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Court Side: Withdrawal of Fair Housing Case Leaves Disparate Impact Issue in the Air

In April, the magazine hosted a webinar with two NAR attorneys—Ralph Holmen and Finley Maxson—in which we examined six cases and their potential impact on your business. Last week, I wrote a post on the RESPA case, Freeman v. Quicken Loans. Here’s a look at the Fair Housing case that we discussed. Remember: If you have questions about how or whether these laws or cases apply to your situation, seek the counsel of a qualified attorney.

Issue: Can the federal fair housing law be used to battle local ordinances that might disproportionately hurt minorities?

The Law: The federal Fair Housing Act went into effect in 1968 and was amended in 1988. The law makes it illegal to discriminate in the sale, lease, or rental of housing—or to make housing otherwise unavailable—on the basis of race, color, religion, sex, handicap, familial status, or national origin.

The Case: We looked at Gallagher v. Magner, which I found fascinating because of the way it turned my conception of fair housing law on its head. I have always thought of property owners, managers, and salespeople as the targets of fair housing enforcement. But in this case, it was the property owners making the accusation. A group of owners in St. Paul, Minn.—with portfolios ranging from one property to 40—filed a claim against the city and city employees, including Steve Magner, supervisor of the city’s Department of Neighborhood Housing and Property Improvement. The owners argued that the city’s stepped-up enforcement of housing codes increased their costs in leasing their properties and so disproportionately affected low-income tenants—and minorities in particular—through increased rents. Among the owners’ arguments was that DNHPI’s policies and actions had a disparate impact on protected classes—in other words, the city’s policies and actions had the effect of discriminating.

The Department of Housing & Urban Development (HUD), which enforces the Fair Housing Act, has long held that disparate income claims are “cognizable” (meaning: they can be tried in court), but circuit courts have been split on whether these claims apply and how they should be analyzed by the courts. That’s because while some federal laws—such as those that bar employment discrimination—contain language that explicitly allows disparate impact claims, the Fair Housing Act does not.

The Decision: A District Court dismissed the Gallagher suit, but the Federal Circuit Court of Appeals (Eighth Circuit) reversed the lower court on the claim of disparate impact. Since then, in a 2011 decision involving a redevelopment plan in New Jersey, the Third Circuit Court has joined the Eighth Circuit in affirming disparate impact’s applicability to fair housing law (Mt. Holly Gardens Citizens in Action, Inc. v. Township of Mount Holly).

In November 2011, the Supreme Court agreed to hear arguments in the Gallagher case. However, in February 2012, the parties withdrew the motion, leaving unsettled the question of whether disparate impact applies to fair housing law.

Why It’s Significant for Real Estate Professionals: The Gallagher case doesn’t directly affect real estate brokerage. However, it’s of interest to landlords and those who are planning redevelopment projects that may disproportionately affect protected classes under the Fair Housing Act.

What Else Do You Need to Know About Fair Housing? Sellers, buyers, landlords, tenants, and real estate professionals all have rights and responsibilities under the Fair Housing Act. And NAR’s Code of Ethics goes one step beyond the federal law, prohibiting REALTORS® from discriminating on the basis of sexual orientation. State or local laws may prohibit discrimination based on additional classes not covered by federal law.

For a primer on fair housing law, visit What Everyone Should Know About Equal Opportunity Housing.

Then, test your knowledge by taking REALTOR® Magazine’s Fair Housing Quiz.

Next Up: What rights do property owners have to challenge Environmental Protection Agency determinations?

Additional Resources:

At REALTOR.org: Law & Ethics

At REALTOR.org: Legal case summaries

At REALTOR® Magazine Online: Law & Ethics

Infographic: 23 Federal Laws that Apply to Real Estate

REALTOR® Trademark: “Make Our Marks Remarkable” video (under 3 min.)

Stacey Moncrieff

Stacey is vice president of business-to-business communications for the National Association of REALTORS®, overseeing the association's key communications with NAR members and REALTOR® association executives.

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