Local Governments and the Fair Housing Act

May 29, 2017

The mortgage crisis of 2008 devastated not only families but also many cities as foreclosures emptied entire neighborhoods of homeowners. Earlier this month, the Supreme Court handed something of a victory to local governments that want to fight back against the banks they see as being responsible for this blight in their communities. The cities of Miami, Los Angeles, and Philadelphia as well as Cook County here in Illinois have sued large mortgage lenders. These lawsuits all claim that racially discriminatory lending practices led to higher foreclosures rates, lower property values, and lower real-estate taxes. Also, the local governments say the concentration of foreclosures in some neighborhoods have driven up costs because of an increased need for police, fire, and building and safety services.

At the heart of these lawsuits is the Fair Housing Act, which prohibits racially discriminatory practices in the housing industry, including mortgage lending. When violations occur, the Fair Housing Act allows any “aggrieved person” to sue. The mortgage lenders defended by saying that although Miami may be an “aggrieved person” in a literal sense, the city was not within the zone of interests protected by the statute. Everyone agrees the sort of monetary losses the city claimed are the type of a concrete injury required to bring a federal lawsuit. The question was whether the Fair Housing Act required something more. The Supreme Court decided the financial losses the city of Miami had claimed were enough. But, the decision was only something of a victory for the local governments. A second issue in the case was causation and on that issue, the Supreme Court was decidedly less friendly to the city’s claim.

Causation is an elastic concept. Every first-year law student reads the real-world case of the train passenger who was running late. As he leapt onto the train, a conductor shoved him from behind. The push dislodged the passenger’s package, which fell to the ground. The package had fireworks that went off, hitting a piece of heavy machinery across the platform that then fell on a woman waiting for a train. The passenger’s lateness, the conductor’s shove, and even the woman’s decision to get out of bed that morning are all causes of the accident. Without each of these events, the accident would not have occurred. But, no legal system imposes liability on everyone in a causal chain. Someone must exercise judgment about when the links are close enough that justice would be served by imposing legal liability. This is what judges and juries are for, and the Supreme Court was asked to draw that line for Fair Housing Act cases.

The Court said violations of the Fair Housing Act may “cause ripples of harm” far beyond the initial misconduct but that Congress did not intend “to provide a remedy wherever those ripples travel.” The Court said the harm must have a “direct relation” to the claimed violations of the statute and generally Fair Housing Act liability would not usually go beyond the “first link” in the causal chain. But, the Supreme Court said the lower courts should decide whether Miami’s claims met its new causation test. Thus, the Supreme Court’s decision left open the door for local governments to sue under the Fair Housing Act but only partly. Local governments can still get into the federal courts but will face a steeper hurdle to show a causal link between their damages and violations of the Fair Housing Act. The result may be more litigation in the lower federal courts where municipalities and the large mortgage lenders can try to iron out the lingering problems from the mortgage crisis, which may have been the Court’s practical goal in its decision.