Real Estate Market

Fair housing group warns of federal discrimination suit against REO owners

(4/10/2012) - The same kind of discrimination that saddled minorities with unnecessarily burdensome loans during the housing boom, is alive and kicking in minority neighborhoods burdened with foreclosures, according to an investigation by the National Fair Housing Alliance (NFHA).

It the first salvo of what could lead to another national suit against banks, as well as mortgage lenders, investors, and other entities, NFHA says it has glaring evidence that those responsible for real estate owned (REO - bank owned properties) properties take better care of REOs in white neighborhoods than REO's in minority neighborhoods.

NFHA's recently released "The Banks Are Back - Our Neighborhoods Are Not" reports REOs in minority neighborhoods were 42 percent more likely to have more than 15 maintenance problems than properties in white communities.

A trashed property is a property with lower value and reduced marketability. An inventory of such properties creates a domino effect, bringing down the value of adjacent properties, the surrounding neighborhood and adjoining neighborhoods.

The report also found less care in marketing REOs in minority neighborhoods - REOs in white neighborhoods were 33 percent more likely to be marketed with a professional "For Sale" sign than those in African-American or Latino communities, the investigation found.

Professional marketing, designed to obtain a fast sale at the best price, is the fiduciary responsibility of the entity responsible for any property's sale. Marketing is even more crucial for distressed properties.

Fair Housing Month irony

Ironically, this month, April, is "Fair Housing Month" in honor of the Fair Housing Act of 1968, which prohibits discrimination concerning the sale, rental, and financing of housing based on race, religion, national origin, sex, handicap and family status.

"This is an investigation - not a study - that will culminate in the filing of administrative complaints with HUD (U.S. Department of Housing and Urban Development) and/or lawsuits in federal district court. The first complaint will be filed shortly," said Shanna L. Smith, NFHA's president and CEO.

The NFHA was formed 20 years after the federal fair housing law, which has had limited success providing true equality in housing. The 24-year old alliance of more than 220 private, non-profit fair housing organizations, state and local civil rights agencies and individuals, is solely dedicated to eradicating discrimination in housing.

It's not the first charge of discrimination to arise out of the housing crisis.

Numerous studies reveal minority neighborhoods were hit hardest by the housing crash, often because lenders targeted minority borrowers with toxic subprime mortgages, loans laden with unnecessary fees and other loans that were more expensive than loans for whites with the same creditworthiness.

With a disproportionate share of predatory mortgages, minorities were victimized again when they suffered a disproportionate number of homes lost to foreclosure.

Minority households also suffer mortgage rescue fraud more than whites.

NFHA says discrimination has continued to undermine minority neighborhoods and it's time to quash it.

"This report offers evidence that banks responsible for peddling unsustainable loans to communities of color and triggering our current foreclosure crisis are continuing to damage those communities by failing to properly maintain and market the properties they own," Shanna said.

NFHA findings

Over the past year, NFHA evaluated a total of more than 1,000 REOs spread throughout nine major U.S. cities and checked 39 aspects of REO maintenance and marketing, including curb appeal, structure, signage, signs of water damage and the condition of paint, siding and gutters.

The investigation found:

• Trash and debris were 34 percent more likely to be found on REO properties in minority neighborhoods than in white neighborhoods.

• REO properties in minority neighborhoods were 82 percent more likely to have broken or boarded windows, than those in white neighborhoods.

• In the nation's capital, Washington, D.C., 60 percent of REOs in African-American neighborhoods had broken or boarded windows, compared to 39 percent in white neighborhoods.

• In Phoenix, AZ, 73 percent of REOs in Latino neighborhoods were missing a "For Sale" sign, compared to 31 percent in white neighborhoods.

• In Dallas, TX, 73 percent of REOs in neighborhoods with a majority of minorities; 68 percent of Latino neighborhood REOs; 60 percent of African-American neighborhood REOs; but only 37 percent of white neighborhood REOs had substantial amounts of trash on their properties.

The report concludes:

"By failing to provide consistent and equal maintenance and marketing practices to their portfolio of REO properties in both communities of color and white communities, lenders and servicers commit housing discrimination in violation of federal law."

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