Fairways 2001

In 1988 Title VIII of the Civil Rights Act of 1968, otherwise known as the Fair Housing Act, was amended. One of the amendments to this act was to extend discrimination in residential real estate related transactions to the “selling, brokering or appraising of residential real property.” This article will focus specifically on real estate appraising.

Specifically, HUD regulations define an 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.” Note that as long as the estimate or opinion is made “in a business context” then it doesn’t matter whether this is oral or written, formal or informal.

It is permissible to use “observable, verifiable data that affect the market value of property in a particular area, such as the proximity of certain facilities or services.” However, it is not permissible to base an appraisal on techniques or standards that reflect racial or other prohibited considerations. An appraiser’s intent to discriminate does not have to be proven, rather, if an appraiser relies on methods or standards that have the effect of artificially under-appraising property in minority neighborhoods, they may be subject to liability under the discriminatory effect theory, unless they can establish that these low values are justified by legitimate, nonracial factors.

Here are some examples of the most common appraisal based cases on record. The most common form of appraisal-based discrimination is under-valuation of a property. The most creative example here was the appraiser that undervalued the property by listing “functional obsolescence.” The appraiser stated that the house had walk-in closets, and since houses today are not built with walk-in closets, but rather louvered doors across the side of the room, then this decreased the value of this property, which by the way was located in a mostly minority neighborhood.

Secondly, is reporting only negative comments about a neighborhood or a house. Granted the appraiser has an obligation to report negative items that will affect the property value, but there is also an obligation to report the positive factors as well. In several fair lending cases, the mortgage institution denied the mortgage based on a lack of marketability for the property, even when the property in question appraised for the selling price. In a couple of these, the appraiser was also held liable because positive factors were not listed, such as future urban renewal plans, or making subjective determinations on facts such as the lack of comparable sales indicating that no one wants to buy homes in that neighborhood rather than the possibility that no one is interested in moving from the area.

The final most common appraisal based discrimination is using inappropriate comparables. Examples include sales that are too far away from the subject property, or not in a comparable neighborhood, or mapping/defining the neighborhood improperly. Keep in mind that in many of the urban areas in the Delaware Valley our neighborhoods are considerably different from one another block to block, and an appraiser must take this into consideration when choosing comparables.

What should you do if?

You have been searching and searching and you have finally found that perfect new home. Unfortunately, you discover that the sale is going to fall through because the house hasn’t appraised for the selling price. The first thing you should do is to get a copy of your appraisal report from your mortgage agent. Under the Equal Credit Opportunity Act, you are entitled to a copy. Review the appraisal report and determine whether you agree with it or whether there might be some discriminatory factors in it. If there are things that you believe the appraiser did not take into consideration, point them out to your mortgage agent.

Under the Fair Housing Act, the appraiser, the mortgage agent, and the mortgage company can all be held liable for discriminatory behavior.

A home is one of the largest and most important assets a family will own. It is vital that this asset be protected in case of disaster. Homeowners insurance coverage protects the homeowner against such losses. Additionally, homeowners’ are almost always required to have insurance coverage in order to qualify for a mortgage or home equity loan. Access to affordable insurance is essential for homeownership, business and commercial development and any urban redevelopment initiatives. If insurance is not available, or is only available on unfavorable terms and conditions, efforts to achieve fair housing, to nurture economic opportunity, or even secure the basic rights of citizenship are undermined.

FHCSP conducted a testing project to determine if the residents of the City of Chester had the same access to quality homeowners insurance products as other residents of Delaware County. For this testing, Black testers seeking insurance on homes in the West End of Chester phoned agents and requested a verbal and a written quote for insurance. White testers seeking insurance on homes in white neighborhoods surrounding the City of Chester then called the same agent also requesting a verbal and written quote for insurance. Both the homes and the testers were almost an exact duplicate of each other, leaving the only variable tested the neighborhood the home was located in.

The results of the testing showed that in 60% of the cases there were differences in treatment experienced by the Black testers. These differences included: outright denials of coverage, higher costs (18% to 317% higher than for a similar home in the white neighborhood), lower quality of policies offered (for example, the tester with the home in Chester was only offered a market value policy whereas the tester with the home in the white neighborhood was offered a replacement cost and a guaranteed replacement cost policy), less agent responsiveness (the black testers found it more difficult to receive return phone calls and get written quotes for insurance), and company policies and standards were applied differently (for example, requiring a social security number and credit check before offering a quote to the black tester while the white tester was given a quote without this).

In addition, in 55% of the tests policies having a discriminatory effect—the effect of redlining the City of Chester—were stated. These policies included: not insuring properties with flat roofs, having a minimum market value requirement on the property (from $75,000 to $100,000) and requiring a social security number to run a credit check before a quote could be given.

The conclusion? Residents of the City of Chester have less access to homeowners insurance products, are often treated differently than homeowners in low-minority areas of the County and often must pay more for the insurance coverage they have.

“Our goal is obviously to promote more home ownership and one of the components is easy access to homeowners insurance,” said Chester Mayor Dominic F. Pileggi. “Now, with this study from a recognized agency in hand, it should be easier to remedy that problem.”

The Council is now in the process of investigating possible methods to end this type of discrimination. The Council’s study “Homeowners Insurance Discrimination & Redlining in the City of Chester” is available on the Council’s website http://fhcsp.fairhousing.com

	An African American tester whose home was selling for $33,000 was told their property must be worth between $75,000 and $100,000 to be qualified for insurance while the white tester was given a quote for a home with a selling price of $62,000.
	An African American tester was quoted a market value policy costing 98% more than the replacement cost policy quoted the white tester
	An African American tester was told they would only qualify for a market value policy whereas the white tester was offered a replacement cost policy.

	the building entrance must be on an accessible route,
	all public and common use areas of the building must be accessible,
	all the doors must be designed sufficiently wide to allow passage by wheelchair users into and within the premises,
	there must be an accessible route into and through the dwelling unit,
	light switches and other environmental controls must be located in accessible locations,
	reinforcements in bathroom walls are required to allow later installation of grab bars,
	kitchen and bathrooms must be designed so that an individual in a wheelchair can maneuver about the space.

	lack of wheelchair-accessible path of travel to sales/rental offices,
	bathrooms designed and constructed with insufficient room for individual using wheelchair to navigate and use,
	not providing reinforced walls in all bath areas to allow for the installation of grab bars,
	kitchens without sufficient room for individual using wheelchair to navigate and use,
	one step barriers at unit entrances,
	not providing wheelchair accessible garages and patio thresholds,
	not installing light switches and other environmental controls accessible to persons using wheelchairs (between 15 and 48 inches from the floor).

In October 2000, FHCSP received a call from Diane, a mother of 2 children. Diane had called and made an appointment to look at an apartment in Eddystone at Creek Bank Apartments. However, before the scheduled appointment time, Diane received a return call from the agent at the complex asking about whether she had children in her family. When Diane explained that she had 2 children, the appointment was canceled. The agent explained that her boss told her to call and find out and that there were no kids allowed in the building. The agent told Diane about another apartment complex located in Lester that had a basement apartment available. Diane was not interested in moving to Lester or living in a basement, but was unable to receive another appointment to see the apartment in Eddystone.

FHCSP used several testers to investigate. In one test, for example, the agent asked the first tester who claimed to have an 18-month old daughter, how many people would be moving into the apartment. When the tester explained that she had a child, the agent told the tester that a 2-bedroom apartment would be available at their complex in Ridley. The tester asked if the apartment in Eddystone was still available and the agent said that it was not. Another tester then called and stated that the apartment would be only for he and his wife. This tester was told that one 2-bedroom unit and two 1-bedroom units were available at the complex in Eddystone. This tester was told that the complex had a lot of retirees and almost no children, except for a few on weekends. This tester was able to make an appointment, subsequently visited the Creek Bank Apartments in Eddystone, and was shown 3 units that would be available.

Both FHCSP and Diane filed complaints against Creek Bank Apartments and the owners, DGC Development Group and Giuseppe and Mariano Pecorari (DGC), at the U.S. Department of Housing & Urban Development (HUD). Without admitting guilt, DGC agreed to settle the complaint, and have agreed to do the following:

	Abide by all fair housing laws;
	Attend a fair housing training session;
	Place fair housing logo on all applications, contracts, agreements, and letterhead as well as a statement that "all units are shown and made available without respect to color, sex, religion, national origin, familial status or handicap;”
	Display fair housing posters prominently in each room where rental business is conducted;
	Advertise using the Equal Housing Opportunity logo;
	Develop a written policy designed to prevent discrimination in housing in accordance with the Fair Housing Act;
	Pay Lisa $2,500 in compensation.