3185860301_966ef0aeaf_zIn the closing days of its September term, the Illinois Supreme Court allowed a petition for leave to appeal in People ex rel. Madigan v. Wildermuth.  Wildermuth, a decision from Division Five of the First District, poses the following question: “Whether the State may claim a violation under the Illinois Human Rights Act pursuant to a reverse redlining theory where it did not allege that the defendant acted as a mortgage lender.”

Wildermuth began in late 2011 when the Attorney General filed suit, alleging that the defendants had engaged in acts and practices amounting to a pattern and practice of discrimination when they partnered to offer loan modification services to Illinois consumers. The Attorney General alleged that the defendants advertised on radio that they would help consumers save their homes and obtain significant reductions on their monthly mortgage payments within a short time frame. According to the Attorney General, the defendants’ services actually consisted primarily of filling out and submitting the paperwork to apply for a traditional affordable home loan modification program. The Attorney General alleged that the defendants failed to provide any of the disclosures required by the Illinois Mortgage Rescue Fraud Act or the federal Mortgage Assistance Relief Services Rule, as well as charging consumers nonrefundable fees ranging from $3000 to $5000, and that at times the defendants accepted such payments from consumers who defendants knew were not eligible for the affordable home loan modification program. The Attorney General also claimed that the defendants intentionally discriminated in the furnishing of facilities or services in connection with real estate transactions on the basis of race and national origin.

Defendants moved to dismiss the relevant count of the Attorney General’s complaint, arguing that the Act didn’t apply because the defendants were rendering legal services, not engaging in real estate transactions. The Attorney General responded that the defendants qualified as “real estate broker[s] or salesm[e]n” under Section 3-101(D) of the Act because they negotiated loan modifications and short sales on behalf of consumers. The Attorney General further argued that it was unnecessary to show disparate treatment because the Attorney General purportedly offered direct evidence of intentional targeting of minorities. The trial court denied the motion to dismiss, but agreed to certify the question set forth above.

The Appellate Court answered the certified question in the affirmative. The Court emphasized the broad definition of a “real estate transaction” under the Act, which includes “the sale, exchange, rental or lease of real property . . . also includes the brokering or appraising of residential real property and the making or purchasing of loans or providing other financial assistance for purchasing, constructing, improving, repairing or maintaining a dwelling.” Thus, it was unnecessary for a defendant to be a “mortgage lender” so long as the defendant allegedly provided “other financial assistance . . . for maintaining a dwelling.” The Court concluded that defendants allegedly “interfered with consumers’ ability to obtain a particular type of financial assistance – residential loan modifications – for maintaining their homes,” and that that conduct “may be construed as providing other financial assistance for maintaining a dwelling.” The court cited precedent relating to the comparable provisions of the federal Fair Housing Act in support of its broad construction of the state Act, including Eva v. Midwest National Mortgage Banc, Inc.

The Court then turned to the question of whether a theory of reverse redlining was viable without an allegation that the defendants acted as mortgage brokers. The Attorney General alleged reverse redlining – the intentional targeting of African Americans and Latinos – instead of pleading facts to show unlawful discrimination based on practices having a disparate impact. Defendants argued that the reverse redlining theory was unavailable where no new credit was being extended.

The Court rejected the defendants’ argument, concluding that reverse redlining encompassed all “predatory practices with respect to services related to real estate transactions . . . and directing those predatory practices against members of minority groups.”

We expect Wildermuth to be decided in six months.

Image courtesy of Flickr by Chris Griffith (no changes).