Horne v. Harbour Portfolio
304 F. Supp. 3d 1332 (2018)
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Rule of Law:
A plaintiff states a plausible claim for reverse redlining under the Fair Housing Act by alleging that a lender's practices were predatory and that the lender either intentionally targeted a protected class or its practices had a racially disparate impact. When alleging intentional targeting, a plaintiff does not need to show that the lender offered more favorable terms to individuals outside the protected class.
Facts:
- Harbour Portfolio VI, LP and Harbour Portfolio VII, LP (the 'Harbour Defendants') purchased foreclosed homes, primarily from Fannie Mae's portfolio, that were often in poor or uninhabitable condition.
- The Harbour Defendants made no repairs to the properties before selling them to the Plaintiffs, who are African-American.
- The homes were sold using 'contract for deed' (CFD) agreements with sale prices marked up to four or five times the Harbour Defendants' purchase price.
- The CFDs carried high interest rates of 9.9% or 10% and placed the burden of all repairs, maintenance, property taxes, and insurance on the buyer.
- Each CFD contained a forfeiture clause allowing the Harbour Defendants, upon buyer default, to cancel the contract, retain all payments made, and evict the buyer.
- The Harbour Defendants purchased homes almost exclusively in majority African-American communities.
- The Harbour Defendants' marketing consisted of placing signs in front of the properties and word-of-mouth, which Plaintiffs alleged was designed to reach the primarily African-American residents of those neighborhoods.
Procedural Posture:
- Plaintiffs, a group of homebuyers, filed a lawsuit against the Harbour Defendants and National Asset Advisors, LLC in the U.S. District Court for the Northern District of Georgia.
- The Harbour Defendants filed a Motion to Dismiss all claims against them.
- Defendant National Asset Advisors, LLC filed a Partial Motion to Dismiss certain claims.
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Issue:
Does a complaint state a plausible claim for reverse redlining under the Fair Housing Act and Equal Credit Opportunity Act by alleging that a lender sold homes with predatory 'contract for deed' financing terms and intentionally targeted African-American buyers by concentrating its business and advertising in predominantly African-American neighborhoods?
Opinions:
Majority - Story, J.
Yes. A complaint states a plausible claim for reverse redlining under the Fair Housing Act (FHA) and Equal Credit Opportunity Act (ECOA) by alleging predatory lending terms combined with either intentional targeting or disparate impact based on race. Plaintiffs plausibly alleged predatory practices through claims of exorbitant interest rates, forfeiture clauses, and frequent property seizures upon default. They sufficiently alleged intentional targeting by showing the Harbour Defendants concentrated their business in predominantly African-American census tracts and used marketing methods (yard signs and word-of-mouth) designed to reach the residents of those communities. Citing precedent, the court held that in a reverse redlining case based on intentional targeting, a plaintiff does not need to show that the lender offered more favorable terms to non-minority individuals. The complaint also sufficiently alleged a disparate impact claim by identifying facially neutral policies—purchasing homes only from Fannie Mae and advertising only via local signs—and providing statistics showing these policies disproportionately impacted African-American homebuyers.
Analysis:
This decision clarifies the pleading standards for reverse redlining claims, particularly in the wake of the Supreme Court's decision in Inclusive Communities. It affirms that intentional targeting can be plausibly alleged through evidence of geographically focused business operations and marketing, without needing to plead that non-minority groups received better treatment. The court's application of the 'continuing violation doctrine' to a pattern of predatory lending also provides a significant tool for plaintiffs to overcome statute of limitations defenses in cases involving long-term discriminatory schemes. This ruling lowers the initial barrier for plaintiffs in such cases, allowing them to proceed to discovery on the merits of their discrimination claims.
