A bill to amend Illinois’ appraiser and real estate licensing acts to address discrimination. With increased public attention on the issue, complaints alleging unlawful discrimination are emerging in the courts and before regulators in relation to appraisals.
In Illinois, a bill (HB 5862) has been introduced to amend the Illinois Real Estate Appraiser Licensing Act and the Real Estate License Act to expressly prohibit discrimination in appraisals, broker price opinions (BPOs) and comparative market analyses (CMAs) for residential real estate. The bill would amend each licensing act to state that an appraiser or real estate licensee engages in prohibited discrimination “when he or she considers the actual or perceived race, color, religion, or national origin of the owner of the real estate or the residents of the geographic area in which the real estate is located when determining the market value of the real estate.”
Significantly, HB 5862 would also amend both acts to provide for “a private right of action in the circuit court” – meaning that aggrieved parties could bring civil claims for damages against appraisers and real estate licensees for alleged violations of the discrimination prohibitions. Violations would also subject appraisers and real estate licensees to potential professional discipline. Because this bill comes very late in the current Illinois legislative assembly (with just a few days available), it may stand a small chance at passing now; however, it’s anticipated that similar legislation will be re-introduced in the next assembly and likely also in other states.
The federal Fair Housing Act.
Even without such specific anti-discrimination provisions in Illinois’ current licensing laws or in other states’ similar licensing laws, it’s important for appraisers and agents/brokers to know that discriminatory practices are already illegal, of course, under a number of existing state and federal laws. In particular, the federal Fair Housing Act makes it “unlawful for any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.” 42 U.S.C. § 3605(a).
The Fair Housing Act (“FHA”) defines the term “residential real estate-related transaction” to include “the selling, brokering, or appraising of residential real property.” 42 U.S.C. § 3605(b)(2). In the past, both appraisers and agents/brokers have been sued for alleged violations of the FHA’s prohibitions.
Violation of the FHA does not require intentional discrimination.
It’s also very important for appraisers and other parties to know that violation of and liability under the Fair Housing Act – and potentially the proposed prohibition in the Illinois licensing acts – do not require intentional discrimination. The U.S. Supreme Court confirmed in 2015 that the FHA can be violated without establishing that a defendant intended to or was motivated to discriminate based on one of the protected categories. (Tex. Dep’t of Hous. & Cmty. Affairs v. Inclusive Cmtys. Project, Inc., 135 S. Ct. 2507 (2015).) Thus, while the FHA clearly prohibits intentional discrimination, it also prohibits practices, policies and methodologies (potentially, appraisal practices and methodologies) that have been adopted without discriminatory intent when they have a disparate impact on members of protected categories (unless justified by legitimate rationale). The Supreme Court recognized in its decision that disparate-impact liability is consistent with the FHA’s “central purpose” of eradicating discriminatory practices in the housing sector. It further stated that permitting disparate-impact claims enables plaintiffs to counteract “unconscious prejudices and disguised animus.”
To prove disparate-impact discrimination claims, plaintiffs generally rely on statistical evidence to show that the challenged practice, policy or methodology negatively affects members of a protected group disproportionately.
New discrimination legal actions are beginning to emerge in relation to appraisals.
Coinciding with recent public and media attention regarding allegations of discrimination in property valuations, legal actions alleging unlawful discrimination in appraising have begun to emerge in small numbers in the courts, and complaints have been filed with appraiser licensing agencies as well. This is not just an issue in regard to single-family homes and residential appraisers. For example, in a civil lawsuit filed earlier this year, appraisers valuing a hotel that had been converted to temporary homeless housing in an East Coast city were alleged by the property’s owner to have violated non-federal anti-discrimination prohibitions similar to those in the Fair Housing Act, when the appraisers allegedly took into account certain protected categories (familial status, age and origin) of the residents in their valuation analysis. One of the alleged discriminatory practices was that the appraisers purportedly had reasoned in their valuation that the children of single mothers housed in the hotel/shelter would cause physical damage to the rooms and common areas, thereby decreasing the value of the hotel. A complaint to the state appraiser regulatory agency was also filed by the hotel owner.
With the increased public focus, cases such as this one — but more particularly cases filed directly by alleged victims of discrimination — are likely to become a more frequent occurrence in the future in relation to appraisal services.
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