This is the second episode in our new video series covering Implicit Bias principles, and provides a sneak peek into the new course requirements that will apply to real estate agents and brokers with licenses expiring on or after January 1, 2023.

This episode analyzes federal safeguards which work to eliminate explicit and implicit discriminatory practices in real estate.

Unconscious, but still unlawful

Although not unheard of, real estate professionals rarely practice explicit discriminationExplicit discrimination occurs when, based on race or other protected classification, real estate professionals refuse to:

  • show properties;
  • provide property information;
  • give consultations; or
  • accept rental/purchase applications.

Alternatively, implicit discrimination occurs when a real estate professional performs actions that are not openly discriminatory but produce discriminatory results. For example, an agent may show minority buyers fewer listings than non-minority buyers.

Implicit discrimination also happens when agents steer minority buyers to neighborhoods consisting of the same protected class. Implicit discrimination may be unconscious, but it is still unlawful.

Even though it’s not always detectable, explicit and implicit discrimination keep protected classes out of their desired homes.

General protection under the federal Civil Rights Act

Regardless of race, all citizens of the United States have the right to purchase or rent real estate under the federal Civil Rights Act. [42 United States Code §1982]

Further, all individuals within the United States are given the same rights to make and enforce contracts, sue, be sued, enjoy the full benefits of the law and be subject to the same punishments, penalties, taxes and licenses, regardless of race or legal status. [42 USC §1981]

The federal Civil Rights Act applies to race discrimination on the sale or rental of all types of real estate, both residential and commercial. Racially motivated activities in any real estate sales or leasing transaction are prohibited.

Federal protection against racial discrimination given under the Civil Rights Act is the broadest of protections which apply to types of discrimination prohibited in all activities between individuals present in the country.

Greater protection under the Federal Fair Housing Act (FFHA)

While the federal Civil Rights Act provides general protection against all prohibited discriminatory activity, the  Federal Fair Housing Act (FFHA) protections are specifically limited to dwellings, including rental housing. [42 USC §§3601 et seq.]

A dwelling includes any building or structure that is occupied, or designed to be occupied, as a residence by one or more families. A dwelling also includes vacant land offered for lease for residential dwelling purposes, such as a lot or space made available to hold a mobilehome unit. [42 USC §3602(b)]

The FFHA prohibits discrimination in the following situations:

  • the sale, rental or advertisement of a residence;
  • offering and performing broker services;
  • making loans to buy, build, repair or improve a residence;
  • the purchase of real estate loans; or
  • appraising real estate. [42 USC §3602]

The FFHA bars the use of any discriminatory actions a seller, landlord or property manager might take against a prospective buyer or tenant based on an individual’s:

  • race or color;
  • national origin;
  • religion;
  • sex;
  • family status; or
  • [42 USC §3602]

Family status refers to whether a household includes individuals under the age of 18 in the legal custody of a parent or legally designated guardian. [42 USC §3602(k)]

Handicapped persons are individuals who have:

  • a physical or mental impairment which substantially limits the individual’s life activities; or
  • a record of, or are regarded as having, a physical or mental impairment. [42 USC §3602(h)]

Any individual who claims they have been injured by a prohibited discriminatory housing practice under the FFHA or believes they will be injured by such a practice is considered an aggrieved individual. [42 USC §3602(i)]

An aggrieved individual may file a complaint with the Secretary of Housing and Urban Development (HUD), within one year of the alleged discriminatory housing practice. HUD then attempts to resolve the dispute by having the parties enter into informal negotiations, called mediation. [42 USC §3610(a)]

If mediation is not successful, a judicial action may be initiated by HUD as a complaint to resolve the issue of discrimination. The dispute will then be resolved by an administrative law judge.

Any party to the complaint may elect to have the claims decided in a civil action before a court of law in lieu of using an administrative law judge. [42 USC §3612(a)]

When a real estate broker subjected to a judicial action is found guilty of discriminatory housing practices, HUD is to notify the California Department of Real Estate (DRE) and recommend disciplinary action. [42 USC §3612(g)(5)]

When a court determines discriminatory housing practices have taken place, actual and punitive amounts of money awards may be granted. Also, an order may be issued preventing the landlord or broker from engaging in any future discriminatory housing practice. [42 USC §3613(c)(1)]

Exemptions from FFHA discrimination prohibitions

There are exemptions to the FFHA prohibitions. A landlord who rents out a single family residence is exempt from FFHA discrimination prohibitions if they:

  • own three or fewer single family residences (SFRs);
  • do not use a real estate licensee to negotiate or handle the tenancy; and
  • do not use a publication, posting or mailing for any discriminatory advertisement. [42 USC §3603(b)(1)]

Thus, the FFHA prohibitions apply to all notices, statements and advertisements promoting rentals by anyone in the business of renting dwellings. [42 USC §3603]

A person is in the business of renting (or selling) dwellings if the person:

  • has participated within the past 12 months as a principal in three or more transactions involving the sale or rental of any dwelling or interest in a dwelling;
  • has participated within the past 12 months as an agent, negotiating two or more transactions involving the sale or rental of any dwelling or interest in a dwelling, excluding the agent’s personal residence; or
  • is the owner of a dwelling structure intended to be occupied by five or more families. [42 USC §3603(c)]

If a broker is the agent for any of the participants in a sale or rental transaction, the FFHA anti- discrimination rules apply.

However, attorneys, escrow agents, title companies and professionals other than brokers who are employed by a landlord to complete a transaction do not bring the transaction under the FFHA, unless they participate in negotiations with the buyer or tenant. [42 USC §3603(b)(1)(B)]

Also exempt from FFHA discrimination rules is the sale or rental of a residence in a one-to-four unit residential rental property which is occupied in part by the owner. [42 USC §3603(b)(2)]

Religious organizations who limit the sale, rental or occupancy of dwellings to individuals of the same religion are also exempt, provided the dwelling is owned for noncommercial reasons. No religious exemption exists if the religion is restricted to individuals of a particular race, color or national origin. [42 USC §3607(a)]

Private clubs which provide their members with residential dwelling space for noncommercial purposes may limit rental or occupancy of the dwellings to members.

Further, housing qualified for older citizens which excludes children is not considered prohibited discrimination against buyers or tenants with children based on familial status. However, for housing to exclude children it needs to first qualify as housing for the elderly. [42 USC §3607(b)]

A provision in a written instrument which refers to qualified senior citizen housing is enforceable as allowable age discrimination.

A senior citizen housing project is housing:

  • intended for and solely occupied by persons 62 years of age or older; or
  • intended and operated for occupancy by persons of 55 years of age or older. [42 United States Code §3607(b)]

Federal fair lending laws

In the context of lending and mortgage practices, the federal Equal Credit Opportunity Act prohibits discrimination in lending based on race, color, religion, national origin, sex, marital status or age (provided an individual is of legal age).

The anti-discrimination rules apply to institutional lenders, mortgage brokers, and others who make or arrange mortgages. [15 USC §1691a(e)]

Discriminatory practices take many forms, including:

  • treating minority mortgage applicants less favorably than non-minority applicants;
  • placing additional burdens on minority applicants;
  • requiring a spouse’s signature on a mortgage application when an applicant qualifies for a mortgage individually [Anderson United Finance Company (1982) 666 F2d 1274];
  • discouraging mortgage applicants based on their race, color, sex, etc. [12 Code of Federal Regulations §1002.5(b)]; and
  • making inquiries into the marital status of mortgage applicants. [12 CFR §1002.5(d)]

The lender may not make any inquiries into whether an applicant’s income is derived from alimony or child support. The lender may not inquire whether the applicant intends to bear children. [12 CFR §1002.5(d)]

Further, to deny a mortgage based on an applicant’s receipt of income from a public assistance program, such as welfare or social security, is unlawful discrimination. [15 USC §1691(a)(2)]

However, discrimination is rarely practiced overtly – it is practiced implicitly. Most lenders are not transparent enough for the consumer to see the discrimination. Most often, discrimination takes the form of a lender denying a mortgage to a minority borrower without a valid reason, or applying different standards to minority and non-minority borrowers.

Lenders need to be careful not to provide more assistance to non-minority borrowers than to minority borrowers when preparing applications and working out problems which arise.

The different treatment of minority and non-minority applicants is a form of unlawful implicit discrimination.

Editor’s note – firsttuesday was one of the first schools to submit the new education to the California Department of Real Estate (DRE) in April 2022.

The new education has been “pre-approved” by the DRE as of July 2022, though schools are unable to formally enroll students until fall of 2022.

When the DRE advises firsttuesday we can release the new courses for completion, the new education will be posted to accounts of firsttuesday students who need the education prior to October 2022.

Rest assured – all this is at no additional cost for firsttuesday students.