Report: Maintenance of Bank-Owned Properties Violates Fair Housing Standards

Four fair housing organizations discovered severe racial disparities in how lenders secure and maintain foreclosed properties, according to a report released by the National Fair Housing Alliance (NFHA).

A year-long investigation conducted by NFHA and three of its members revealed evidence demonstrating that the upkeep of bank-owned properties or real estate owned (REO) properties significantly varied depending on the racial composition of the neighborhood.

“Here Comes the Bank, There Goes Our Neighborhood:  How Lenders Discriminate in the Treatment of Foreclosed Homes,” was released on the 43rd anniversary of the Fair Housing Act (FHA). The FHA prohibits any type of discrimination based on race, color, national origin, sex, disability or familial status in regards to housing and housing-related activities, which includes the maintenance, marketing and selling of homes.

Three out of the four metropolitan areas researched had evidence that race played a factor in banks’ maintenance of the REO properties. The majority of the REO properties in African-American and Latino neighborhoods was poorly maintained and failed the maintenance evaluation. REO properties in predominately White neighborhoods were found more likely to have well-maintained lawns, secured entrances, and professional sales marketing.

“By failing to maintain properties in African-American neighborhoods in the same way that they maintain similar properties in White neighborhoods, banks are undervaluing properties and helping to stall economic recovery in our nation’s neighborhoods of color,” said National Fair Housing Alliance President and CEO Shanna L. Smith. “Banks that own foreclosed homes have a fiduciary duty to their investors to secure a fair price for the homes, and they have an obligation to neighborhoods and communities to maintain those homes.  Following best practices will help stabilize property values, encourage community reinvestment and increase the local tax base at a crucial time in our economic recovery.”      

The foreclosure crisis has wreaked havoc on communities around the country, especially among low-income and minority homeowners who are bearing a disproportionate share of the burden. A 2008 report by United for a Fair Economy found that Black and Latino families lost between $164 billion and $213 billion as a result of foreclosures.  The Center for Responsible Lending found that between 2009 and 2012, African-American and Latino communities will lose $194 billion and $177 billion, respectively, as a result of depreciated property values alone.

The report issued by the NFHA was the first to frame the bank maintenance practices of REO properties as a civil rights issue. NFHA recommends that banks establish procedures to maintain, market, and sell all properties in line with the fair housing standards and encouraged local municipalities and residents to remain conscious of the condition in which REO properties are kept.