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Supreme Court: Fair Housing Act Discrimination Claims Do Not Require Proof of Intent

Posted in Legal Rulings, Residential Real Estate Lending

Parties claiming a violation of the Fair Housing Act (“FHA”), 42 U.S.C. § 3601 et seq., need not prove intentional discrimination to prevail, according to a recent ruling handed down by the United States Supreme Court. So long as a claimant can show that a practice or policy results in a disproportionately negative effect on housing opportunities when measured on the basis of race, color, religion, sex, handicap, familial status or national origin, the claimant may obtain relief under the FHA, even where there is no allegation or indication of intentional discrimination.

Fair Housing Act

The FHA makes it unlawful to refuse to sell or rent a dwelling to any person, or to refuse to engage in a residential real estate transaction with any individual, because of the protected characteristics listed above. The FHA’s language expressly prohibits intentional discrimination by any person or entity, including lenders, engaged in residential real estate transactions. Less clear, until the Supreme Court weighed in, was whether the FHA prohibited real estate policies and practices that produced unintended discriminatory results. Known as the “disparate impact” theory of discrimination, the focus under this inquiry is not why an entity took a certain action, but rather what result occurred because of that action. The Court’s decision in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project definitively resolves the debate in favor of recognizing disparate impact claims in FHA-based challenges. In such cases, the burden of proof is shifted to the defendant to prove that the challenged practice is necessary to achieve a substantial, legitimate nondiscriminatory interest.

Inclusive Communities and the Path Forward

In Inclusive Communities, the Inclusive Communities Project, Inc. (“ICP”), a Texas-based nonprofit that helps low-income families obtain affordable housing, alleged that the Texas Department of Housing and Community Affairs (the “Department”) caused segregated housing patterns because of the way the Department allocated low-income housing tax credits. Invoking the disparate impact theory of discrimination, ICP claimed that that the Department’s allocation criteria granted too many housing credits in predominantly black inner-city areas and not enough in predominantly white suburban areas, perpetuating segregated housing patterns. ICP did not allege that the Department intended to establish segregated housing; ICP argued only that the Department’s policies produced the discriminatory result.

Turning to the FHA’s own words and prior judicial interpretations of similar statutes, the Court held that the FHA recognizes disparate impact claims. Acknowledging that its decision could cause real estate developers to hesitate when considering whether to invest in housing projects for fear of litigation, the Court emphasized that developers must be allowed to consider market factors in determining where to construct certain housing projects. The Court stated that the FHA would undermine its own purpose if permitting disparate impact claims caused private investors to scale back development operations. Despite the Court’s assurances, some members of the banking community criticized the decision, with the president of the American Bankers Association warning that financial institutions may find that the threat of litigation outweighs the benefit of lending money to low-income housing developers. Whether or not this fear produces any substantive changes in lending habits will largely hinge on how the lower courts apply the Supreme Court’s decision.