Office Hours with Professor Bill is a multimedia learning experience covering fundamental real estate concepts.
In Episode 8, Professor Bill responds to questions about:
- California’s fair housing laws;
- discrimination, both implicit and explicit; and
- redlining.
Student: Why does the state of California have its own fair housing laws?
California is a large, diverse state. Nearly 40% of the population identifies as Hispanic or Latino, according to the U.S. Census.
Over 14% identify as Asian and nearly 7% identify as Black or African American.
Therefore, discrimination in the housing and mortgage markets has a far-reaching influence on our state.
Remember, strict adherence to fair housing law is a critical component to your real estate practice.
California law prohibits discrimination in the sale or rental of housing accommodations.
Discriminatory practices include:
- making an inquiry, written or oral, into the race, sex, disability, etc., of any individual seeking to rent or purchase housing.
- publishing ads or notices for the sale or rental of housing which indicate a preference or limitation based on any of the prohibited factors.
- use of prohibited discrimination when providing or arranging real estate mortgages and financing.
- refusal based on a prohibited factor by a broker to represent an individual in a real estate transaction; and
- any other practice that denies housing to a member of a protected class.
Note that this last point is very broad and meant to be a catch-all. Interpret this liberally.
Basically, if any activity, whether deliberate or unintentional, results in unequal treatment of a real estate participant, don’t do it.
Student: What entity enforces California’s fair housing laws?
The Department of Fair Employment and Housing (who we’ll call the Department) is the California government agency which enforces anti-discrimination law.
Any individual who feels they have been discriminated against may file a complaint with the Department.
The Department investigates the complaint to determine any wrongful conduct.
If grounds exist, the Department then seeks to resolve the situation through discussions with the individual against whom the complaint is made.
The Department of Real Estate also enforces numerous regulations prohibiting discriminatory practices by real estate brokers and agents.
Student: What happens to brokers or agents that are found guilty of discrimination?
A broker or agent found guilty of engaging in discriminatory business practices may be disciplined by the DRE.
DRE prohibited discriminatory practices include situations in which a broker or agent discriminates against anyone based on race, color, sex, religion, ancestry, disability, marital status or national origin.
You’ll notice that these protected groups are also protected by the Department of Fair Employment and Housing and under separate federal laws.
Blatant discriminatory practices are not as common now as they once were.
However, the DRE’s focus now has shifted to more subtle forms of discrimination — implicit discrimination.
Implicit discriminatory practices are those which are not openly discriminatory but result in discriminatory effects.
However, intentional or not, it is still a punishable offense.
Student: What does implicit discrimination look like in practice?
Well, for example, showing a minority buyer fewer listings than their white counterpart.
Also, some real estate agents may think they’re doing their black clients a favor by only showing them homes in “Black neighborhoods.”
This is also an unlawful practice. Or an agent may be slower to respond to requests by minority homebuyers or not provide the same level of exemplary service.
Racial housing discrimination is not just morally and ethically reprehensible. It’s also bad business.
Implicit racial discrimination hinders sales volume in the real estate market, and to a lesser degree, ties up rental activity.
Student: What about the role of the agent’s broker? Is the broker responsible for the bad behavior of one of their bad actor agents?
You bet. A broker has a duty to advise their agents and employees of anti-discrimination rules.
This includes DRE regulations, the Unruh Civil Rights Act, the Fair Employment and Housing Act, and federal fair housing law.
Thus, the broker is not only responsible for their own conduct but need to also ensure their employees follow anti-discrimination regulations when acting as agents on their behalf.
Student: What is the goal of fair housing laws?
To achieve a healthy state economy, all residential housing for sale needs to be available to any homebuyer who is creditworthy and qualifies for purchase-assist financing.
An efficient real estate market requires the value of housing to be immune from fluctuations caused by lenders who arbitrarily deny financing to qualified homeowners.
To this end, state law prohibits discriminatory lending practices. The goal of anti-discrimination law in home financing is to:
- increase the availability of housing to creditworthy buyers; and
- increase lending in communities where lenders have made conventional home mortgages unavailable.
Student: How do fair housing laws affect lenders?
Lenders need to make financing available to qualified creditworthy mortgage applicants to:
- buy, build, repair, improve or refinance an existing mortgage on a one-to-four-unit, owner-occupied residence; or
- improve one-to-four-unit residences which are not owner-occupied.
Lenders violate public policy when they indicate a discriminatory preference by denying or approving financing to creditworthy mortgage applicants based on the applicant’s protected status.
In a community which is composed mainly of residents of a certain race, color, religion or other protected class, a lender may not:
- refuse to fund a mortgage based on the demographics of that community; or
- appraise real estate in that community at a lower value than comparable real estate in communities predominantly composed of non-minority residents.
Failure to provide financing in certain communities is called redlining.
Student: What is redlining?
Redlining is specifically targeted for correction by the law since it adversely affects the health, welfare, and safety of California residents.
Lenders who deny mortgage applications based on the characteristics of the community discourages homeownership in that community.
In effect, redlining leads to a decline in the quality and quantity of housing in areas where financing is generally unavailable.
Lenders are required to post in a conspicuous public location at their place of business a written notice informing applicants for mortgages to be secured by an owner-occupied, one-to-four-unit residential property of:
- their right to file a lending discrimination claim; and
- the name and address of the Secretary of the California Business, Transportation and Housing Agency, who we’ll call the “Agency.”
Student: What should a mortgage applicant who claims they were discriminated against do?
A mortgage applicant may file a discrimination claim with the Agency against a state regulated lender if the applicant believes their mortgage application was denied due to:
- their race, color, religion, sex, marital status, national origin, ancestry or any of the other protected classifications described above; or
- trends, conditions, or characteristics of the community where the real estate is located.
A home mortgage applicant who believes they have been unfairly discriminated against by a state lending institution needs to exhaust the Agency administrative remedies before suing the lender for money losses.
Federally regulated banks and thrifts are not subject to state regulation and discipline.
Once the claim is received, the Agency will attempt to work with the lender to end any unlawful discriminatory lending practices.
