Ensuring Equal Treatment of Foreclosed Properties Across the Nation

In February 2022, Relman Colfax settled one of the largest fair housing cases in the nation’s history, securing a significant victory for communities of color that were hit hard by the foreclosure crisis. As a result of the $53 million settlement, tens of millions of dollars will be invested in homeownership promotion, neighborhood stabilization, access to credit, property rehabilitation, and residential development.

Background: Exacerbating the Harms of the Foreclosure Crisis

The firm represented the National Fair Housing Alliance and 20 fair housing organizations throughout the country in a case against the Federal National Mortgage Association, commonly known as “Fannie Mae.”

The complaint alleged that, in the wake of the 2008 foreclosure crisis, Fannie Mae maintained and marketed its foreclosed homes well in predominantly white neighborhoods, selling them to owner-occupants and preserving neighborhoods, while allowing homes in communities of color to fall into disrepair, leading to prolonged vacancy, sales to out-of-town investors, and neighborhood destabilization. In 2011, Plaintiffs launched a comprehensive investigation into Fannie Mae’s practices.

Plaintiffs’ four-year investigation spanned 39 metropolitan areas and included inspections of more than 2,300 Fannie Mae-owned homes. The investigation documented how Fannie Mae’s differential treatment exacerbated the damage caused by the mortgage crisis and impeded recovery from the crisis in neighborhoods of color. A pre-suit regression analysis confirmed that the disparities in Fannie Mae’s maintenance of foreclosed home were attributable to neighborhood racial composition, not to non-racial factors, and that race played a statistically significant role in the differential treatment.

Key Case Developments

Early Litigation Victories

Litigation began in December 2016, alongside co-counsel at the National Fair Housing Alliance; Dane Law, LLC; and Fair Housing Advocates of Northern California. The firm and its partners won pivotal victories early in the case: U.S. District Court Judge Jeffrey S. White denied both of Fannie Mae’s motions to dismiss and allowed Plaintiffs’ disparate treatment and disparate impact claims to proceed to discovery. In so doing, the judge applied the Fair Housing Act to the maintenance and marketing of foreclosed homes, known as “Real Estate Owned” or “REO” properties, for the first time.

Plaintiffs Substantiate Their Claims in Discovery

The Parties pivoted to discovery December 2019. Plaintiffs quickly produced significant evidence of the differential treatment, including more than 49,000 photographs from their inspection of Fannie Mae’s foreclosed homes. Plaintiffs also produced their inspection data, which used Fannie Mae’s own rubric to quantify whether a home was properly maintained and marketed. According to Plaintiffs’ findings, homes in communities of color had many more maintenance and marketing deficiencies than those in predominantly white neighborhoods. Similarly, Plaintiffs’ preliminary analysis of the data produced by Fannie Mae supported Plaintiffs’ findings.

The Parties Resolve Plaintiffs’ Claims

On February 7, 2022, the Parties reached a $53 million settlement to resolve Plaintiffs’ claims. The historic agreement provides for $35 million to promote homeownership, neighborhood stabilization, access to credit, property rehabilitation, and residential development in the 39 metropolitan areas at issue in the case. The Plaintiffs will manage and disburse the settlement funds, providing much-needed grants to stabilize communities and expand home-ownership possibilities for affected families, including down-payment assistance for first-generation homebuyers, remediation necessary to make homes accessible, and renovations for homes that languished in foreclosure. The grants will also include innovative programs and partnerships to promote fair housing in the affected cities, such as public art projects, community gardens, and youth programming. Plaintiffs will work closely with local partners to achieve maximum impact for the settlement funds.

In addition, Fannie Mae has implemented practices that will help prevent harmful treatment of communities of color in the future, including increasing its oversight of property maintenance, prioritizing owner-occupants rather than investors as purchasers of REOs, and ensuring that it complies with fair housing laws by providing fair housing training to its employees and vendors.

Impact: Stabilizing Communities of Color and Ensuring Accountability

As New York Times reporter Matthew Goldstein said “[t]he financial crisis was more than a decade ago but it still reverberates.” This settlement will address some of the reverberations by providing direct and meaningful relief to the neighborhoods of color that were decimated. The investment of more than $35 million dollars will translate into tangible results for individuals and families—safe homes in stable neighborhoods.

With similar cases pending against private lenders like Bank of America and Deutsche Bank, this settlement has significant meaning. As the National Association of Realtors said, “Fannie Mae coming to the table and agreeing to pay this restitution sends a clear message that the maintenance and marketing of foreclosed homes must be done fairly in all areas.” The Department of Housing and Urban Development also applauded the agreement and shared its hope that “mortgage lenders across the country will take steps to avoid fair housing violations in their own REO portfolios.”

The Case Team

The Relman Colfax litigation team includes Reed Colfax, Jennifer Klar, Yiyang Wu, Rebecca Livengood, Lila Miller, Soohyun Choi, Gemma Donofrio, and Ted Olds, with paralegal assistance from Alicia Menendez-Brennan, Reed Canaan, Joëlle Simeu, Ella O’Leary, Margaret Moran, and Mariana Boully Perez. Our co-counsel include Stephen Dane of Dane Law LLC; Morgan Williams, NFHA’s General Counsel; and Julia Howard-Gibbon, Supervising Attorney of Fair Housing Advocates of Northern California.