight of the vendor included reviewing photos from the vendor on property conditions and work performed, unannounced in-person verifications, and quality control audits of the vendor’s work. Combined with the fact that the plaintiffs only provided a limited number of examples of properties which were insufficiently maintained, the bank’s evidence was sufficient at the summary judgment stage to show that it had legitimate business justifications for how it managed its REOs.
The bank’s motion for summary judgment claimed plaintiffs’ disparate impact claims failed since the plaintiffs could not show that there were alternative practices the bank could have used that had a less discriminatory impact while still being equally effective in serving the bank’s legitimate goals. The court granted the bank’s motion, finding that plaintiffs’ proposed alternative for how the bank should run its REO management program were either fairly similar to what the bank was already doing, would not appear to make any difference in outcomes for the minority neighborhoods, and/or would be more inefficient and expensive than the bank’s current program.
The court also granted summary judgment for the bank on disparate treatment claims since they could not show that the bank had a discriminatory intent or motive for how it designed its REO management program. The same reasons which showed that the bank had legitimate business reasons for how it designed the REO programs—including with respect to efficiency and cost control—indicated a lack of discriminatory intent, and the plaintiffs did not have any evidence to show that this was a pretext meant to cover for intentional racial discrimination. As a result, the court granted summary judgment to the bank on all of the plaintiffs’ Fair Housing Act claims.
The court noted that the individual plaintiffs’ private nuisance claims were still live, since neither party moved for summary judgment on them. However, the court noted that the nuisance claims might be better suited for disposition in state court. In turn, the court stated that it would evaluate whether it should still exercise supplemental jurisdiction over these state-law claims now that all federal causes of action were dismissed.
